- Fluctuating green energy is putting strain on the European electricity grids, resulting in so-called “loop flows”
- Germany’s eastern neighbours complain of rising costs and less stability
- Electricity “valves” are being installed at the borders and a split of the Austrian-German market is likely
An “appropriately interconnected European energy grid” is high on the agenda of the Energy Union, the EU’s ambitious plan to make the continent’s energy system greener and more stable. But right now, things are moving in the opposite direction – particularly in and around Germany.
Germany’s energy transition is happening fast, with renewable electricity now providing around one third of the country’s overall consumption. But this poses challenges for power grids, and as a result, the shared energy price market between Germany and Austria looks likely to split by the end of the decade.
The main reason is a physical phenomenon of “technically unscheduled flows of electricity” – or loop flows. Germany’s eastern neighbours Poland and the Czech Republic have protested for years that excess power spilling over from the German grid is making their electricity systems more costly and, perhaps most importantly, less reliable and more prone to blackouts.
The issue is highly politicised and has brought Germany and Austria into conflict with eastern European EU states. Several expert sources declined to speak to Clean Energy Wire on the record due to ongoing – and sensitive – negotiations. Severin Fischer, an energy expert from the Swiss Center for Security Studies (CSS), said the debate is a very technical matter for regulatory experts, yet “has repercussions for a lot of hot topics, such as energy security and how to progress with the energy transition in both eastern Europe and Germany”.
So, what exactly is happening in central Europe’s electricity grid?
Loop flows are not a new discovery. Electricity takes the path of least resistance. Usually, most power flows predictably along a direct connection that follows trading patterns. For example, if a power station raises production to deliver electricity to a distant factory, power lines running directly between the two come under most strain. However, if there is congestion along this route and transport capacity is limited, electricity voltage and flows will start to rise in non-direct connections. Put simply, the electricity takes a detour around the blockage. Germany and Austria’s grids are overloaded so often that these detours are causing problems in neighbouring grids.
Fear of blackouts in eastern Europe
To a certain extent, loop flows are a common phenomenon, even in national grids. They contributed to the blackouts in north America in 2003. However, in central and eastern Europe the issue has become more pressing over recent years.
Around five years ago, Germany’s eastern neighbours began complaining that loop flows – mainly caused by rising green energy production in Germany - were straining their networks beyond acceptable levels. Czech Minister of Trade and Industry Jan Mládek said his country would have to “live with the Energiewende,” but that the resulting loop flows could lead to blackouts in the Czech Republic.
Then in early 2013, the grid operators for Poland, the Czech Republic, Hungary and Slovakia published a study warning of the “continuous occurrence of security threats” to their power systems. It also said loop flows were restricting the cross-border capacity available for power trading between the four countries and with western Europe. The study argued that a shortage of grid capacity in the German-Austrian internal market was causing the loop flows, putting both security of supply and a functioning electricity market at risk.
Electricity in the German-Austrian market is traded at a uniform price. At times of high wind power production in the north of Germany, the zone’s electricity price is pushed right down. As a result, power stations in southern Germany are being switched off, as their running costs mean they cannot turn a profit.
At the same time, demand picks up as domestic industrial consumers and importers from abroad take advantage of the cheap power. This means huge amounts of electricity should flow from north to south. But according to the German grid regulator, the Bundesnetzagentur (Federal Network Agency), the physical capacity of the grid is limited, both within Germany along the river Main which runs through Bavaria and Hesse, and at the German-Austrian border – though this is disputed by Austria. Connections between the German and Austrian grids can only carry 5.5 gigawatts (GW) and in exceptional circumstances up to 7 GW, but the Federal Network Agency has recorded trading of more than 10 GW at times, roughly equal to the capacity of 20 large coal power plants.
In their study, the four eastern European operators made a detailed case for the consequences: Large volumes of the traded electricity were pushed out of the German-Austrian zone because of congestion, taking detours abroad both to the west and east, and flowing back into the market further south, forming loops. They documented incidents in which half of the traded volume of electricity between Germany and Austria ended up flowing across the Polish-Czech border. This phenomenon, according to the study, put so much strain on the Polish and Czech grids that the breakdown of one major element – for example a large power plant – would have led to a major blackout, breaking the so-called “N-1 requirement” on several occasions.
