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Germany

Germany

Green power traders off to a head start

Events on the green pricing front have moved at a remarkable pace since legislation to liberalise Germany's electricity sector came into force in April 1998. Citizens willing to pay extra for electricity from a renewable source form a tiny niche market in Germany, but without detailed free market legislation, green power traders are adopting some imaginative tricks to stay in business.

Traders of green power are springing up in Germany like mushrooms in a damp autumn woodland. The ground mulch of the electricity sector seems to have the right mix of nutrients to persuade a number of companies to try their hand at renewables power trading, even before the detailed mechanics of access to the electricity grid are in place. It looks as though the traders wish to get themselves established well before plans for electricity exchanges in Frankfurt, Hannover and Düsseldorf -- as well as Amsterdam in Holland -- get off the ground, probably next year or shortly thereafter.

Events on the green pricing front have moved at a remarkable pace since legislation to liberalise Germany's electricity sector came into force in April 1998. The number of green power traders now in business has expanded into double figures. All are hoping to carve out a slice of the electricity market cake.

WRE Wasserkraft und Regenerative Energieentwicklung in Frankfurt is perhaps the most ambitious. "By 2003 we plan to reach a 1% market share in Germany and England," says board director Martin Jakubowski. With a market volume of DEM 125 billion (Euro63.9 billion) in Germany and £45 billion (Euro64.3 billion) in England and Wales, he sees an "enormous" growth potential. A keen rival to WRE, Düsseldorf-based Naturstrom, is currently still sizing up the business. By the summer, it expects to have customers signed up for about three million kilowatt hours of power, of which about one-third will be from wind -- roughly equal to the output of one 500 kW to 600 kW wind turbine. So far no wind power has been contracted, but there is a great choice on offer, says Ralf Bischof of Naturstrom. The company's first green generator is a 3 kW (peak) photovoltaic plant sited at Weil am Rhein. The plant is owned by the Trinational Umweltzentrum (TRUZ), an environment centre supported by 45 organisations in Germany, Switzerland and France.

Unconvinced

Heinrich Bartelt, managing director of the German wind energy association, a co-founder of Naturstrom, is not convinced that green power trading will do much for renewable energy. The market for green power is only about as big as the market for organically grown apples or potatoes, he says. Even though Naturstrom won the title of ecological product of the year at an environment trade fair in Oldenburg late last year, beating bio-beer, Bartelt is not impressed. As a parallel market sector to Germany's Renewable Energy Feed in Tariff (REFIT) system, with its premium payments for renewables power, he does not consider green trading to be promising. "The idealists are quick to participate, and the first and second and maybe third green traders will do well," he says. For the latecomers he predicts bankruptcy.

The green traders have a variety of modes of operation. There are at least three that act as pure traders: Naturstrom, Grüner Strom in Hamburg and Solarstrombörse for solar power (table). They buy and sell green power but do not operate their own renewables plant. Another two, Mann Energie and utility-owned EWE Naturstrom, intend to sell power only from their own renewables plant. Others have taken a more flexible approach. NaturEnergie, owned by utility KWR Rheinfelden, Ökostrom Handel, utility EWS Schönau's Watt Ihr Volt scheme, and Plambeck Neuer Energien intend to not only market their own renewables power, but also to buy it in from third parties and sell it on. EWS Schönau and Ökostrom Handel will also include power from fossil fuel based combined heat and power plant in their energy mix.

Green halos

Several of the green traders have altruistic-sounding aims. Naturstrom has pledged to buy power only from new or reactivated renewables plant that cannot operate economically under the current legal and economic framework. WRE promises to help customers to save on their power bills by installing equipment that lets them see when power is cheapest. Ökostrom Handel includes incentives in its green power tariff structure to encourage customers to save energy.

Naturstrom's policy is to pay a price for renewables generated power sufficient to make economic operation of the plant possible. It will not operate plant of its own, but says that 1% of its supply mix at peak load generation will come from photovoltaic plant. The bulk of power traded will be sourced from hydropower and geothermal power station operating in base-load generation, wind and biomass fired combined heat and power plant for middle load generation, and pumped storage and biomass power stations for reserve.

WRE, which plans to start power trading in Germany in the summer, will initially offer exclusively renewables power at prices about 10% higher than normal tariffs. But to help households to save on their electricity bills despite paying more for green power, WRE will install a power traffic light in each customer's house. The instrument is plugged into any socket and with the aid of red, green and yellow lights, shows the customer to what extent green generators are producing power. The more the customer shifts power use into the green periods, the lower the final bill will be. The system is to be tested in one thousand English households before it reaches the German market.

