Europe's wind and solar grid challenge

Europe's Renewable Energy Directive has not thought adequately about how member countries need to respond to successfully integrate increasing amounts of wind and solar power.


The lack of clear rules and targets for the integration of renewable power in the European Union risks slower adoption at higher cost.

The 2009 EU Renewable Energy Directive is responsible for driving rapid growth in the sector by setting each member state a mandatory target, below, for producing non-fossil-fuel energy.

Graph for Europe's wind and solar grid challenge

In the case of electricity, the directive also required priority grid access and integration of renewable power; however, these rules were neither quantified nor mandatory.

Additionally, in some cases they may backfire.

For example, when wind and solar are in surplus, guaranteeing them priority grid access may be unhelpful if it means undermining the economics of coal, gas and nuclear to the point that those conventional energy sources are no longer profitable.

Options for grid balancing include: building more transmission capacity and electricity storage; improving day-ahead wind and solar forecasting; involving renewables in grid balancing; more demand response; and subsidies to build new/operate existing fast-response gas-fired power.

At present, the evidence is that member states need at least further specific guidance to integrate renewables more cost-effectively.


A recent publication by Germany's Fraunhofer Institute illustrated the impact of rising solar and wind energy on power markets, in an analysis of German market data from January to July.

Variable renewable power accounts for nearly 20 per cent of power generation in Germany, putting it in fifth place among the EU's 28 member states, where Denmark leads with more than 40 per cent.

Impacts of more renewables include lower wholesale power prices and more volatile generation.

Power prices fall because renewables receive a subsidy per unit of generation and have zero fuel costs, and so can bid low prices for electricity in wholesale markets.

In addition, grid operators pay conventional power plants to shut down generation when wind and solar are in surplus, potentially leading to negative prices.

German base and peak day-ahead power prices are now at their lowest since 2004, in constant 2010 euros, the Fraunhofer Institute report showed (see chart below).

Graph for Europe's wind and solar grid challenge

The impact is hardest on gas and hard coal, as the most expensive marginal power producers, followed by nuclear and lignite: generators are allowed access to the grid on the basis of lowest marginal cost.

At German day-ahead prices below €25 per megawatt-hour, in January to July, gas-fired power had a utilisation ratio of 5-25 per cent, followed by hard coal (5-40 per cent), lignite (40-90 per cent) and nuclear (55-100 per cent), the report showed (see chart below).

Graph for Europe's wind and solar grid challenge

Utilisation ratio was defined as the proportion of available assets used in power generation.

Such ratios have made it more difficult for conventional generation to recover fixed capital costs, leading to the discussion of mechanisms to subsidise back-up gas-fired power.

Germany could integrate renewables better through a range of options, including building more transmission capacity, making more of its hydropower available for pumped storage, or increasing the scale of its demand response market.

Under the latter, the 2012 'Ordinance on Interruptible Load Agreements' requires grid operators to issue a call for tenders each month for up to 3000 MW of interruptible loads that can be called upon to balance the grid.


The Renewable Energy Directive makes it unclear how countries should integrate wind and solar, potentially storing up more problems as other countries boost capacity to meet their targets.

Its Article 16 describes how member states should ensure grid access.

Member States shall take the appropriate steps to develop transmission and distribution grid infrastructure, intelligent networks, storage facilities and the electricity system, in order to allow the secure operation of the electricity system as it accommodates the further development of electricity production from renewable energy sources, including interconnection between Member States and between Member States and third countries.

These are vague guidelines rather than targets.

The directive also seeks to guarantee priority access, but adds a condition that the ruling should not compromise 'secure operation', leaving judgement to member states.

And it says wind and solar power curtailment should be minimised, without setting or proposing guidelines.


It is unsurprising that EU countries have prioritised meeting mandatory targets for deploying wind and solar, over meeting non-mandatory, unspecific targets for the grid infrastructure and market rules needed to integrate them.

In its progress report on renewable energy, published in March, the executive European Commission said infrastructure investments were urgently needed.

"The current failure to modernise the grid as the energy mix is changing is causing problems for the development of the internal market, technical problems related to loop flows, grid stability and growing power curtailment, and investment bottlenecks resulting from delayed connection of new power producers.

"Adaptation of the electricity grid and system operation, including by improving storage capacity, better system controls and forecasting will improve the efficiency with which current infrastructure is used."

On a more specific note, a report by the consultancy Ecofys for the Commission specified 13 measures for grid integration and found that all member states had adopted some of these.

But underlining the variability in adoption, it found that only 10 out of 27 studied EU countries gave renewable power grid priority and/ or compensation for curtailment, and in just four countries were grid operators required to optimise renewable power grid integration.

Graph for Europe's wind and solar grid challenge

Source: EU Renewable Energy Progress and Biofuels Sustainability report.

This article was originally published by Reuters. Republished with permission.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles