OREANDA-NEWS. Are big baseload power providers in Texas destined to suffer the same fate as their counterparts in Germany?

The question arises because Texas is once again undergoing a surge of wind generation installations at a time when wholesale power prices are already on the floor, and zero pricing due to existing wind generation is prevalent.

The comparisons are striking between the power sectors in Germany, which has the most renewables as a percentage of total installed power generation of any country, and Texas, which has the most installed wind generation of any state.

Germany has total generation of roughly 100,000 MW, and its daily average peak demand is around 55,000 MW. To meet that average daily demand, Germany has roughly 38,000 MW of coal-fired and nuclear baseload generation that runs every day.

But Germany also has approximately 65,000 MW of renewables — 33,000 MW of solar and 32,000 MW of wind — that is available to meet demand above the baseload total. On a given day, a portion of Germany’s wind capacity is used in the early morning hours to meet demand, while later in the day a portion of the solar power and wind are used to match the higher peak demand.

One interesting thing about Germany’s generation portfolio is that it does not burn natural gas for electricity. The view is that natural gas, which in large measure is oil-indexed Russian gas, is just too expensive to burn. As a Citi Research report said recently, “Coal generation is now cheaper than gas on the margin in Germany.”

In any event, wholesale power — as opposed to retail prices — are on the floor. This has caused a serious cash flow problem for the big baseload utilities E.ON and RWE, which have been selling assets and reducing payrolls to counter their drop in revenues.

On March 27, Moody’s downgraded E.ON, saying its major challenge in 2015 was lower cash flow from low generation prices in Germany. Moody’s said E.ON is facing “continuing headwinds in its domestic and international businesses, which limit the group’s financial flexibility in the context of a planned reorganization.”

The average German, however, will say that this all wrong, that electricity prices are in fact too high. They refer, of course, to the retail prices they are paying, which can run as high as 28 cents kWh compared to the roughly 10to 11  cents/ kWh that is now the average in the US.

The reason why retail prices are so high is because the German government, perhaps wisely, perhaps not, set up their renewable subsidy programs in such a way that the retail customers pay the renewable companies their subsidies via their monthly electricity bill.

In Texas, the situation is both similar and different.