How to reduce energy dependency and stabilise energy costs?

On Thursday 12.5.2022, Slovak energy and IT experts met on a webinar entitled "Digital utility: supplier-customer ecosystem complemented by new (decentral) players" on the webinar entitled "Digital utility: supplier-customer ecosystem complemented by new (decentral) players". The main theme was the anticipated changes in the market due to the new legislation and the increase in prices. We bring you a brief summary of the information communicated on the webinar by the representative of IPESOFT - Tomáš Rajčan.

Does the price of fossil fuels affect the price of electricity?

The dependence of the European Union and Slovakia on natural gas imports from abroad is one of the most up-to-date and serious topics in the energy sector. During the eFOCUS webinar, our colleague Tomáš Rajčan, Director of ipesoft's Energy and Industry Division, also addressed the topic. Both the EU and Slovakia import a large part of the natural gas they consume.

Consequently, imports of natural gas also have a significant impact on the price of electricity on the market. In Germany, the share of electricity generation from natural gas is up to 17%. If we also consider the early shutdown of nuclear power plants and coal, Germany's dependence on fossil fuels is around 50%.

Given that this is one of the defining electricity markets for the whole of Europe, the price of fossil fuels is largely reflected in the price of electricity and causes prices to rise

When comparing gas and electricity prices in Slovakia, dependence is clearly visible. In addition to the gas price itself, the rising price of electricity also reflects the rising price of emission permits, which is also increasing on the basis of the rising price of gas.

Will electricity be cheaper or more expensive in the future?

When estimating the price of electricity in the future, we can bounce back from the prices of forward electricity products. According to data from PXT and EEX, the price of forward electricity products is slowly declining for the future and is at around 227 €/MWh in 2023.

The price of forward gas products is also falling slightly more significantly.

The difference can also be partly explained by the increase in the price of emission permits.

On the basis of forward prices, it can therefore be assessed that electricity prices may fall slightly in the future, but will still be relatively high.

How can industrial enterprises and larger customers cope with high electricity prices?

Current market conditions bring a great opportunity in the form of self-generation of electricity using renewable sources.

The economic potential and return on the use of self-generating electricity from local sources can be seen in specific examples. These show what it could be worth investing in to reduce electricity costs.

Example 1: Use of photovoltaic power plant - Production of electricity for own consumption

In April 2022, the legislative framework was amended, which in turn had a very positive impact on support for the construction of local resources. Industrial enterprises and large customers are thus significantly less constrained and can make greater use of the potential of photovoltaics.

Although the investment costs of building a photovoltaic power plant have increased significantly in the last year, rising electricity prices shorten the return on the project and make it economically very interesting.

With an electricity price of about 230 €/MWh, the return is about 3.4 years. If the electricity price falls to around €125/MWh, the return will be extended to around 5.8 years. However, this is still an economically very good way to optimise electricity costs.

However, risks must also be considered before investing. If there is a significant fall in the price of electricity in the near future, the recovery period will also be significantly extended and the economic potential will be minimised. At the same time, despite the change in legislation, industrial enterprises and large customers must count on potential administrative barriers.

Example 2: Photovoltaic power plant + battery storage - Production and accumulation of electricity for own consumption

The second example extends the possibilities of the first one. However, battery repositories do not yet have an accurate foothold in the legislation, and their return largely depends on what their local electricity producer uses them for.

Although the use of battery storage for the accumulation of produced electricity and the transfer of consumption over time brings some potential for return compared to the past, it is probably less economically advantageous than the photovoltaic power plant itself. In this case, the return is approximately 10 years.

Much more interesting is the intelligent use of battery storage for regulatory services. There are currently a number of such commercial installations designed to regulate the deviation, where the return on investment is within 3 years.

Another potential option is the use of battery storage for the provision of the primary power control service - support services (PPS). Here is the estimated return at current electricity prices as well within 3 years.


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