You may have heard that there’s an energy crisis in Europe – gas supply shortages due to Russia’s invasion of Ukraine, combined with higher usage from the covid recovery has led to unprecedentedly variable and high electricity prices throughout 2022. What effect has this had on consumer behavior and the priorities of energy companies?
Firstly, to understand why gas supplies so heavily affect electricity prices, we must look at the European electricity market design. Prices are based on merit order, which is essentially the term for the upward marginal cost curve of electricity generation. Suppliers place bids on the day-ahead market that correspond to the cost of electricity production. The most expensive offer that is required to meet demand then determines a uniform (or marginal) price that is paid to all generators. As such, the sharp rise in gas prices meant that fuel costs per MWh of electricity generated also rose. In Germany, the marginal costs of gas-fired power plants, which were 40-80€/MWh in 2018, rose to 200-450€/MWh in 2022.
The highest average monthly wholesale electricity price in the EU was recorded in Italy in August 2022 at €534.4/MWh.
The shock of such high energy bills has hugely affected user behaviour over the last few months. Heightened awareness has meant that EU consumption of natural gas dropped by 20.1% between August-November 2022, compared with the average in this period between 2017-2021. Now, consumers are acutely aware that their consumption patterns have a huge impact on the overall system. The sharp increase in prices has had other effects on users’ priorities and buying choices.
We take a look at the five major impacts of the energy crisis and how we can use technology to turn crisis into opportunity.
1. Boosting photovoltaic (PV) installations
Harnessing the power of the sun has never made more financial sense, as Solar PV is becoming the lowest-cost option for new electricity generation in most of the world. Whether on a home, office building, retail site or other, everyone now (rightfully) wants a piece of the PV pie.
SolarPower Europe estimates that PV in Europe grew by 47% in 2022, rising from 28.1 GW to 41.4 GW. For the first time ever, the top 10 European solar markets all added at least 1 GW of solar capacity. Not only is the capacity increasing, but also the number of companies tapping into the PV market.
There are a range of fast-growing companies dedicated to meeting this demand for solar power. In Germany, IBC Solar, Enpal, 1Komma5 and Zolar are a few of the major players in the market. Abroad, we also have Svea and Otovo making great inroads in the Nordics, Solarmente and Holaluz active in Spain, as well as econic in the Netherlands.
A vital factor in scaling PV and meeting this demand is manufacturer-independence. Solar inverters must be integrated with energy-consuming or -storing assets, such as batteries, heat pumps and electric vehicles. Particularly in the area of home energy management systems (HEMS), offering customers easy-to-install systems that work with any manufacturer is key to increasing the speed with which they are able to adopt these clean technologies.
2. More focus on self-sufficiency optimization
Holistic and automatic optimization of energy flows ensures that solar power is maximized and no kWh of self-generated energy goes to waste. It also minimizes the amount of power drawn from the grid to drastically reduce energy bills.
Connecting and controlling the energy flows between assets in a household allows EVs or batteries to be charged at optimal times (e.g. when there is surplus PV power), while ensuring that users’ heating or mobility needs are never restricted. Web and mobile apps available on the XENON platform empower users to choose where their self-generated electricity should be directed and the system will automatically allocate power to where it is needed. Self-sufficiency optimization with a PV and battery on XENON can lower the electricity costs of a household with only PV by 53%. But with more sophisticated use cases, even more savings can be realized.
3. Advancing dynamic tariffs and energy trading
To go a step beyond self-sufficiency maximization, gridX’s HEMS solution also enables time-of-use tariffs, where schedules are automatically created based on day-ahead prices and user requirements to lower energy costs. In September 2022, our energy management system (EMS) optimized residential batteries, to not only store PV surplus, but also to charge during cheap price periods. As a result, household total electricity costs were reduced by a further 30%, compared to PV self-sufficiency maximization.
To highlight this potential in other markets: on 23rd January, UK Octopus prices changed varied between 25.83 p/kwh (at 5.30am) and 36.79 p/kwh (at midnight), making the minimum 29% lower than the maximum. In Germany, Tibber charged between 26.7 ct/kwh and 38.97 ct/kwh on the same day, representing a 31% difference. Shifting loads, such as EV charging, by simply a few hours could therefore offer huge savings.
In addition, customers are able to build energy communities with P2P trading, so that community members can buy and sell excess energy with their neighbours to better match supply and demand locally, and gain even more independence from the grid (and with it, fluctuating energy prices).
4. Enabling direct marketing for small PV plants
Direct marketing – selling self-produced renewable electricity on the exchange – is obligatory for plants above 100kW. Smaller PV plants are currently at a disadvantage due to challenging prequalification requirements and a lack of digital infrastructure, such as smart meters. However, increasing demand for PV is making regulators, companies and end users aware of the huge potential of leveraging the full flexibiilty of small-scale solar – both on the grid and on their wallets.
In fact, calculations by Lumenaza show with a PV system with 9.9kWp without a battery that enables 30% self-sufficiency and assuming a future price of 42.7c/kWh, minusing annual costs, direct marketing would enable a net income in 2023 of €2,512. With a PV system with 19,9kWp and 10kWh battery that enables 60% self-sufficiency, this figure jumps to €2,904.PV system. As the capacity increases, so too do the savings.
The technology for monetizing the flexibility of small-scale solar is already available. However, in many markets, regulatory hurdles mean that implementation is still in its infancy. With the right measures and an increase in pilot projects, this would be a huge step towards increasing the share of renewables in the power mix, better balancing supply and demand and keeping energy prices low and stable.
5. Spotlight on smart charging to renew boost in e-mobility
Although electric vehicles (EVs) are still very much on the rise, the rate of increase in EV sales took a small hit at the end of 2022. Many charge point operators were forced to increase their prices in September 2022 – e.g. Allego from 43 to 47 cents/kWh and Express charging from 65 to 70 cents/kWh. As such, electric car demand fell for the first time since the pandemic.
To enable the e-mobility revolution, the industry must regain its previous momentum. How? The first step is education: the green campaign group Transport & Environment found that filling up on petrol in Europe is still, on average, 80% more expensive than recharging an EV. On top of this, CO2 prices will likely make gasoline more expensive in the long-run, while electricity should become more cost-effective over time.
The second step is leveraging cutting-edge technology to minimize costs on an ongoing basis. Using a holistic energy management system to intelligently and efficiently distribute power amongst all EVs, and other assets, removes the need for expensive grid extensions and minimizes grid fees. 15-minute optimization is a particularly sophisticated tool that ensures the power used within every 15-minute window does not breach the set grid limits, thereby maximizing power utilization while always staying within the grid limitations. This reduces overall systems costs to keep the price of EV charging to a minimum.
More sophisticated use cases via the XENON platform also enable solar charging – maximizing the amount of solar power used to charge vehicles without affecting user comfort. Having a range of other charging strategies – e.g. balanced charging, priority charging or scheduled charging – ensures that the individual needs of every site or company can be met to maximize savings and minimize complexity. With these smart charging solutions, switching to electric fleets, or adding more EV chargers on a site has never been more attractive (and cost-effective).
So, although the energy crisis has had some negative effects on the energy transition, the overwhelming outcome is the realization that energy consumption can be reduced and adapted, and we should rely more on locally generated power. Moreover, with the right technology, clean solutions can be more easily and intelligently implemented to reduce overall system costs and end users’ energy bills – while simultaneously enabling the decarbonization of the energy sector.