In August 2015, Poland had to implement a limit on the electricity supply to industrial consumers - a so-called “brown out”. The main cause was a heat wave that reduced power production at fossil power plants. Some plants had to restrict their use of cooling water, because water temperatures in rivers were already high. But the Polish grid operator PSE argued that the situation had been exacerbated by the loop flow phenomenon, which blocked imports from neighbouring countries.
Poland puts pressure on Germany and Austria
Officials from eastern European countries say their complaints have fallen on deaf ears in Germany for quite a while. “It took some time before our concerns were heard,” said a source in the Polish government. “[Loop flows] pose a grave problem for our electricity grid.”
For a long time, the Germany’s Federal Network Agency insisted that the German-Austrian price zone would remain intact. It denies, however, that Germany has been oblivious to Poland’s concerns. “In recent years cross-border exchange of electricity between Germany and Austria has increased considerably,” said a spokesman for the agency. “The high level of exports has an effect on network stability not only in Germany but also in Poland and the Czech Republic,” he conceded, “because some of these exports flow through the Polish and Czech networks as the German network expansion has not yet been fully implemented.” The spokesman added that “loop flows can be a serious problem and we accept that there is a need for discussion with our neighbour.”
Poland in particular has stepped up the pressure over recent years. In December 2014, the Polish regulator URE asked the Agency for the Cooperation of Energy Regulators (ACER), an EU institution, to scrutinise the problem of loop flows and decide whether the Austrian-German price zone was in compliance with EU regulations.
On 23 September 2015, ACER published a technically detailed verdict with a very clear message: German-Austrian connections were “usually unable to accommodate all physical flows” from trading activities. Loop flows in the Central Eastern European (CEE) region had increased strongly, rising from just over 40 to around 55 terawatt hours from 2011 to 2014. Loop flows also occurred in other regions such as western and southern Europe, but on a smaller scale in relation to overall capacity of the grids and without much variation over the years.
ACER found that rising congestion led to both instability in the grids, and direct costs for eastern European economies. ACER estimated that at the Polish-Czech border alone, loop flows cost the two economies 25 million euros per year in lost electricity trade. At the German-Polish border, loop flows made the availability of grid capacity so unpredictable that trading had come to a complete halt.
ACER recommended reintroducing restrictions on the trade between Germany and Austria to bring it in line with capacity. In effect, this would bring an end to the common German-Austrian price zone introduced in 2002. But it would also prevent loops flows into neighbouring grids.
ACER’s verdict is non-binding. However, the German and Austrian grid regulators are supposed to present a solution to the problem by February 2016. Germany’s Federal Network Agency said in a statement that it “welcomed” ACER’s recommendation and would work on implementing a solution.
By now, Germany’s grid regulator seems to be firmly aiming at ending the common price zone with Austria. A spokesperson for the Federal Network Agency said it is in discussions with the relevant regulators and network operators in Poland, the Czech Republic and Austria “with the aim of introducing flow-based market coupling on the German-Austrian border.”
ACER expects the formal delivery of a statement on the issue by 23 January. At the earliest, the split could come into effect before the winter of 2018/19. In its calculations for grid stability measures, the German agency is already assuming the price zone will be split.
Austria, however, is vehemently against ending the uniform German-Austrian price zone. Austrian grid regulator E-Control has said it would like to keep the German-Austrian market fully intact and denies that there are severe transport shortages. Austria’s largest utility, Verbund, says a split could mean price hikes for Austrian consumers amounting to 300 million euros per year. It said it would oppose the split by all means possible.
E-Control recently announced that it had filed a formal complaint with ACER, as well a lawsuit against the preliminary verdict at the European Court of Justice. E-Control alleges that ACER’s verdict contained serious mistakes and went beyond the agency’s mandate.
