German electricity prices will rise in 2017/18 says energy expert

The current low levels of German electricity prices is a “temporary phenomenon,” said energy economist Claudia Kemfert from the German Institute for Economic Research (DIW) during a speech on Monday.

“Exchange prices will rise significantly in 2017, 2018,” Kemfert said in regard to Germany’s wholesale power prices.

The majority of German power forward contracts is being traded on the over-the-counter (OTC) market with 4,497TWh recorded by ICIS in 2013 ( see EDEM 15 January 2014 ).

In comparison, only 1,205TWh of Phelix power contracts, which include Germany and Austria combined, traded on the exchange last year. Nevertheless, an increase of the exchange prices would inevitably impact OTC levels.

Conventional capacity shut down

The predicted price rise was due to further shut downs of conventional generation capacity, planned and unplanned, Kemfert clarified at the sides of an industry conference in Essen where she gave the speech.

The years given by Kemfert coincide with the expected capacity crunch forecast by RWE ( see EDEM 4 February 2014 ).

“A capacity shortage will occur by 2018,” the German utility’s chief operating officer Rolf Schmitz said in January.

According to the German energy regulator, the country is due to see a net reduction in conventional power generation capacity between 2015 and 2018.

A total of 42 generation units with 11GW combined installed capacity have been announced for shut down, the vice president of the German energy regulator BNetzA Peter Franke said at the same event on Monday.

Nevertheless, due to net increases between now and 2015, the country’s net capacity growth would edge up by 957MW in the whole period from 2013 to 2018, according to the regulator.

Capacity crunch uncertain

However, the predicted reduction in conventional capacity does not seem to entice traders to price in a significant risk premium for German forward electricity contracts.

On 31 January, a German Calendar 2020 Baseload changed hands at €37.75/MWh, which put the product at a €1.35/MWh premium over the Cal ’15 Baseload on that day.

Andreas Mundt, president of the German antitrust commission Bundeskartellamt said that although more than 40 plants have been announced for shut downs ( see EDEM 19 November 2013 ; see EDEM 23 December 2013 ) these were mainly old plants which have already been paid off. His comments were also made during a speech at the same conference.

“It is really difficult to forecast how much these shut downs will [contribute] to rising prices and therefore incentivise investments in new plants.”

Mundt added that there could be a capacity shortage in 2020 but that Germany should wait before introducing a capacity market mechanism.

Instead, renewable power sources should be integrated into the market first, he added. Martin Degen