Due to the ongoing war situation between Russia and Ukraine, there is no relief in sight on the energy market. Firstly, Europe is imposing new sanctions against Russia and looking for alternative suppliers for gas and coal. Secondly, the federal government has presented a new package of measures with support aid for energy-intensive companies. Thirdly, the results of the solar and biomass tenders were announced.
Moreover, both the short-term and futures markets were subject to strong price fluctuations. Last but not least, power generation in April 2022 was marked by sunny hours.
How Europe wants to become independent of Russian energy imports
At the end of April 2022, Russia announced that it would halt gas exports to Poland and Bulgaria because Moscow did not believe they had met their payment obligations as agreed. In addition, Russian President Vladimir Putin threatened other states with gas supply stops if the payments were not made in roubles. However, EU Commission President Ursula von der Leyen made it clear that this would mean a violation of EU sanctions. If EU sanctions are violated, participating companies face consequences. To circumvent these sanctions, all that is needed to pay for gas is to open an account with the Russian Gazprombank. This converts the euro or dollar into roubles (source: BBC).
Due to the ongoing geopolitical crisis, the EU member states have set up a purchasing platform for gas, LNG and hydrogen. The aim is to become less dependent on Russian energy imports and to react against the strong price fluctuations of natural gas.
In addition, Europe stops Russian coal imports as of 10 August. Thus, new potential suppliers are the USA, South Africa, Colombia or Australia. Meanwhile, Russia is looking for buyers for its energy exports. Despite the war, Russia’s fossil fuel sales have risen to 63 billion euros since the outbreak. One reason for this is the continued deliveries via pipelines to Europe in combination with the price increase of gas (source: Montel).
Figure 1 shows the course of the gas price over the last 5 years. It gets clear, that the strong price increase started with the beginning of the war.
Figure 1: Development of the gas price from May 2017 to May 2022 (source: Energy Brainpool, 2022)
The top priority is to ensure the security of energy supply. For more information on the impact of a Russian natural gas supply freeze to Germany and Europe, read the following blog post: “Natural gas & co.: Will the next winter be cold?“
Bundle of measures for energy-intensive companies
On 8 April, Finance Minister Christian Lindner (FDP) and Economics Minister Robert Habeck (Greens) announced a package of measures. With this, the federal government wants to support companies that have suffered financial losses due to high energy prices as a result of the Russia-Ukraine war.
The package includes state aid for companies in Germany. Among other things, a KfW loan programme is planned. If they are proven to be affected, companies of all sizes and from all sectors will be given access to more favourable loans. This includes reduced interest rates in order to secure liquidity in the short term.
Moreover, there are other guarantee and grant programmes. For instance, energy-intensive companies facing high additional costs due to increased natural gas and electricity prices can receive a direct grant. In this case, part of the price difference of the electricity and gas costs paid in 2022 compared to the costs incurred in 2021 is subsidised on a pro rata basis. Particularly affected companies receive a higher percentage share and thus higher subsidies (source: Federal Ministry of Finance).
Tenders for solar plants for the first time not drastically oversubscribed
At the beginning of March, tenders for solar plants of the first segment took place. Thus, ground-mounted systems and solar systems on buildings larger than 750 kW could participate.
A total of 209 bids amounting to 1,116 MW were submitted. This means that the quantity tendered was only slightly oversubscribed, whereas in all previous auctions the difference between the quantity submitted and the quantity tendered was significantly higher. The main reason for this was that the volume tendered this year was twice as high as in the previous rounds. Figure 2 shows the development of the tendered volume and the submitted volume since 2015.
Figure 2: Development of the tender volume and the submitted volume for solar plants of the first segment from April 2015 to March 22 (source: Energy Brainpool, 2022)
A total of 201 bids with a total capacity of 1,084 MW were awarded. The award values determined in the bidding procedure range between 4.05 ct/kWh and 5.55 ct/kWh and the volume-weighted average award value is 5.19 ct/kWh.
Two more tenders for the segment are due on 1 June and 1 November 2022. The next round has a slightly higher tender volume of 1,126 MW. In contrast, the situation for the tender for biomass plants is different. Although almost 275 MW were put out to tender, only bids amounting to 81 MW were submitted. The surcharge values range between 12.18 ct/kWh and 18 ct/kWh and the volume-weighted average surcharge value was 15.75 ct/kWh (source: PV-Magazine).
Turbulent developments on the futures market and front year reaches new record price
The EU imposes an embargo on hard coal from Russia. Accordingly, all coal imports must be stopped as of 10 August. As a result, coal prices increased by 40 percent in the first half of the month. Nevertheless, imports remain constant at the moment, which has also stabilised the price again (source: Montel).
The gas price tends to move sideways. Whereas throughout the month the gas front year was subject to strong price fluctuations. Nevertheless, war concerns strongly influenced the course of futures market prices. The oil price softened with China’s strict corona lockdown as fears spread that energy consumption will be drastically reduced. Consequently, oil consumption will fall by 1.2 million bbl/day. The EUA benchmark contract followed the path of weak oil prices and it closed at around EUR 83/t EUA. Nevertheless, upward trends are visible (source: Montel).
At the end of the month, the news that Russia was cutting off gas supplies to Poland and Bulgaria caused strong price movements on the energy markets (source: energate-messenger). After the power front year had already cracked the 200 EUR mark this month, the commodity was driven to a new record high of 204 EUR/MWh with the coal and gas prices (source: Montel). The percentage price development of the commodities can be seen in Figure 3.
Figure 3: Percentage price development of the German power front year (candle sticks), CO2 allowances with delivery December 2022 (orange line), gas front year at the TTF (red line), coal front year (yellow line) and Brent oil front year (green line) from the beginning of April to the beginning of May (source: Montel, 2022)
Little wind but more sunshine
April started with a lot of wind. Over the rest of the month wind feed-in was below the seasonal norm. Output was sometimes less than one GW. Solar feed-in is growing seasonally and output was often above 30 GW. In summary, the average share of renewable energies in electricity generation in Germany was 54.5 percent in April. This is both above the annual average and five percentage points above the previous year’s figure (source: Energy-Charts). In addition, the net electricity generation volume from renewable energy sources was just under 21.59 TWh.
The temperature showed strong fluctuations throughout the month. At the beginning of the month it was below average and at the end of the month it was five degrees above normal. In addition, the largely dry April and the low precipitation in early summer could lead to delivery problems in coal transport or problems with river water cooling at plants (source: Montel).
Figure 4: Electricity generation and consumption in April 2022 in Germany (source: Energy-Charts, 2022)
Sources
1 Energy Brainpool
2 Energy Brainpool
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