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Solar Doubling Drives Down German Power Prices: Energy Markets

Solar Doubling, Gas Glut Drive Down German Power Prices
Rows of solar panels are seen at the Solarworld AG plant in Freiberg, Germany. Photographer: Jochen Eckel/Bloomberg

Solar power may almost double in Germany this year just as a natural gas glut sends electricity prices to near five-month lows.

Capacity at plants converting sunlight to electricity in Europe’s biggest energy market will rise to 18,000 megawatts from 9,786 megawatts, according to Bloomberg New Energy Finance forecasts. No other power source will grow as fast, increasing the glut that emerged after last year’s recession, UBS AG said.

“What’s new and special in Germany this year is the devilish growth in solar,” Sigurd Lie, a senior analyst at Imarex ASA’s Nena unit, an Oslo-based energy markets research company, said in a Sept. 16 phone interview. “This has kept a lid on prices even as you’ve seen an increase in demand.”

German prices probably won’t gain this year even with power consumption forecast to rise 4 percent, according to Lie, 44, who has tracked electricity markets for 12 years at Nena. Per Lekander, UBS’s head of global utilities research, said in a Sept. 16 e-mail that profits at coal-fired plants, such as those run by E.ON AG and RWE AG, the country’s two biggest utilities, may drop by more than 50 percent to as low as 2 euros ($2.66) a megawatt hour in the next 12 months.

German power for next year, the European benchmark contract, fell to its lowest since July 27 today, trading at 49.25 euros a megawatt hour, according to broker prices on Bloomberg, down 11 percent from this year’s peak of 55.10 euros on June 21. E.ON spokesman Georg Oppermann declined to comment on the UBS forecast while RWE spokeswoman Annett Urbaczka declined to comment on trading matters.

Gas Glut

The contract exceeded 90 euros in July 2008, as a six-year rally in energy prices was coming to an end. Now, natural gas, used to produce about 15 percent of Germany’s electricity, is also damping gains, said Sebastien Terryn, a risk manager at Summit Energy Inc. in Waregem, Belgium.

“German power won’t rise to anywhere near the record levels of 2008 for at least another two years because of the price link with natural gas, which remains a market with ample supplies,” Terryn said by e-mail on Sept. 17. Summit manages about $20 billion of energy purchases annually for clients including Healthcare Trust of America Inc.

U.K. natural gas for this winter is down 18 percent since July 5 to 47.50 pence a therm today. A therm is 100,000 British thermal units. The U.K. gas market, Europe’s biggest, influences prices elsewhere in the region.

Solar Surge

Producers will bring 7,000 to 9,000 megawatts of new solar capacity online in Germany this year, said Francesco d’Avack, a London-based analyst at New Energy Finance. That’s in addition to the 9,786 megawatts in use at the end of last year, which is equivalent to the capacity of about 11 new coal-fired plants.

Germany is installing 10 times as much solar power capacity this year as the U.S. Investors are racing to lock in above-market rates for 20 years while they can. Germany’s parliament decided July 8 on a 16 percent reduction in solar subsidies, and another reduction in the so-called feed-in tariffs is scheduled for January.

Mikio Katayama, president of Sharp Corp., Japan’s biggest solar-panel maker, said last week the Osaka-based company may boost sales by 50 percent this year, faster than it earlier forecast, on increased demand in Europe. Sharp today agreed to buy California’s Recurrent Energy for as much as $305 million. The all-cash deal will be completed by the end of the year, the companies said.

Solar Sales

Global 2010 sales for photovoltaic panels may more than double to as much as 18,000 megawatts and then flatten next year as countries including Germany, Italy and France cut solar energy subsidies, Bloomberg New Energy Finance estimated.

Germany meets as much as 10 percent of its power demand from the sun on some days, Andreas Haenel, chief executive officer of German solar-plant developer Phoenix Solar AG, said in an interview last month. In the southernmost state of Bavaria, solar power contributes as much as 25 percent of total electricity when the sun shines and demand is low, he said.

Solar power’s share may rise to as much as 7.5 percent of Germany’s total power generation by 2013, according to Deutsche Energy Agentur GmbH, from about 1 percent last year, as measured by industry group Bundesverband Solarwitschaft.

As solar capacity jumps, traders will increasingly depend on data for projecting availability and prices. The European Energy Exchange AG in Leipzig started publishing daily data on expected solar capacity on July 19, in addition to estimates on other German power sources. Solar output was expected to peak today at as much as 7,963 megawatts at 1 p.m. Berlin time, according to a forecast published yesterday.

Surplus Power

The German government also plans to extend the lifespan of aging nuclear power plants. On Sept. 28, Chancellor Angela Merkel’s cabinet is set to approve a plan to allow reactors to operate for an average of 12 years beyond a legally mandated closure of 2022, to help the nation of 82 million people transition to renewable power.

Germany’s surplus power is weighing on coal-fired generators. The so-called clean-dark spread, a calculation of forward prices for fuel, power and carbon allowances, was at 5.36 euros a megawatt hour yesterday, according to Bloomberg calculations. That’s down from 11.93 euros at the start of this year and almost 18 euros in December 2008.

Lekander at UBS expects as much as 10,000 megawatts of solar capacity and 2,000 megawatts of wind-generated electricity plants to be added in Germany this year. Neither renewable power source is available 24 hours a day, unlike coal or nuclear. Germany, the Netherlands and Belgium are collectively adding about 7,000 megawatts of gas-fired capacity a year.

“The spreads have collapsed and won’t recover in a long time because there will be even more overcapacity next year,” Lekander, 48, said.

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