Industry split over top-up premiums

GERMANY: German wind power experts are divided over the possible introduction from next year of an optional market premium model under which renewable-energy plant operators would sell the electricity they generate at market prices but receive an additional premium.

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This would be set at a level that makes it attractive for operators to opt for this system instead of the feed-in tariff (FIT) in operation.

The debate over how wind power can abandon the current support system and better engage in the market as an equal partner is heating up in Germany ahead of amendments to the Renewable Energy Sources Act, due in the summer. Electricity generated from renewables is keeping wholesale electricity prices low but is still reliant on support from the FIT.

"The market premium model will have to be structured favourably enough to persuade wind station operators to leave the FIT but at the same time avoid excessive profits," says Felix Muesgens, energy economics professor at Brandenburg technical university and co-founder of R2B Energy Consulting.

Wind operators that are trading effectively would receive a premium in excess of the FIT but they would deliver greater market efficiency in return. "The operator will tend to sell electricity when the price is high and curtail wind output when, for instance, the price is negative," Muesgens explains.

Power from renewable sources now accounts for some 15% of Germany's national electricity consumption.

Towards integration

"A mechanism to push forward with integrating wind and renewables generation in the electricity market is needed because their market share is inexorably growing and we need a single competitive marketplace rather than the divided parts we have now," says Muesgens.

"Although wind power has a limited potential to react to price signals," he says, "a change to the market premium model is a first step towards complete market integration."

Under the current FIT system, renewables electricity enjoys guaranteed uptake on to the electricity network. This system was devised to allow renewables operators to establish themselves against the market power of Germany's four major generator companies: RWE, E.on, Vattenfall Europe and EnBW. As a result, renewables operators are unaffected by market signals and generate electricity regardless of whether the wholesale market price is high or low.

No change needed

Other observers question the need for a new system for market integration. "The best method for market integration of wind and renewables remains the feed-in tariff mechanism itself, since the built-in annual tariff decrease means that, over time, the market price will automatically become more attractive," says Stefan Brune, electricity market expert at renewables company Enertrag.

Brune also points out that an optional alternative already exists in the so-called green privilege mechanism, which exempts electricity suppliers from payment of the renewables energy levy on all the electricity they supply if they source at least 50% of their power from renewables generators who are not reliant on the FIT.

The effect of the exemption on such suppliers is then redistributed to all other consumers, raising their levy correspondingly. Use of the mechanism started to become attractive this year when the renewables levy increased to EUR0.0353/kWh.

"Independent renewable-energy generators are currently gaining initial experience with the green privilege mechanism - it needs some adjustments but it should continue to be an option," says Brune. Ironically, fearing a dramatic increase in its use, the German government said in February that it was considering a EUR0.02/kWh cap on the exemption from the beginning of 2012 which, if implemented, would remove the incentive to use the mechanism.

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