Bankers Reaping the Rewards of German Green Energy Instability


Guest essay by Eric Worrall

Bloomberg reports that energy traders are increasingly using computers, to try to keep up with wild price changes in the volatile German energy market.

Looking for Volatility? Try Germany’s Shift to Renewable Energy

Germany’s shift to renewable energy has created a power market so volatile that humans are having trouble keeping up with it.

Four-year-old Grundgruen Energie GmbH, whose glass-walled office is just off Berlin’s most fashionable shopping street, uses a coping technique more likely found in markets for stocks, bonds and currencies: It lets a computer program do the hard stuff. About nine other trading firms are doing the same in the German market, most starting just last year, according to an estimate by the

The price movements in the nine-year-old intraday German power market are “about 200 times that of financial markets,” said Karl Frauendorfer, a professor of operations research at University of St. Gallen in Switzerland who has worked with electricity traders for almost 20 years. “The volatility makes it impossible for humans to efficiently comply with risk limits.”

German Chancellor Angela Merkel’s commitment to green energy has led to a threefold increase in solar and wind power in the past decade as well as an exit from more predictable nuclear. The intermittent renewable output has made traders increasingly focus on hourly or 15-minute electricity contracts to quickly react to changes in weather that alter the power supply. That’s increased the need for algorithmic computer programs that can do the buying and selling on their own.

Profit Maker

“Trading is requiring ever more rapid decision-making,” Eberhard Holstein, the founder and chief executive officer of Grundgruen, said. “Automated trading is without question a competitive advantage, we can see that in our books.”

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Traders provide a service. I know it is fashionable to think all bankers are crooks, but there are plenty of real world examples of how traders help businesses control risk and lock in profits.

The classic example of this beneficial role, is the trader as a matchmaker.

If a German business wants to export to America, and repatriate their USD profits as Euros, and a US exporter wants to export to Germany, and repatriate their Euro profits as USD, a trader can arrange a match between the two export businesses. By agreeing to exchange future profits at a fixed exchange rate, both parties are guaranteed a predictable profit, rather than facing the risk that an adverse shift in currency exchange rates could wipe out their margin.

In practice of course there are economies of scale – rather than matching up individual businesses, traders manage massive portfolios of businesses, and monitor when they need to top up their exposure to a particular activity; for example, if a trader is carrying too much exposure to Euros being exported to America, they might try to find more deals going the other way, people who want to export dollars to Europe, to balance their books.

The German energy traders are doing something similar. Every time they shave a slice off a swing in the spot price of power, they absorb some of the risk which end users of power would otherwise face on their own.

But there is a cost – the trader’s profits come straight from the bottom line of productive businesses which use electricity. Fine if there was a point to all this activity – but all this increased volatility, risk, and cost is completely artificial. It is purely a product of insane German energy policies. In the real world, the profits the energy traders make from damping down this politically inflicted price uncertainty, from selling a sliver of safety to end users who are at the mercy of the green madness, is yet another component of the hideous macroeconomic cost of renewable energy.

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Mark from the Midwest
January 19, 2016 7:39 am

As soon as you introduce this kind of high speed trading activity everyone ignores the fundamentals of the market, and everyone works to game the system. The idea of creating value for the end user goes kaput! I’m sure my Swiss brethren are enjoying every nano-second of this, and I’m sure the tree huggers of the world have no clue about how they’re getting fleeced.

James Strom
Reply to  Mark from the Midwest
January 19, 2016 8:34 am

The danger is that the programmers inadvertently introduce a feedback loop into the system. (Which could indeed lead to trading that ignores the fundamentals.)

