How to reduce energy dependency and stabilise energy costs?

On Thursday, May 12, 2022, Slovak energy and IT experts met at the webinar entitled "Digital utilities: supplier-customer ecosystem supplemented by new (decentralized) players". The main topic was expected changes in the market caused by new legislation and price increases. 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 the import of natural gas from abroad is one of the most current and serious topics in the energy sector. During the eFOCUS webinar, our colleague Tomáš Rajčan, director of the energy and industry division of IPESOFT, also addressed the topic. Both the EU and Slovakia import a large part of the natural gas they consume

Consequently, the import of natural gas has a significant impact on the price of electricity on the market. In Germany, the share of electricity production 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%.

Considering that it is one of the determining electricity markets for the whole of Europe, the price of fossil fuels is largely reflected in the price of electricity and causes an increase in prices.

When comparing the prices of gas and electricity in Slovakia, the dependence is clearly visible. In addition to the price of gas itself, the rising price of electricity is also reflected in the rising price of emission permits, which also increases based on 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 reflect on the prices of forward electricity products. According to data from PXT and EEX, the price of forward electricity products in the future is slowly decreasing and in 2023 it is at a level of around €227/MWh.

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

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

Based on forward prices, it is, therefore, possible to assess that electricity prices may decrease slightly in the future, but they will still be relatively high.

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

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

The economic potential and return on the use of self-production of electricity from local sources can be seen in concrete examples. They show what could be worth investing in and thus reduce the cost of electricity.

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

In April 2022, the legislative framework was changed, which subsequently had a very positive impact on supporting the construction of local resources. Industrial enterprises and large consumers are thus significantly less restricted and can use the potential of photovoltaics to a greater extent.

Even though the investment costs for building a photovoltaic power plant have grown significantly in the last year, rising electricity prices shorten the return on the given project and make it economically very interesting.

At an electricity price of around €230/MWh, the payback is approximately 3.4 years. In the event of a drop in the price of electricity to a level of around €125/MWh, the payback will be extended to approximately 5.8 years. However, it is still an economically very good way to optimize electricity costs.

Before investing, however, it is necessary to consider the risks. If there is a significant drop in the price of electricity in the near future, the payback period will also be significantly extended and the economic potential will be minimized. Despite the change in legislation, industrial enterprises and large customers must also count with potential administrative barriers.

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

The second example expands the possibilities of the first one. However, battery storage does not yet have a precise basis in legislation, and their return largely depends on what the local electricity producer will use them for.

The use of battery storage for the accumulation of produced electricity and the transfer of consumption in time, compared to the past, brings a certain return potential, but it is probably less economically advantageous than just the photovoltaic power plant itself. In such a case, the return varies in an interval of approximately 10 years.

Much more interesting is the intelligent use of battery storage for regulatory services. Currently, there are several such commercial installations designed for deviation control, where the return on investment is within 3 years.

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


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