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“Already there are cries that the auction will favour coal”
The FT’s damning indictment of Germany’s renewables-heavy energy policy this week couldn’t have come at a more opportune time. UK energy market prices have begun to climb as temperatures drop, and the inevitable backlash against the bills we pay as a result will no doubt follow. But in Germany, the heavy influence of subsidies on the market has steadily weighed down wholesale prices to half that of the UK market, while retail prices remain eye-wateringly high.
The forward price of power in the UK is around £51/MWh on the wholesale market, according to the Icis Power Index, while German year-ahead power has slumped to a three-month low of £26/MWh this week. German consumers nonetheless pay bills almost 50 per cent higher than the average European bill.
Germany’s Energiewende – or “energy transition” – reflects what happens when a government intervenes to prioritise policy over a functioning market. Out with nuclear, in with renewables – but as a consequence, German gas-fired power simply cannot compete and coal steps forward as one of the few investable options.
UK traders have long been taking note: after all, it won’t be long before the full brunt of the UK government’s interventions is felt. Already a capacity market auction is needed to ensure conventional capacity can survive alongside CfD-supported renewable. Already there are cries that the auction will favour coal. If the German example is anything to go by, UK consumers would do well to enjoy the £1,200 average dual fuel bill while it lasts.
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