Edmonton Al
Reply to  Mark from the Midwest
January 19, 2016 9:20 am

Maybe “chopped down” instead of fleeced. …… ;^D

ferd berple
Reply to  Mark from the Midwest
January 19, 2016 10:15 am

This will create a huge market for batteries connected to the trading market. Buy low sell high into the grid.
Guaranteed feed-in tariffs is the problem. Even if the spot price goes negative due to massive over-supply, solar and wind keep on churning out the power. Allowed to continue they will eventually burn out the grid.
The State ends up having to pay the green producers to stop producing, in a form of green blackmail. While everyone else ends up paying. Another case of paying farmers not to grow crops, only now the farmers have a gun to everyone’s head.

Reply to  Mark from the Midwest
January 19, 2016 1:52 pm

It’s the tree huggers who are enabling the fleecing of everyone else. They’ve made it perfectly clear that they’re willing to allow the price of energy to rise so high that nobody can afford to use it.

January 19, 2016 7:41 am

Liberal logic truly verges on insanity !!

January 19, 2016 7:59 am

A graph showing percentage use is a little misleading.
In summary though, coal use in Germany has not changed since 1995.
AND – they mine vast quantities of lignite a.k.a. brown coal. Cheap, low grade and high pollution coal.
Meanwhile they also now need a high quantity of flexible gas generation to fill the voids left in supply when solar and wind fail to deliver.
This so-called “miracle” has cost the Germans hundreds of billions of euros, and will continue to cost their bill payers billions into the next couple of decades, because the subsidies are guaranteed.
The dire situation is explained in all its inglorious details here:
“Germany, with its aggressive EnergieWende, AtomStopp, and environmentalist opposition to fracking, has become more rather than less dependent on Russian energy during the Putin years. Although the windmill turbines are spinning (and spoiling the German countryside) and the solar panels are straining to capture rare sunlight, the Germans understand that they are out in the cold without “GazPutin,” as he is called in some circles. It is either Putin’s gas or the sky-high electricity prices, which threaten Germany Inc.’s fabled manufacturing competitiveness.”

George Tetley
Reply to  indefatigablefrog
January 19, 2016 8:24 am

Just Google “German Sunlight” average for the year/country is 30 hours a month.
The problem being that Germany is the most misinformed European Country, no change since Gobels was in charge.

Monna Manhas
Reply to  George Tetley
January 19, 2016 8:54 am

More like about 127 hours per month, but that’s still pretty low. It would be hard to generate electricity for a whole country on less than 4 1/2 hours a day (average) of sunlight.

George Tetley
Reply to  George Tetley
January 19, 2016 9:40 am

Sorry, that was supposed to be a week.

Ziiex Zeburz
January 19, 2016 8:15 am

How to bankrupt Microsoft ? 1 day with Merkel in charge.

January 19, 2016 8:56 am

Merkel’s policies are not intended to help the German people..
Today the average German citizen hasn’t the time to fret on energy. They’re quite busy trying to stop the latest invaders from treating German women the way the Russian army treated them.

January 19, 2016 9:01 am

For one wonderful second I thought that the Germans had handed over the running of the system to a four-year-old person and that at last we might see some common sense.
Oh well ….. .

Alan Robertson
Reply to  Oldseadog
January 19, 2016 9:53 am

The Germans still have Oktoberfest, so they get something right. I know, I know, they have it in September, but still…

ferd berple
Reply to  Alan Robertson
January 19, 2016 10:08 am

The Germans still have Oktoberfest
Groperfest is the new Germany.

Reply to  ferd berple
January 19, 2016 11:02 am
Warren Latham
January 19, 2016 10:00 am

Thank you Eric: much appreciated article.
Top graph is EXCELLENT.
Since nothing is “renewable” could you suggest please a DIFFERENT word or clause to replace it (when referring to wind turbines and solar panels) ?
Thank you.

