The veteran transmission system operator Paul-Frederik Bach has been observing the European retail electricity prices via his blog for the last six years. The trend in his observations is that the prices continue to rise even amid the switch to renewable energy. Wholesale electricity prices seem to go higher and higher even with the introduction of the Levelized cost of energy (LCOE) from renewable energy. The European Union witnessed an increase in the price of one megawatt-hour by 20 euros in three years. This value holds while the market share of renewables escalated by about 4% in the same period. Different factors are contributing to these paradoxical statistics.
First, renewable energy accounts for a small quantity in the general electricity produced in Europe. Next, introducing new solar and wind projects does not surpass the cost of generating clean energy in the existing renewable energy plants. Additionally, the renewable energy generated must exceed fossil fuels’ exploration in meeting the high electricity demand. Furthermore, renewable energy plays the most miniature role in electricity prices since its exploration and potential are not visible in high proportions.
Tom Edwards of Cornwall Insight explained that the price determinants in the energy sector are those utilities that supply the last bit of demanded electricity. Although renewable energy is minimizing the national grid’s pressure, renewable has not replaced the marginal costs of providing energy reaching the national grid. Edward explained that wind and solar power have a massive impact on the short-term energy market due to the low cost of generating it and the dynamic weather changes. These dynamic changes expose the market to vulnerable changes that affect energy facilities’ costs, altering electricity prices in the European market.
Even with governmental support, electricity’s marginal cost still stands with conventional energy sources rather than renewables. Bach thinks that the low cost of renewable energy evens out with its reliability, contradicting any efforts to make it cheaper in the market. He explained that this fundamental reason couples up with the idea that renewable energy would have to identify its transmission facilities before it can have a say in electricity prices. If the cost of renewables continues to downscale and generates their transmission lines, then the wholesale electricity prices will reduce. Additionally, strict fossil fuel consumption measures will put renewable energy in the limelight, activating its inclusion in the pricing indexes.
In conclusion, the new policies that allow the infusion of renewable energy into the national grid will promote its acceptance by the general public. This move will aid renewables to minimize the prices of electricity while reducing carbon emissions from the utilization of fossil fuels to generate electricity.