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A look back at the turbulent energy year 2020: Corona, PPAs and hydrogen

Simon Goess's picture
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Simon Göß studied Environmental and Resource Management (B. Sc.) at the Brandenburg University of Technology Cottbus and Sustainable Energy Technology (M. Sc. Honours) at the Delft University of...

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Originally published here and co-authored by Sila Akat

The year 2020 was marked by the corona pandemic. The energy industry was also badly affected by the effects of the pandemic and the various lockdowns. As things stand, the winners are renewables, especially in the PPA area, but also hydrogen as the industry’s new favorite topic.

The Covid 19 pandemic has had a major impact on the course of the energy industry in 2020. Due to social and economic restrictions, the demand for electricity has fallen by 3.6 percent compared to the previous year (source: Agora Energiewende ). This led to different effects on the futures markets.

 

The effects of the pandemic

Global wholesale prices for commodities reached historic lows in March 2020. In mid-March, Brent oil recorded its lowest drop since the outbreak of the Gulf War in 1991 at USD 27 / barrel - around 50 percent less than in early March.

Overall, data and estimates suggest that global liquid fuel consumption declined by 9.0 million barrels per day in 2020 - the largest annual decline in EIA data since 1980 (source: EIA ).

With the first easing in May, commodity prices recovered and recorded a positive development. Whether for coal, oil, electricity or CO 2 certificates, prices went up everywhere. Only gas prices are stagnating. With better economic prospects and the rescue package from the EU, prices on the commodity markets also rose over the summer.

 

Developments in autumn 2020

Finally, with the rising number of cases and fears of a second lockdown in autumn, prices fell. Accordingly, at the beginning of November 2020, commodity prices were boosted by the hope of a vaccine. In addition, the clarity surrounding the outcome of the US presidential election contributed to the rise in the price of oil. The EUA contracts rose towards the end of the year due to the higher climate targets set by the EU Commission. Mild weather throughout the year has depressed gas prices. And even in winter they were quoted at an unusually low level, at least in 2020 (source: montel ).

The average price in the German front year for base load electricity was 40.07 euros / MWh, more than 7 euros / MWh below the previous year. The low point was reached at the beginning of the pandemic on March 23, and despite the setbacks, upward trends were observed. At the end of the year, the closing price was just under 50 euros / MWh (source: energate-messenger ).

Figure 1 shows the price developments for the front year electricity Germany as well as for CO 2 certificates, oil and coal.

Percentage price development of the German power front year (candle sticks), the CO2 certificates with delivery December 2021 (orange line), the oil type Brent with delivery in April 2021 (green line) and the front year gas at the TTF (green line) in 2020 (source : Montel)

Figure 1: Percentage price development of the German power front year (candle sticks), the CO2 certificates with delivery December 2021 (orange line), the oil type Brent with delivery in April 2021 (green line) and the front year gas at the TTF (green line) in the year 2020 (Source: Montel)

If you are looking for further information on the effects of the pandemic, we recommend the articles “ Corona pandemic and energy market: a quantitative assessment of medium-term developments ” and “ Connections and consequences of the corona pandemic on the energy markets ”.

 

Renewable energies overtake conventional energy sources

Renewable energies did well in 2020 and emerged as the winners of the pandemic. The share of renewable energies in net public electricity generation in Germany reached a record high of 51 percent last year. For the first time, they had a higher share than conventional energy sources. Both a good wind year and a good sun year contributed to this.

The 5.2 percent decline in hard coal and lignite is largely due to the cost advantages of gas-fired power plants. The electricity generation from renewable energies in Germany was 233 billion kWh, which means an increase of 9.7 TWh compared to 2019 (source: Montel ).

Figure 2 shows the shares of primary energy sources in net electricity generation in Germany.

 public net electricity generation in Germany 2020 (source: Energy Brainpool)

Figure 2: Public net electricity generation in Germany in 2020 (source: Energy Brainpool)

 

PPA: increasing deals in Germany despite pandemic

Due to the uncertain economic consequences of the corona pandemic, the demand for long-term electricity contracts with renewable energies fell sharply in March. Demand recovered again in the summer months. The reason was the increased interest in long-term protection and no longer exposed to the volatile electricity prices on the spot market. For example, spot market revenues for wind energy operators fell by 19 percent last year due to the pandemic.

Another key driver was primarily foreign markets such as Spain or the Scandinavian countries. But increasing PPA degrees can also be observed in Germany. In Figure 3 you can see the already completed PPAs in Europe. It is expected that the PPA capacities will grow from 2 GW to 5-6 GW by the end of 2021. (Source: Montel )

The majority of the demand is met, especially from large companies that are striving for a climate-neutral course using green power PPAs. For example, Deutsche Bahn concluded three new green power PPAs of almost 780 million kWh last November and would like to only supply rail transport with green power in 2038 (source: Energie & Management ).

 

PPAs in Europe (cumulative in MW), only the PPA deals discussed in the trade press are shown, as of January 2021 (source: Energy Brainpool)

Figure 3: PPAs in Europe (cumulative in MW), only the PPA deals discussed in the trade press are shown, as of January 2021 (source: Energy Brainpool)

 

The bearer of hope is hydrogen

Hydrogen is seen as a promising energy carrier of the future. The Federal Ministry for Economic Affairs and Energy goes so far as to describe it as a "key element for the energy transition in Germany". It represents an alternative to fossil fuels and can be used across different sector boundaries, thus offering great synergy potential. The primary areas of application will be the transport sector and industry (source: BMWI ).

In June 2020 the EU Commission presented its hydrogen strategy for a climate-neutral Europe . This shows that the share of green hydrogen in the energy mix will increase by more than 10 percentage points by 2050 and could cover up to 24 percent of the world's energy needs in 2050. To meet the demand in Europe, up to 120 GW of new wind and PV capacities would be required (source : PV Magazine ).

In Germany, the National Hydrogen Council was also founded in June. The task of this committee is to support the federal government with proposals and recommendations for action in the implementation and further development of the German hydrogen strategy. The proposal to exempt green hydrogen from the EEG surcharge to support hydrogen technologies is likely to be implemented in mid-2021. This is to tackle the central problem of insufficient profitability (source: BMWI ).

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