German renewables to eat into coal and gas power share

• Renewable share rises due to demand drop

• Coal and gas output to fall

• EU renewable targets may be in sight

LONDON (ICIS)–German renewable power output has surged as a percentage of the country’s power generation mix at the expense of coal and gas-fired power since demand has fallen due to the coronavirus spread across Europe.

Demand from the power sector fell in the country due to state measures implemented to slow the spread of the coronavirus, though to a lesser extent in Germany than in some of its neighbouring countries.

HIGH RENEWABLE OUTPUT

The lower seasonal demand but relatively strong renewable generation has allowed wind to generate one-third of German electricity in March, according to research institute Fraunhofer ISE.

The five-year average generation for March is closer to one-fifth. While wind generation fell by 3GW from March 2019, the average output across March 2020 was 19GW, which is more wind generation than any October, November and the second-highest March total on record.

Solar generation ramped up to account for one-tenth of the German power mix in the month, a higher share than in any other March.

In April to date, both solar and wind have generated a higher share of electricity year on year by approximately five percentage points.

ICIS analyst forecasts indicate that wind generation may dip below seasonal norm over the next 10 days, though over the Easter holiday period demand will be even lower which may see renewables increase their share in the mix even more.

Solar generation is likely to remain significantly high, averaging 8GW between 11 and 21 April, ICIS forecasts showed.

The high renewable share seen in March is likely to remain high in April and keep power prices under substantial pressure as a result.

DEMAND DROP

Germany has seen a lower demand impact due to the coronavirus spread relative to France, UK, Italy and Spain. Measures the country has taken have impacted industrial and commercial demand to a lesser extent.

That said, with demand lower by 3% since 9 March compared to the five-year monthly average, the impact on the generation mix has been significant.

In other countries that have been relatively more affected, the higher renewable share is likely to been even more significant.

COAL AND GAS HIT

The data underlined the extent to which renewables are able to eat into the share of coal and gas generation at times of unseasonably low demand that leads to weak power prices.

Coal and lignite generation fell substantially in March and in the first week of April. The two were respectively down to 6% and 14% as a share of the German mix compared with the 2015-2019 March average of 16% and 23% respectively.

While gas-fired generation increased to 11% in March, due in part to weak prices in an oversupplied European gas market, the outlook for April is one that may see gas plants struggle to remain profitable.

Recent ICIS analysis indicated that gas-for-power demand will likely shrink over the coming weeks as clean spark spreads for April, a measure of gas profit margins given carbon prices, expired drastically low.

More long-term ICIS analysis showed that gas-fired generation would bear the brunt of a sustained power demand slump brought on by coronavirus measures and a resulting slowdown.

2020 OUTLOOK

A longer-term demand drop this year would likely see a continuation of what has happened in March and April, with renewables maintaining their strong share of generation, not only in Germany, but across the continent as coal, gas and lignite plants struggle to maintain profitability amid weak prices.

The result may be that the EU achieves its 2020 target of 20% renewable share in final energy consumption. The bloc was two percentage points short in 2018.

A sustained period of low demand due to coronavirus measures and a likely period of economic slowdown would be significantly bearish for power markets.