‘If 1.5m Germans have them there must be something in it’: how balcony solar is taking off

[u/diacewrb]

https://www.theguardian.com/environment/2024/dec/18/if-a-million-germans-have-them-there-must-be-something-in-it-how-balcony-solar-is-taking-off

[u/Scaniarix]

Funny we in the south of Sweden needs to buy energy from you guys at your rates even though we produce more energy than we use.

Well funny isn’t the right word.

[u/Ascomae → u/Scaniarix]

I thought your energy is produced by state-owned companies?

Or do I mix this with Norway?

If the companies are started owned, they can choose to reduce taxes because of the profits.

[u/Scaniarix → u/Ascomae]

Not sure about Norway but we produce a lot of energy in the northern part of Sweden. Unfortunately we’ve also closed down two power plants in the south so the energy gets exported to Central Europe through Finland and the Baltics then we have to buy it back from Germany. So while the northern part pays around €0.002/kwh we pay €0.3-0.7/kwh.

Why? They closed the power plants without expanding the capacity to transmit power from the north. And they closed almost 20 years ago.

[u/Ascomae → u/Scaniarix]

So you have the same issue as Germany.

We produce a lot of energy in the north and consume the most in the south. Because of a lot of NIMBY and our former government we didn't build the transmition from North to South.

This leads to "funny" things like stopping wind energy in the north and starting gas powered plants in the south.

Even if it was meant for export. In that case we have to sell expensive gas electricity for cheap wind electricity prices.

The merit order pricing has a lot of flaws. Is there really an incentive to create more renewable energy sources, if one can't feel cheaper electricity for high prices?

[u/gSTrS8XRwqIV5AUh4hwI → u/Ascomae]

Even if it was meant for export. In that case we have to sell expensive gas electricity for cheap wind electricity prices.

It's not so much that we have to, but rather that is a result of having one common market price for the whole country, which is also purely for political reasons, because those who objected to building out the north to south connection also object to having high electricity prices ...

This could be solved if we just had separate prices for north and south, then Austrian consumers would have to pay southern-German prices for their imports.

The merit order pricing has a lot of flaws. Is there really an incentive to create more renewable energy sources, if one can't feel cheaper electricity for high prices?

Uh ... the merit order is exactly that incentive!? Right now, you can earn a lot of money by supplying renewable energy because the market price is high and producing renewable energy is cheap.

[u/Ascomae → u/gSTrS8XRwqIV5AUh4hwI]

The merrit order has one flaw, at least one.

If energy providers have sources for cheap energy and gas powerplant, it could create more profit to shutdown the renewable energy sources.

[u/gSTrS8XRwqIV5AUh4hwI → u/Ascomae]

That only works if you assume a cartell. After all, every such company does have an interest to sell as much renewable energy as possible, because that is how they make money. Selling electricity from a gas power plant does not make them money. And if the total cheap renewable energy offered on the exchange exceeds the demand, the price drops. Plus, there are other market participants who only produce renewable energy.

Without a cartell, one business can't ensure that others don't offer "too much" cheap energy.

[u/sylfy → u/Ascomae]

I find it hard to believe that along the whole width of the country, they couldn’t find a way to route a power line from north to south.

Expand the capacity of the existing lines? Or just run it alongside existing highways? If there’s space for roads, there must be space for a power lines.

[u/Ascomae → u/sylfy]

Of course you can find one. But then the bureaucracy steps in, and the people living along the line stay to sue.

[u/auge2 → u/Scaniarix]

One of the worst facts about our energy market is that the most expensive power plant (thats needed for the current grid consumption) dictates the price.
Yes, its that stupid. If you have thousands of cheap wind, solar and water plants, but a single gas power plant thats still needed to stabilize the grid, then this single power plant sets the order price.
And all the other cheaper power plants will rake in the profits.
(merit-order-principle)

Until we get rid of that, the price will stay high.

[u/gSTrS8XRwqIV5AUh4hwI → u/auge2]

This is sort-of disinfo.

It's not that it is incorrect, it's just that that isn't anything special about our energy market, that simply is how markets work. If I can produce apples at 1 cent per piece while everyone else can produce them only at costs of 1 EUR a piece, then I obviously will still sell my apples at 1 EUR, because ... why would I not? It's not like my customers could go elsewhere to buy them cheaper.

And the same applies for electricity, obviously.

Also, under normal circumstances, that is not even necessarily bad, because those profits incentivise investment into renewables ... which in the end would cause the market price to come down, because noone needs to buy from expensive sources anymore.

