Renewables to impact market pricing

Advances in renewable resource technology pose a threat to the energy sector.

In some European countries that have heavily invested in wind or solar plants, energy prices have been “driven through the floor”, said Philipp Gerbert, Senior Partner & Managing Director at the Boston Consulting Group. In response, he said, the low costs mean energy providers face a situation where they “cannot get investments back.” Gerbert’s solution: change the structure of how energy is priced in the market.

“The honeymoon is over” for renewable resources, said Hans Schweickardt, the Chairman of Alpiq Holding in Switzerland. He argued that European government subsidies for new renewable technologies must end in order to save the energy industry from going bankrupt. Schweickardt said the technologies are well past their “infant stage” and no longer need protection from the fossil fuel industry. Energy providers that utilize renewable resources “must assume their own risks in a fair market.”

Manuel Baritaud, Senior Electricity Analyst at the International Energy Agency (IEA), believes the energy market needs a redesign. He said a market that reflects the new reality of Europe’s energy sector must be flexible enough to create a level playing field for all energies, have plans for pricing and capacity in times of scarce natural resources, and incorporate auctions in order to keep energy prices competitive. Baritaud said if energy prices continue to drop, a consequence will be that cash-strapped energy providers could abandon pre-existing environmental goals. “If we keep current [market] design, we won’t achieve the targets of decarbonization” by 2050, he said.

Consumers can help reshape the market, said the UK’s Colin Calder, CEO of PassivSystems, a provider of smart home technologies. He agreed that government policies and subsidies toward renewables have created a “false market” that will ultimately hurt the energy sector. If the government were to “go one step further and mandate that all new buildings have to be incorporated” into smart grids that run partially on renewable resources, then energy prices could be stabilized. This would allow set prices based upon times of energy consumption as well as environmental factors.

This news story is based on the session What Does It Take?, “Innovative market designs” at 2013 World Energy Congress.