Wayne Delbeke
Reply to  Warren Latham
January 19, 2016 11:40 am

Warren Latham on “Renewables” : How about “Subsidy farms”??? Good call since Coal, Nuclear, Natural Gas, and even donkeys walking in a circle grinding grain are all renewable. Donkey gets old, replace him with a new one. I just came in from feeding my organic “renewables” in the pasture. I used to “renew” water and waste water facilities and other utilities including roads and bridges. I am continually “renewing” my house and my fences.
Odd that word was chosen for solar, wind and biofuels – I suppose it might have been from the “Reduce Reuse Recycle” program and someone decided they wanted another R word to go with them.
Thing is, I think we have been “renewing” wind technology from the days of sailing ships, and thinking of those days, I am sure Reduce and Recyle were in there too. Renew was too but with a different aspect. We used to “renew” our shoes, saddles, harness etc with patches and up grading. With care and renew, they could last 100 years. Wind Power uses the word “REPOWERING” for this. When they begin replacement of failing and old turbines they call it Repowering.
It doesn’t matter what you call it. ” A rose by any other name would smell as sweet …” Shakespeare.
So lets take a look at the root of the word – RENEW:
verb (used with object)
to begin or take up again, as an acquaintance, a conversation, etc.; resume.
to make effective for an additional period:
to renew a lease.
to restore or replenish:
to renew a stock of goods.
to make, say, or do again.
to revive; reestablish.
to recover (youth, strength, etc.).
to restore to a former state; make new or as if new again.
verb (used without object)
to begin again; recommence.
to renew a lease, note, etc.
to be restored to a former state; become new or as if new again.
So there you have it. RENEWABLES mean they must be restored, started over, revived, made effective for an additional period, repaired …

January 19, 2016 10:31 am

Ecoloon manipulation of the once staid energy markets was designed by ENRON to create volatility in the those markets so they could skim of vast profits out of those markets. This is no accident! It is by design so traders can profit…pg

January 19, 2016 11:19 am
Brian H
Reply to  Marinus
January 20, 2016 1:16 am

Hydro is in a class by itself, there.

Reply to  Marinus
January 20, 2016 11:59 am

If you look at those generation figures, it seems to be what would have been expected. But German grid operators have been turning off wind power (but are still required to pay them for the expected generation) so that the wind power doesn’t destabilize the Germany energy grid.
Also, if you look at the production profile, you’ll see that conventional generation follows load as it was designed to do, but that solar and wind just jump up when it suits them. What this means in Germany is that they had to build the conventional systems to keep the supply stable for demand at all times. They are then required to buy the wind and solar power, first, when it is available. That conventional generation is then sold on the international grid (not making up for the guaranteed rates paid to wind and solar, by the by).
The actual contribution is that which is not already supplied by conventional means, which is marginal. (Note that “biomass” generally means they are burning trees in converted coal plants, because it’s “green.”)

Gary Pearse
January 19, 2016 11:38 am

The market is simply saying this is not a viable (sustainable??) form of energy. Energy is not commodity type commodity. If bananas increase in price because of crop failures, we go to pineapples and mangoes, if wines go up to much, spirits and beer. Energy is not something we can’t be flexible about using. We need it when we need it and it’s got to be there. Bananas are nice but we can do without them without suffering.

Gary Pearse
January 19, 2016 11:39 am

not something we can be flexible about using.

January 19, 2016 12:26 pm

Solar panels at 50+ degrees north. Hmmm. Is that the point at which Vlad put a celebratory vodka in the fridge?
Despite the undignified scramble back to coal, Germany is really wanting Russian gas; Japan, sick of expensive LNG, and China are doing deals for piped Russian gas …that’s some very big economies wanting to depend on Russian gas. (Of course, a regime change in Syria could make things nice for a Qatari pipeline to a Turkish hub, so to show those Russkis a thing or two we could always topple another “murderous regime”. Erdogan might like us again, at least for a few minutes.)
Meanwhile, the rest of us all need gas to supplement sucky wind and solar. (In the just holy against coal and nukes, those “alternatives” are just the hyper-expensive decor. It’s a commercial war and we’ve been conscripted on the side of Big Gas…which is Big Oil, but shhhh.)
But at least we have one growth industry in the West: stock-jobbing the energy price.