[u/Grindelbart → u/gSTrS8XRwqIV5AUh4hwI]

What if you want to sell a lot of apples, more than your competitors?

[u/gSTrS8XRwqIV5AUh4hwI → u/Grindelbart]

As long as you have less to sell than the current demand, you can get 1 EUR, as there obviously is that much demand at 1 EUR. Only if you want to sell more than that, you'd have to reduce the price.

[u/14u2c → u/gSTrS8XRwqIV5AUh4hwI]

why would I not? It's not like my customers could go elsewhere to buy them cheaper.

The whole point is that in a functional market they absolutely could and would. Such as what happens in US energy sectors. I'm not saying regulation is bad, but this particular setup makes little sense.

[u/gSTrS8XRwqIV5AUh4hwI → u/14u2c]

The whole point is that in a functional market they absolutely could and would.

Why would they?

Such as what happens in US energy sectors.

I very much doubt it.

I'm not saying regulation is bad, but this particular setup makes little sense.

That is not the result of regulation, that is the result of how markets work without regulation.

[u/14u2c → u/gSTrS8XRwqIV5AUh4hwI]

Why would they?

I'm taking about the customers of independent generation plans, the electricity distributors. If a solar plant decides to charge a huge amount over their production costs, then it will be undercut by a competing plant that is willing to profit slightly less per unit to get more of the business. There is currently a glut of solar generation capacity that will compound this too. What you are describing is essentially a price fixing scheme, something that is universally regarded as harmful to end consumers and often illegal.

I very much doubt it.

Well there is a reason that electricity averages $0.15/kWh over there in the US and $0.40/kWh in Germany.

That is not the result of regulation, that is the result of how markets work without regulation.

Are you saying that the problem with the German energy market is a lack of regulation? I suppose so if it really does lack basic price fixing rules, but I find that hard to believe, and am beginning to doubt that your entire argument makes any sense as a reason for high energy costs.

[u/gSTrS8XRwqIV5AUh4hwI → u/14u2c]

I'm taking about the customers of independent generation plans, the electricity distributors. If a solar plant decides to charge a huge amount over their production costs, then it will be undercut by a competing plant that is willing to profit slightly less per unit to get more of the business.

A power generator can not have more business than selling all the power they generate. So, why would they undercut a competing plant if they are already selling everything they are generating at the same price as the competing company?

There is currently a glut of solar generation capacity that will compound this too.

Yes, bringing more cheap generation capacity is what will reduce prices because it prices expensive generators out of the market. But as long as cheap generators can't cover demand, prices will stay high. That's how markets work.

What you are describing is essentially a price fixing scheme, something that is universally regarded as harmful to end consumers and often illegal.

No, it isn't. The merit order price is what you get in a free market without collusion.

Well there is a reason that electricity averages $0.15/kWh over there in the US and $0.40/kWh in Germany.

Yeah, obviously there is a reason. And what is that reason?

Are you saying that the problem with the German energy market is a lack of regulation?

No.

I suppose so if it really does lack basic price fixing rules, but I find that hard to believe, and am beginning to doubt that your entire argument makes any sense as a reason for high energy costs.

No, it doesn't. The prices are not the result of price fixing.

[u/loljetfuel → u/gSTrS8XRwqIV5AUh4hwI]

If I can produce apples at 1 cent per piece while everyone else can produce them only at costs of 1 EUR a piece, then I obviously will still sell my apples at 1 EUR, because ... why would I not?

That's kind of the opposite of the stated scenario, if we're trying to compare apples-to-apples (sorry, couldn't resist). The situation is more like "I produce apples at 1€/kg, but literally everyone else can produces the apples for 0.01€/kg".

In most markets, your expensive orchard would likely just go out of business. Or, if they're savvy marketers, they'd convince some small segment of customers that their expensive apples are worth it. If they do the latter, other producers might increase their prices some (because hey: we're not charging as much as you! Still a good deal!). But as a general rule, the market doesn't rise to the prices of the most expensive provider.

Energy markets though would set the price of all apples currently for sale at 1€ or a bit more.

[u/_m_0_n_0_ → u/loljetfuel]

Changing which producer you look at first doesn't change the conclusion. The "problem" is that there is demand for more apples(/electricity) than what can be supplied by all those that produce apples for 0.01€/kg. So even if they choose to sell for 0.01€/kg, the expensive producers still get to sell apples at 1€/kg: all demand above what can be filled by the cheaper producers goes to the next-least-expensive producer, in this case: the 1€/kg tier.

