"Europe’s electricity providers face an existential threat": the Economist.

“How to lose half a trillion euros”, the headline in the Economist reads. “On June 16th something very peculiar happened in Germany’s electricity market. The wholesale price of electricity fell to minus €100 per megawatt hour (MWh). That is, generating companies were having to pay the managers of the grid to take their electricity.” “It was a bright, breezy Sunday. Demand was low. Between 2pm and 3pm, solar and wind generators produced 28.9 gigawatts (GW) of power, more than half the total. The grid at that time could not cope with more than 45GW without becoming unstable. At the peak, total generation was over 51GW; so prices went negative to encourage cutbacks and protect the grid from overloading.
The trouble is that power plants using nuclear fuel or brown coal are designed to run full blast and cannot easily reduce production, whereas the extra energy from solar and wind power is free. So the burden of adjustment fell on gas-fired and hard-coal power plants, whose output plummeted to only about 10% of capacity.
These events were a microcosm of the changes affecting all places where renewable sources of energy are becoming more important—Europe as a whole and Germany in particular. To environmentalists these changes are a story of triumph. Renewable, low-carbon energy accounts for an ever-greater share of production. It is helping push wholesale electricity prices down, and could one day lead to big reductions in greenhouse-gas emissions. For established utilities, though, this is a disaster. Their gas plants are being shouldered aside by renewable-energy sources. They are losing money on electricity generation. They worry that the growth of solar and wind power is destabilising the grid, and may lead to blackouts or brownouts. And they point out that you cannot run a normal business, in which customers pay for services according to how much they consume, if prices go negative. In short, they argue, the growth of renewable energy is undermining established utilities and replacing them with something less reliable and much more expensive.
The decline of Europe’s utilities has certainly been startling. At their peak in 2008, the top 20 energy utilities were worth roughly €1 trillion ($1.3 trillion). Now they are worth less than half that (see chart 1). Since September 2008, utilities have been the worst-performing sector in the Morgan Stanley index of global share prices. In 2008 the top ten European utilities all had credit ratings of A or better. Now only five do.
The rot has gone furthest in Germany, where electricity from renewable sources has grown fastest. The country’s biggest utility, E.ON, has seen its share price fall by three-quarters from the peak and its income from conventional power generation (fossil fuels and nuclear) fall by more than a third since 2010. At the second-largest utility, RWE, recurrent net income has also fallen by a third since 2010. As the company’s chief financial officer laments, “Conventional power generation, quite frankly, as a business unit, is fighting for its economic survival.”
The companies would have been in trouble anyway, whatever happened to renewables. During the 2000s, European utilities overinvested in generating capacity from fossil fuels, boosting it by 16% in Europe as a whole and by more in some countries (up 91% in Spain, for example). The market for electricity did not grow by nearly that amount, even in good times; then the financial crisis hit demand. According to the International Energy Agency, total energy demand in Europe will decline by 2% between 2010 and 2015.
….So the gas and nuclear bits of the utilities’ business were heading for trouble even before the renewables bonanza, making the growth of solar and wind all the more disruptive. Renewables capacity (which is much higher than output) is almost half of electricity-generating capacity in Germany and roughly one-third in Spain and Italy. Total capacity, including renewables, is way above peak demand in all three countries. So renewables have added mightily to oversupply.
….Renewables have “grid priority”, meaning the grid must take their electricity first. This is a legal requirement, to encourage renewable energy in Europe. But it is also logical: since the marginal cost of wind and solar power is zero, grids would take their power first anyway. So renewable energy slots in at the bottom of the layer cake. But unlike the baseload providers already in place (nuclear and coal), solar and wind power are intermittent, surging with the weather. So the bottom layers of the cake are wavy, too.
….In Germany in 2008, according to the Fraunhofer Institute for Solar Energy Systems, peak-hour prices were €14 per MWh above baseload prices. In the first six months of 2013, the premium was €3. So not only have average electricity prices fallen by half since 2008, but the peak premium has also fallen by almost four-fifths. No wonder utilities are in such a mess.
It will get worse. The combination of European demand and Chinese investment has slashed the cost of solar panels by about two-thirds since 2006 (see chart 3). In Germany, the cost of generating a megawatt hour of electricity with solar panels has fallen to €150, above wholesale prices but below the fixed price that renewables receive and below residential prices. This means solar generation may rise even if Germany’s new government cuts subsidies to renewables. Their challenge to the old utilities will increase.
…..But by and large utilities have been slow to invest, especially in solar. Utilities own only 7% of renewables capacity in Germany, for example. The problem is that solar energy is so different from what they are used to. The old-fashioned utility has a big expensive power plant with, say, 1-1.5GW of capacity. The plant sits in the middle of a radiating web of wires down which the firm distributes power. Solar power is different. Photovoltaic panels are cheap, tiny (a medium-sized array may have a capacity of just 10MW) and arranged in a net, not as a hub with spokes.
….For the companies, wrenching change and plunging share prices are obviously worrying. But should anyone else care? As Amory Lovins of the Rocky Mountain Institute, an American think-tank, points out, Germany has built a low-carbon energy business to the point where new solar power needs few subsidies; where wholesale energy prices are falling and threats to the reliability of the grid have not materialised. What’s the problem?”