Solar and wind advocates often point to the falling electricity prices in Germany as a sign that the Energiewende is working and intermittent renewables are not as expensive and impractical as critics claim. However, as this article will strive to demonstrate, quite the opposite is true. Falling electricity prices offer a good demonstration of how quickly the market discounts intermittent renewables as penetration increases, thereby further eroding the already poor competitiveness of these electricity sources.
As discussed previously, intermittent renewables enjoying priority dispatch regularly reduce demand for dispatchable generation, thereby reducing prices. This simple supply/demand mechanism creates a situation where owners of intermittent renewable generators are forced to sell the bulk of their product at times when prices are the lowest, thereby requiring subsidies even after grid parity is reached on a LCOE basis. In addition, the inevitable oversupply created by technology-forcing of intermittent renewables puts further downward pressure on prices.
Thanks to electricity data published by the Fraunhofer institute, this market theory can be validated using detailed data of electricity generation by intermittent renewables (wind and solar) and spot prices. The analysis will first focus on weekly data and then enhance this data through information gained from more detailed hourly data.