German Renewable Power and Volatility

According to Montel, the German power market is experiencing increased volatility, after "solar capacity rose roughly 14GW in 2023, 85% more than year before" [Montel]. In this blog, we will describe the factors contributing to this volatility and how it will affect the market.

The shift to renewable energy is crucial in the battle against global warming. However, the unpredictability of wind and solar power production,  can create a mismatch between energy demand and supply, leading to increased price volatility. This is particularly during periods of high demand, such as in low temperatures, at same time as both wind and sunlight are less available. Conversely, during low-demand periods on sunny and windy days, prices decrease, leading to more incidents of negative prices.

A study by Tuomas Rintamäki from 2017 concluded that "wind power increases the daily price volatility in Germany".

The figure shows the rapidly growth of Wind and Solar power in Germany.

Together with being an environmental harm, traditional electricity production through gas and coal is expensive compared to the renewable sources [source]. Additionally, carbon prices are expected to increase from "40 Euro per ton of CO2 in 2021 to around 150 Euro by 2030", according to a study by Maximilian Konrad. This makes gas and coal-based electricity production also economically challenging.

Unlike traditional energy sources like gas and coal, wind and solar energy sources are challenging to store. This can create a mismatch between energy demand and supply, leading to increased volatility in power prices.


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