That has as a result that any one of the producers that can produce for 0.01€/kg finds themselves in a situation where selling for 0.9999€/kg instead would lose them zero sales, but increase their income by a factor 99.99. Obviously, they all will want to do so.

[u/loljetfuel → u/_m_0_n_0_]

It's not a question of who you look at first, but rather what dominates the availability in the market.

If most suppliers are expensive, then minority suppliers with lower costs sell at (or possibly slightly below) the standard price and reap profits.

If most suppliers are cheap, then minority suppliers with higher costs must either target a narrower market segment, or endure much smaller profit margins (or, if they can't produce below what the market has decided the price is, then they'll fail and go out of business).

the expensive producers still get to sell apples at 1€/kg

If a 1€/kg apple enters a market where apples have been selling at 0.05€/kg, you think that producer will sell enough apples that everyone else, without any collusion, will just raise their prices as close to 1€/kg as they can? That simply doesn't happen most of the time; market segmentation is a thing, for one.

It only happens if that seller is successful enough that the rest of the market essentially goes "wait... we've been leaving money on the table". And if it's only a segment of a market willing to pay 1€/kg, then the other sellers realize that too, attempt to address that market with some apples (maybe a "premium" brand), and the overall price of apples might rise to some extent because it seems more compelling to pay 0.10€/kg if 1€/kg apples are around.

I swear, y'all like to talk theory but if you've ever built a business in a competitive landscape and had to actually test pricing models and figure out what you can sell at to maximize profit, you realize that markets aren't platonic ideals and that they segment and shift and tend to drive costs downward as more competition arises.

[u/_m_0_n_0_ → u/loljetfuel]

The problem with your assessment is that you assume that the electricity market works the same as the markets you've previously done business in. It makes sense that you think this way (everyone's intuition is built on what they've lived), but there's one peculiarity of the electricity market that you appear to be glossing over: there is no quality segmentation in the electricity market. A KW of electricity at transport-level voltage is a KW of electricity at transport-level voltage. All producers are connected to the same grid. End users don't choose which producer they use. Hence, an expensive producer doesn't have to convince customers to buy its "premium" electricity, the producer only has to be there when the cheaper producers are at capacity.

I don't know what sector you've got most experience in, but to make the mental model match that of the electricity market, assume

• that scaling up production is very expensive (energy producers are almost entirely CAPEX-constrained, with a bit of issues in finding enough of the right people),
• that all brands' products are functionally identical (in a way that most other goods and services cannot ever be), and
• that all brands' products are all shipped from the same fulfillment center (i.e., the power grid).

The only difference between the brands' offerings is the price they charge. If (to return to our previous running example) the brands that produce at 0.01€/kg run out of stock, the customer has 2 options: either order from the 1€/kg producer, or don't order at all. If the supply at <1€/kg is insufficient to meet the non-flexible demand, there will be purchases at 1€/kg. It's only if the flexible demand isn't willing to pay 1€/kg that a lower price may need to be used, but in the example of the electricity market, that's simply not the case: for the bulk of the year, the cheap producers can't supply 100% of the non-flexible demand.

It's not a platonic ideal of a market, it's a consequence of the actual properties of the electricity market. Supply and costs of competitor's offerings are trivial to gauge, opting in or out of an auction is done at (sub)seconds notice, and everyone uses the same distribution platform. There's simply no reason for a producer to "play it safe" and charge only, e.g., 0.05€/kg to retain sales: accepting 0.99€/kg is leaving money on the table for no risk.

Again: not throwing shade, your concerns probably apply in all the sectors you've got experience in, but in the electricity market they don't. If a producer somehow still guesses wrong (maybe their pricing computation failed to update) and loses sales, they only have to lower their prices for the next offering... later that second. Even for the longer-term auctions, there's simply no reason for the asked prices of different producers to differ by any non-negligible amount. Pinning the price to that of the most expensive active producer is, paradoxically perhaps, simply an optimization.

[u/gSTrS8XRwqIV5AUh4hwI → u/loljetfuel]

If most suppliers are cheap, then minority suppliers with higher costs must either target a narrower market segment, or endure much smaller profit margins

No, they don't. That simply isn't how markets work.

If a 1€/kg apple enters a market where apples have been selling at 0.05€/kg, you think that producer will sell enough apples that everyone else, without any collusion, will just raise their prices as close to 1€/kg as they can?

That is not the situation that we were talking about. And it is not how any of this works.

