In February half of the German onshore wind fleet — 15.4GW — was participating, up from 12GW when the mechanism began just one month earlier.
The market premium system aims not only to bring wind and renewables into a market-based business model, but also to encourage renewables operators to regulate output in line with electricity demand.
The system has three elements. The first two — the month’s average market value of electricity and a market bonus — add up roughly to the feed-in tariff rate. The third is a management premium to cover trading costs and provide an incentive for operators to leave the much simpler feed-in tariff system. The management premium amounts to €12/MWh for wind energy in the first year, dropping to €7/MWh in 2015.
Electricity traders are creating groups of renewables operators to switch to the market premium, dividing the profits between them. These pools can maximise earnings if they market electricity in high-price periods and reduce output when prices are low.
Currently around €5.8/MWh of the management premium pays for electricity network system services such as reserve energy, for which operators have no responsibilty under the feed-in tariff system. This leaves about €6.2/MWh of the management premium to be split between the trader and renewables operator pools whose electricity it is marketing, says Tobias Federico, managing director of consultancy Energy Brainpool.
The market premium seems to provide such an attractive alternative to the feed-in tariff system that critics suspect windfall profits are being earned. "Also, the jury is still out on whether the mechanism is actually sustainable and achieves the desired aims," warned Daniel Hölder of green electricity marketing firm Clean Energy Sourcing at the recent E-World trade fair in Essen.
Lack of response
The first few weeks of experience with the new system have revealed that wind energy is not reacting to market signals. This was particularly clear between 6am and 7am on 22 January when a combination of high wind on the system and low commercial and domestic Sunday morning demand caused prices to go negative, but wind was not curtailed. Wind input was running at 17.5GW and a sharp negative peak in the market price of minus €100/MWh occurred, signalling that a large surplus of electricity was available — and meaning that generators had to pay consumers €100/MWh to use electricity during that hour. If wind energy operators using the market premium system had responded to market signals, output would have been curtailed to prevent the negative peak. Analysis of the data shows only about 60MW was switched off, says Federico.
Finance and function
The failure of wind operators to respond is due to several factors. The banks financing wind projects have to agree to allow curtailment, says Hölder, which is difficult as their primary aim is maximum output. Also, many older wind turbines have no facility to receive and respond to curtailment signals — a regulation to fit this in all new turbines and encouraging retrofitting of older units was only introduced in 2009.
Finally, the data coming from network operators is a problem, according to Stefan-Jörg Göbel, head of trading and origination at Norwegian-owned Statkraft Markets, which brings to market the output from wind farms located in 70 different network areas.
"This means there are 70 different process and data standards," Göbel says, and no reliable data is available from network operators on whether demand and consumption are balanced. Real-time data processing is an "absolute precondition" for the German energy market to move towards greater reliance on renewables, and there has been hardly any progress in this area in the past 20 years, adds Torsten Amelung, managing director of Statkraft Markets.
Retrofitting turbines and updating systems requires money. "And this is where companies should invest the extra money they earn through the management premium," concludes Frank Brachvogel, a spokesman for federal energy and water federation BDEW.