Previously, electricity production of up to 1000 GWh from Danish wind turbines was stopped annually due to lack of expansion of the German electricity grid. New method for so-called counter-trade has not only meant that almost no Danish mills have since been stopped. New analysis shows that the new method has also led to significantly lower prices.
In the past, many Danish wind turbines stood idle in windy weather, but new rules for countertrade across the Danish-German border have not only proved beneficial for green, Danish electricity production. They have also proven to be a financial gain.
Because not only do the wind turbines now spin when it's windy, the costs of dealing with bottlenecks in the electricity system have fallen significantly.
This is shown by a calculation made by Energinet.
Market expanded and prices fell
The new countertrade model was fully implemented in July 2023, and with it the German TSO, TenneT's, need to buy downregulation of Danish electricity production was moved from the Danish regulatory power market to the cross-border intraday market. This created a much larger market with many more players.
In the first half of 2023, the difference between the average price for handling in the regulating power market and the average spot price* of electricity was on average 42 EUR/MWh. In the second half of 2023, the difference between the average price when selling countertrade in the intraday market and the average price in the spot market averaged 15.9 EUR/MWh.
The latter has, with few exceptions, been falling since implementation, and in February and March this year the price difference was down to a modest 3.4 EUR/MWh.
The prices for downregulation have therefore fallen significantly after the market has expanded.
Why countertrade
Why countertrade at all? The problem is that the German electricity grid has not been developed in line with the green transition. Many new solar cells and wind turbines mean that when it is windy, and both Danish and German turbines produce large amounts of electricity, the German electricity grid does not have enough capacity for all the electricity to come from Denmark and Northern Germany and south, down through Germany to the large cities and industrial areas where it is needed.
If the wind turbines in Northern Germany and Denmark continued to produce, the Northern German and Danish electricity system would "overflow". Too much power would be produced in relation to consumption, and the power system would become unbalanced and potentially break down.
Since the German electricity grid is the cause of the problems, it is TenneT that must buy or downregulation of production or upregulation of consumption to create a balance between production and consumption. However, the German rules are screwed up in such a way that it is the "very last option" for Germany to reduce its own green electricity production, e.g. by turning off the German wind turbines. Therefore, Germany increasingly paid Danish actors to reduce production or increase consumption, for example by paying Danish wind turbines to stop.
But the amounts of green energy that were stopped grew and grew, and so did the prices that TenneT had to pay for the downregulation.
More can supply
In the old model for countertrade, it was only Danish producers who could bid and supply the "special regulation" that TenneT needed. With the transition to the new model, counter trading was moved from the Danish regulating power market to the intraday market, and now it is possible for both Danish and foreign players to bid, both with and without physical facilities, thereby meeting TenneT's need for counter trading in the Danish -German border. The participating players now include producers, consumers and traders within as well as outside the country's borders, which has contributed to greater liquidity in the intraday market, as more business models come into play in the market.
The transition to the new model has meant that the countertrade volumes are now sold at prices that reflect the increased liquidity that the switch from special regulation in the regulating power market to the intraday market has brought about.
The need has not changed - but the prices have fallen
In order to assess the model's economic efficiency, Energinet has looked at the difference between the price for counter trading and the spot price of electricity. That method is used, since many factors affect both the price for special regulation in the regulating power market, the intraday price and the spot price over time, which is why a direct comparison of the prices will not be fair. However, by observing the price difference, it is possible to compare the economic efficiency of the two models as well as the magnitude of the economic redistribution that the two models lead to.
As the graph above illustrates, German TenneT has on average requested roughly the same amount of countertrade in the first half of 2023 as in the second half of 2022, which is why this cannot explain the reduction in the difference between the price for countertrade and the spot price. The reduction, on the other hand, is an expression of the increased competition around counter trading volume, which has been achieved by moving the trade from the balance time frame to the intraday market. However, there is no expectation that the price difference will fall significantly from the current level and eventually end at 0 EUR/MWh. This is because the price difference naturally reflects the timing risk between the day-ahead market and the intraday market, which is why it is estimated that the price difference is about to find its natural direction.
