Under a recent blog post here, numerous readers commented that green gas could be made from electricity when the price on the power exchange is low or even negative. Craig Morris says that is exactly what will happen – it’s just not “green gas.”
The very day that I posted my conclusion that power from excess renewable electricity would not be competitive anytime soon, Germany opened its largest power-to-gas (P2G) facility, which aims to run for at least 4,000 full-load hours a year (a capacity factor of nearly 50 percent). Clearly, Germany continues to pursue this power storage solution, and these facilities will largely be hooked up to the grid and purchase electricity when prices are low (or even negative) on the power exchange.
My readers are correct when they say this situation considerably changes the calculation. I would simply clarify what I meant in my previous post when I wrote, “This scenario is indeed more likely than (green) hydrogen for the interim”: we are not talking about storing merely excess renewable power here, but excess grid power – and that includes electricity from nuclear and fossil fuels.
We need to keep two things in mind. First, the price of any excess renewable power in Germany will essentially always be the average feed-in tariff until the policy is fundamentally changed. So if we pay an average of 10 cents for a kilowatt-hour of green electricity, that is also what the excess green power we store as gas will cost. The price on the exchange is completely irrelevant for feed-in tariffs.
Second, while low/negative prices on the exchange need to be taken as an incentive to consume/store electricity, a business model based on low exchange prices is not sustainable. Renewables are cutting into the profits of conventional power firms in Germany. Indeed, in mid-June rating agency Moody’s downgraded German energy giant RWE to Baa1, just two steps away from junk bonds. In comparison, the firm had an A3 rating in 2011 – the year of Fukushima.
Were P2G to be rolled out soon on a large scale, it might indeed kill several birds with one stone. If it were to increase demand at a time of low prices on the exchange, the result would be slightly higher prices – and slightly greater profitability for the conventional power sector (feed-in tariffs for renewables would remain completely unaffected). Dispatchable capacity would then not be in such financial straits, and the need for capacity payments would be greatly reduced.
P2G from electricity that costs only three cents per kilowatt-hour might even be competitive with the cost of power plants for peak demand. We will simply have to wait until Audi and Etogas reveal the expected price curve for their system.
Let’s just be clear about what we are talking about: not “green gas,” but gas from the German grid, which largely consists of fossil and nuclear power. And conventional energy providers, not providers of renewable power, would benefit from higher exchange prices. Furthermore, green gas from 100 percent renewable power is unlikely to be cost-competitive in the next decade.
The good news is that the process will probably work on a large scale and could indeed be competitive even from largely renewable power by the 2030s. Germany would then not have to wait until 2050 to have 80 percent renewable power.