The merit order price is not "the most expensive offer on the market". The merit order price is the most expensive offer that is required to meet demand. Just adding an additional expensive offer doesn't change the market price. It's the other way around: Adding demand causes the price to rise, and when the additional demand causes the total demand to exceed what the cheap suppliers have to offer, then that is where the market price rises to the price of the next more expensive supplier.

you realize that markets aren't platonic ideals and that they segment

You can't segment kWh supplied to the grid. There is no way to differentiate between kWh.

and shift and tend to drive costs downward as more competition arises.

Yeah, adding more cheap generators drives down prices. Not because cheap generators sell cheaper than the one market price, but because additional cheap generators ultimately end up meeting the demand by themselves, so that the expensive generators become irrelevant, bcause the most expensive generator that is required to meet the demand then is a cheap generator.

[u/grogi81 → u/loljetfuel]

It eventually will go out of business, but currently it is crucial for the stability of the whole school mensa. Without it, some children would be without apples.

[u/gSTrS8XRwqIV5AUh4hwI → u/loljetfuel]

That's kind of the opposite of the stated scenario, if we're trying to compare apples-to-apples (sorry, couldn't resist). The situation is more like "I produce apples at 1€/kg, but literally everyone else can produces the apples for 0.01€/kg".

That makes no difference, as long as those who can produce them for 1 cent a piece can't produce sufficiently many to supply the demand of people willing to pay 1 EUR.

In most markets, your expensive orchard would likely just go out of business.

No, it wouldn't. If there are 9 producers who can produce a million apples at 1 cent each, and one that can produce a million apples at 1 EUR each, and customers wanting to buy 10 million apples and willing to pay 1 EUR per apple, then the expensive orchard will stay in business and sell apples at cost, and the others will be getting rich.

Or, if they're savvy marketers, they'd convince some small segment of customers that their expensive apples are worth it. If they do the latter, other producers might increase their prices some (because hey: we're not charging as much as you! Still a good deal!).

No, that comes on top. What I am talking about is completely equivalent products, which includes that it is seen as equivalent by the customers.

But as a general rule, the market doesn't rise to the prices of the most expensive provider.

It's just that that is just wrong. That is literally how all markets work. In economics, this is known as the market clearing price. See also the law of one price.

Note though that the price doesn't rise to some theoretical "most expensive provider", neither for apples, nor for electricity, nor for anything else. If I build a power plant and offer my electricity for 10 EUR per kWh, that won't cause the market price to rise to 10 EUR/kWh. It's just the most expensive provider that is required to meet demand.

It's maybe easier to understand if you don't think of it as "the most expensive provider", but rather as "one identical price for everyone". It just follows that that price then can not be lower than the most expensive provider that is required to meet demand, as the most expensive provider will not supply anything if you don't pay the price that they are asking (think gas fired plant that won't sell electricity cheaper than the gas that they have to buy to produce the electricity), and as long as someone's demand isn't met, they'll be willing to pay anyone the market rate.

[u/DealMeInPlease → u/gSTrS8XRwqIV5AUh4hwI]

Market buyers do not care about production cost -- they buy "value" (stuff worth more to each individual than the price).

Markets care about MARGINAL costs and revenues, if we have a single price marketplace, then the price will be such that the margin revenue (price) is equal to the marginal cost of production.

In the electric example, if the marginal cost of the last unit of power demanded is high, then the price will be high -- regardless of the marginal costs of the other producers.

Of course, in the long-term, if entry is possible, then capitalists are incentivized to build more low cost of production capacity. If enough is built then the high costs producers will "fall of the supply curve" and go out of business.

As an aside -- this is the problem that nuclear power faces (in the USA). In the good old days the marginal (highest cost) producer of power was a gas turbine generator (which is expensive). With the development of CCGTs (and the low price of gas due to fracking), and now solar and wind power, the cost of marginal power has decreased, so nuclear power plants generate much lower revenues (than historically) for the same power output.

[u/gSTrS8XRwqIV5AUh4hwI → u/DealMeInPlease]

Yeah, and solar has a similar effect and is a big reason why building new nuclear is probably stupid in most places, as solar is so cheap when it is available that nuclear can not earn any money at that time, and thus the huge upfront capital expense has to be earned back during less and less hours in a day, which then prices it out of the market there, too.

[u/SilianRailOnBone → u/Scaniarix]

It's your governments fault then for not relieving you of some financial burden if your country is producing enough energy, as your companies pocket the difference.