Austria’s energy mix: how renewables created an independent price area

Austria, like many European countries, is navigating significant challenges as it looks to decarbonise its power sector. As renewables continue to increase volatility within short-term energy markets, Austria's energy sector is perhaps one of the better placed countries to address these challenges given it’s historical use of hydropower, which can be ramped up or down depending on the required demand.

Austria's traditional reliance on hydropower

Austria has long been recognised for its reliance on hydropower, which accounts for a substantial portion of its electricity generation. The country's mountainous terrain and abundant water resources have historically made hydropower a logical choice. However, this reliance also makes Austria particularly vulnerable to variations in hydrological conditions.

The data from recent months underscores this point. Austria, along with other Alpine countries like Switzerland and Italy, experienced strong hydropower production during winter 23/24. This was largely due to a significant increase in precipitation during the autumn, which filled reservoirs and provided a robust supply for hydroelectric generation.

However, the situation began to normalise as summer 24 approached, with July marking a particularly dry period. As you might expect, this shift has significant implications for Austria, as lower water levels directly reduce the hydroelectric production available.

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How intermittent renewables can provide balance

Whilst it is widely accepted that weather-dependent renewable energy generation can provide challenges to grid operators used to controlling flexible fossil-fuelled power plants, Austria found itself in a unique situation this summer. By using complementary renewable energy sources, the country was able to operate almost like a Virtual Power Plant.

Alongside the traditional pumped storage hydro, solar generation was key to reducing Austria’s reliance on imports this summer. When the sun was shining, Solar PV was able to meet a large part of demand for electricity in the country, whilst water reservoirs (which were above average thanks to favourable conditions during H1) allowed for hydro facilities to fill supply gaps when the weather was unfavourable. Pumped storage was also then able to fill up during solar peaks, reducing price volatility overall.

This boom in solar generation, coupled with above average hydro power production in the first half of the year, also meant that Austria actually flipped from its traditional position as a power importer to become a power exporter over the summer. Other contextual factors also affected this, such as Ukraine’s requirements to import power from SEE - having been a regular exporter to the region before the current conflict broke out.

How this led to energy price independence

Austria’s ability to rely on its own generation to meet demand meant that it required fewer imports from the like of Germany and other surrounding countries this summer. As a result, Day-Ahead prices in Austria were significantly less correlated with their neighbours than we would normally expect. In fact, commercial export volumes were maxed out, showing more net export than anytime in the last 5 years.

Figure 3 shows that Austria's traditional (yearly) net import position turned into net export in 2024 until the end of July. It also displays how the record year-on-year jump in solar output, combined with above average hydropower generation and pumped storage flexibility provided Austria with independence from the volatility observed in other European energy markets.

If we take deeper look, examples on a daily level taken from Montel Analytics show the very different use of pumped storage when we compare 2021 to 2024:

In contrast to 2021, 2024 saw pumped storage consumption (in other words, pumped storage was filling up) during the solar peak and generation in the evening peaks (daily 'natural' battery) helps to avoid price volatility and need for power import.

However, this was still not enough to allow further price harmonisation to SEE. This price signal shows the need for additional interconnector capacity, which would benefit not only the SEE buyers but Austrian producers as well.

Figure 6 shows that the correlation between energy prices in Austria decreased slightly with France and Germany, whilst "decoupling" between Italy and Poland was significant.

In comparison, figure 7 shows a massive decrease in energy price correlation with many European energy markets. From a wider European view, price correlation across Europe was lower this year more generally. An influx of new generation in Germany for example helped reduce traditional reliance on imports from France, leading to lower correlation in power prices between those two countries compared to normal.

Austria's Q4 Outlook

The flexible energy mix of Austria and its energy independence is still very much reliant on hydropower.

From the charts above we can see that the very dry July and August brought the total hydro generation down below the 5-year average. That flipped the country’s commercial exchange position back to net importing August.

For the beginning of September, we currently see a very material improvement on the Hydro Balance, based on the most recent weather outlook, suggesting that things are set to return to something approaching normal in the region.