However, loop flows are not the only reason why a market split could be attractive for Germany. It would cut the costs to Germany’s grid operators of balancing the domestic grid. If electricity is traded but cannot be delivered because of grid congestion, grid operators have to switch off power plants in the north of Germany that have already sold their power, and switch on power plants in the south of the country or Austria – or even other countries bordering Austria – to deliver the electricity. These “re-dispatch” costs – which are passed on to the consumer – amounted to 500 million euros in 2015 alone, according to estimates by east German grid operator 50Hertz.
Officially, the Polish government says it is pleased with developments on a European level. “The discussions are going into the right direction,” said the Polish government official. “When trade between Austria and Germany is brought in line with physical realities, there will at least be some relief.”
Who is at fault? Both sides have a point
However, Germany’s eastern neighbours are not relying on market zone corrections alone to solve the problem. “Phase shifters” are being installed at the four connections from Germany to Poland and the Czech Republic to act as border turnpikes. They can raise the electrical resistance of the power line, diverting electricity elsewhere - like a valve that controls unwanted flows. The first, on the Polish side, is scheduled to start operating before the end of 2015. All four will be completed by 2017, according to the plans. The cost, totalling in the triple digit millions, is shared between grid operators on either side of the border. “The phase shifters will allow trade to pick up again across these borders,” said a spokesman for 50Hertz.
So, overall, are East Europeans right to blame Germany and the Energiewende? Or are they blowing the problem out of proportion?
Swiss energy expert Fischer recently took part in an expert meeting in Warsaw where regulatory professionals from all the countries involved discussed the problem of loop flows. Fischer thinks that both sides have a point. “On the one hand, the problem truly was almost completely absent from the debate among German experts and essentially ignored by both regulatory and market experts.” On the other hand, the issue “is very politicised in Poland, where the energy system and the reliance on relatively inflexible coal power stations are a matter of national security and pride.”
Fischer thinks an ideal solution would have four key elements. First, physical realities should be accepted and incorporated into the market. Theoretically, that means rather than splitting southern Germany from Austria, the German market itself should split into two bidding zones to take the pressure of severely restricted capacity between the north and south of the country. “But this is politically very challenging, because it would lead to higher prices in south Germany and it would influence the internal organisation of the German electricity market,” Fischer admits.
Secondly, so-called flow-based allocation could help to revive the gridlocked electricity trade between Germany and its eastern neighbours. Rather than allocating capacity in advance, which is difficult because there is a high probability loop flows will reduce capacity to zero, trade capacity would be based on actual, physical flows at the current time.
Thirdly, investment in new capacity – be it fossil-fuelled or renewable – should take account of the grid situation. “Wind power in northern Germany may result in higher yields, but this is offset from a certain point onwards by the congestion it creates.”
Fourth, and perhaps most importantly, the realisation of planned expansion in German and Polish electricity grids – both internally and at the borders – is key. “Of course, grid capacity must be extended and everyone knows that. But it is a lengthy process and has to overcome substantial political opposition. The phase shifters that are being built will also help, as they already do on Germany’s western border, but they should not be a long-term solution.”
Most economic experts agree that building new power lines in Germany and across borders would be the best way to alleviate the problem. “For a functioning common [power] market we also need a robust electricity grid with more interconnectors and thus increased exchange capacity between the member states,” argues the DIW, the German Institute for Economic Research.
However, some experts argue that there are alternatives to grid extension. R. Andreas Kraemer, former director of the Ecologic Institute in Berlin wrote that “smart solutions in form of demand-side management and… building renewables close to the largest power consumers” would be the preferable alternative.
Nevertheless, grid extension is high on the political agenda in Germany. Yet there is little to show so far. One important connection between east and south Germany is scheduled for partial completion in early 2016. But the large grid connections from north to south are still in political doldrums, with no final agreement even on their route, and two new connections between the German and Austrian grids will not be completed until well after 2020, the Federal Network Agency reckons.
Jakob Schlandt is a freelance contributor to the Clean Energy Wire. He also writes for Europolitics and BIZZ energy today and his own blog http://phasenpruefer.info/.