A primary aim of Ökostrom Handel is to provide customers with a stimulus to save energy in the long term. Household customers will have access to advice on energy saving and all customers will receive a steady flow of information on the latest energy saving technologies as well as help with installing new systems, if required. Ökostrom Handel intends its energy mix to be at least 50% renewables, of which at least 1% will be photovoltaic. The rest will come from gas-fired combined heat and power plant with an efficiency of at least 75%.

Customers want proof that they are buying green power and not power from nuclear or fossil-fuel plant. Several green traders, including Naturstrom and WRE, are putting their weight behind the efforts of European environment and renewable energy associations, led by Eurosolar, to develop a certification system for green power. "For us transparency is all-important," says WRE Board director Zdenek Lomecky. Until such a system is in place, Naturstrom is guaranteeing that the power that it trades is renewable.

Despite the enthusiastic launch of green power traders, the lack of clear rules on how small generators can access the grid, along with the still embryonic mechanisms for household customers to change their suppliers, are proving to be significant barriers. Some companies have found creative ways of scaling them.

Same power, new price

Naturstrom has developed an alternative mechanism for "delivering" its power to the customer. "It has to be a paper transaction at the moment," says Bischof. Naturstrom buys sufficient power from renewable energy generators to cover the contracts with its green customers for on average DEM 0.26/kWh. This buying price is composed of the REFIT premium payment made by utilities of about DEM 0.16/kWh, plus a grid use levy of DEM 0.10/kWh. The contracted generators continue to feed power into their local utility's grid. The customer pays Naturstrom a price per kWh comprising the normal power price, an added administration charge and the cost of grid use, together about 25% more than the customer's traditional power bill. Naturstrom then pays the utility its standard rate for the power used by the customer. Once third party access to the grid is possible at a reasonable price -- according to Bischof this is under DEM 0.10/kWh -- Naturstrom will merely pay the utility a grid use fee. He adds that the utility closest to this grid access levy at the moment is RWE Energie, which charges DEM 0.114/kW plus the concession levy to the local town for way-leave rights payable by tariff customers of over DEM 0.04/kWh.

When third party access works properly, adds Bischof, Naturstrom customers will no longer be classed as tariff customers but as industrial clients. Theoretically, these clients will then be required to pay the lower industrial customer way-leave rate of just DEM 0.002/kWh. The way-leave levy is a rent for running power cables across common land. Naturstrom is in two minds over whether to use this advantage to the full, however. The way-leave levies are an important source of income for towns and parishes, amounting to about DEM 6 billion annually. "We don't want to aggravate the towns right from the start," says Bischof. But it is increasingly clear that the way-leave levy mechanism is not something that fits in a competitive system, he adds.

Ökostrom is currently negotiating with local utility HEW on rights for third party access. "We expect to conclude a contract soon," says Jens Peters of the company. The aim is to offer eco-power in the Hamburg area in the spring. The utility grids are mostly long since paid for and written off. "So we expect to have to pay a standard postage stamp rate for access," adds Harald Preukschat, responsible for marketing at the company. The aim of the trader is eventually to supply green power at prices similar to those for conventional power. "We don't want customers to have to pay a premium," he says.

Ökostrom Handel has grown out of a consultancy office for energy efficiency founded in 1989. The company plans to sell its own generation as well as green power bought in from elsewhere. It operates a 3.6 MW wind station, generating sufficient power for 1000 households, as well as a mini motor-driven CHP plant. "We have potential access to sufficient green power to supply 600,000 households," says Preukschat. The company has also approached VASA Energy, the German subsidiary of Swedish utility giant Vattenfall, about buying power. "We have close contacts with other green power traders too and with Greenpeace," says Preukschat. "But we see our activities as primarily regional, in Hamburg, Schleswig Holstein and Lower Saxony," he adds.

Green trader Watt Ihr Volt (WIV), owned by the Schönau municipal utility, has been working a system since June last year where each customer is billed by its traditional utility, but signs another contract with WIV agreeing to pay an additional DEM 0.08/kWh for a specified amount of green power. WIV guarantees the generation of the ordered amount of power from renewable sources and provides a report on its activities once a year.

Green secret

The importance of successful marketing of the product has not escaped the notice of the independent green traders. On this front they already look to be ahead of their utility competitors. The four independents -- Elektrizitätswerke Schönau, Gruner Strom, Ökostrom Handel and Naturstrom -- have to work together to strengthen public awareness of the products on offer. A primary aims is to make customers aware of the difference between the green power they are offering and the green tariff systems offered by utilities.

Although it is early days in the history of the green traders and too soon to say how the market will develop, this co-operation could well be the first sign of how the various green traders can work successfully together if the market proves to be as tight as BWE director Bartelt has warned.

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