Europe Gas Volatility to Surge on Wind-Power Backup, Poyry Says

European natural gas prices will rise most on cold, still days in future as the fuel becomes the preferred backup for intermittent wind power toward 2030, according to Poyry Oyj. (POY1V)

There will be an increase in gas-price volatility across Europe as markets with more wind capacity, such as the U.K., Spain, France, Germany and the Netherlands, are linked to those with less, James Cox and Martin Winter, consultants at Poyry in Oxford, England, said in a research report published today. Wind will be the main source of irregular supply, as output can still fall to zero no matter how much capacity is installed, while solar continues to produce even under cloud cover.

“If it’s cold and still, it’s much more extreme for the gas network because you get the heating demand response to the cold weather and the power response to the still weather,” Cox said in a Sept. 18 telephone interview.

The European Union has reached 100 gigawatts of installed wind-energy capacity, equivalent to the output of 62 coal-fired power stations, the European Wind Energy Association said Sept. 27. In the EU, about 5 percent of electricity came from wind last year, while more than half was from fossil fuels including gas and coal, 28 percent from nuclear energy and 13 percent from hydropower, Eurostat statistics show.

The winners in this scenario will be owners of so-called fast-cycling gas storage, which can respond rapidly to falling wind generation, and traders who can take advantage of diverging prices at Europe’s trading hubs as weather patterns vary by geography, Cox said.

Spreads Diverge

“There will be key periods when spreads diverge heavily and most of the rest of the time spreads being at relatively small levels based on transportation costs and entry-exit fees,” Cox said. “We see gas prices rising over the time frame, driven by gas coming from further afield. That assumes limited shale-gas deployment.”

Dutch month-ahead gas prices were 0.69 pence a therm higher than the equivalent U.K. contract at 3:15 p.m. London time Sept. 28, the most since Aug. 17. The spread widened to 2.9 pence on May 21, the highest since September 2011.

Poyry predicts that Germany will be able to meet 100 percent of its peak power demand through renewables during some periods from 2030 with nearly 50 gigawatts generated by wind, the report showed. There will be an increase in maximum within- day peak gas demand for power generation caused by the increasing number of combined cycle gas turbines needed to absorb the intermittency from wind in Germany and across Europe, according to the report.

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.