Reply to  mosomoso
January 19, 2016 1:15 pm

Btw, I’m not implying that Russian and other pipeline ventures are not fraught with difficulty and danger…and endless bluff. It’s for that very reason that countries with abundant coal should modernise and exploit that coal; others with the right geology etc should look at nukes. Coal and nukes are the real alternatives, and Gazprom etc know it. When Chevron gave all those millions to Sierra for the war against coal they weren’t doing it for Gaia or Bambi.
But to get some commonsense and stability happening, we are going to have to sack Big Green with a very big sack. (I’ll bet those German traders are just as tree-huggy as could be. Why go right to the top when you can go left to the top much quicker?)

January 19, 2016 1:37 pm

What may appear to be liberal green logic is really plain old fashioned greed. It comes in the form of “my rooftop with your subsidy” in place of utility scale or economies of scale. The fact that public utility regulators are also pushing this is a further sign of trouble because it involves undermined institutions and their cost savings missions. Such institutions were never designed to reward individual rooftops in a free rider arrangement with tax policy benefits for the few.

January 19, 2016 5:03 pm

There is a major disagreement between this, some other WUWT articles, and the other publication cited above
This is far too large to merely be different interpretations of the data. Someone seems to be making their story from whole cloth. Is there some reliable source to judge against?
Why am I being asked to provide my email password, after logging into my WordPress account? That seems like a phishing attack. NOT giving out my email password to any other site is basic security

January 19, 2016 7:31 pm

Advertising Age, Dec.10, 2009
‘Bloomberg Acquires New Energy Finance’
Peter T. Grauer: “This acquisition is the next step in Bloomberg’s initiative to develop and promote the carbon and clean energy markets.”
Michael Liebreich, founder of NEF, is still with with Bloomberg New Energy Finance. Liebreich has connections to those in the climate change movement. These can be followed back to people such as David King and Hans Joachim Schellnhuber.
Some of his connections at present:
Ban Ki moon
Jim Yong Kim, Pres. World Bank
John F. Kerry, U.S. Sec.of State
Achim Steiner, UNEP
Renewable energy can’t be done unless a market is made/created for investments and trading.

Reply to  Barbara
January 19, 2016 7:59 pm

Low Carbon Prosperity Taskforce
Individual Experts include:
David King
Jules Kortenhorst
Han Joachim Schellnhuber
Michael Liebreich
Achim Steiner
James Cameron
Nicholas Stern
Tim Wirth
And others.
This link should work:

Reply to  Barbara
January 20, 2016 12:39 pm

Jules Kortenhorst was founding CEO of the European Climate Foundation and now CEO of the Rocky Mountain Institute, Boulder, CO, U.S., which merged with the Carbon War Room in December 2014.
Board of Trustees includes:
Jules Kortenhorst, CEO
Jose Maria Figueres Olsen, b/o Christiana Figueres, UNFCC

Reply to  Barbara
January 20, 2016 11:14 am

U.S. Department of State Presents the Secretary’s Climate and Clean Energy Investment Forum, Oct.20, 2015, Washington, D.C.
Speakers included:
Michael Liebreich
ABC News, Chicago, May 22, 2014
‘President Obama In Chicago For 2 Fundraisers’
One fundraiser was held at the home of Michael Polsky, CEO of Invenergy.
Invenergy is and has been a developer of renewable energy projects such as wind in the U.S. and Canada.

Reply to  Barbara
January 20, 2016 4:20 pm

ABC News, Chicago, Nov.2, 2015
Hillary Clinton Chicago fundraisers
Clinton’s first stop was at the Gold Coast home of Michael Polsky CEO of Invenergy, Chicago
Invenergy develops utility-scale wind and solar projects.

January 20, 2016 12:30 am

Another very detailed overview of the German power production in recent years:
Yoy better take this article offline as it is based on completely wrong data.

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