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Major policy change on the way in Germany -- Government takes steps to integrate wind into wholesale power market

With about 18% of Germany's electricity now coming from renewables and 12% from co-generation -- both of which have "must run" status -- the clash of interests between clean energy producers and the conventional generation sector is causing increasing disruption in the efficient operation of the power market. Although wind contributes only 7% electricity over a year across the country, it is supplying up to 40% in specific regions. The current market structure is being stretched to its limits.

At the heart of the problem lies an inflexible support system for wind energy on the one hand, and rigid power scheduling arrangements in four separate geographical zones for balancing supply and demand on the other. Reacting to calls for change from all players, the German government is taking its first steps to integrate wind into a more flexible and efficient structure for managing power generation and supply.

In changes to the renewable energy law passed in June (Windpower Monthly, July 2008), the government is opening the door for gradual integration of wind generation into the main power market. Until now it has been treated separately in a protected market of its own. "Our aim has always been to take wind to market once the rules allowed for competition on even terms," says Ralf Bischof from Germany's wind energy association, the Bundesverband Windenergie (BWE).

Better prices

Bischof is supportive of the government's move to offer wind power generators an alternative sales outlet to the traditional "feed-in tariff" mechanism, which requires Germany's four transmission system operators (TSOs) to buy all wind electricity. But fine tuning is necessary for a fair market, he says, such as a payment in recognition of the embedded generation value of wind power and a mechanism to manage balancing power that does not create unnecessary costs.

The purchase price paid by the TSOs is decided by the government and paid over a period of 20 years for each turbine. As wind plant get older, the rate declines. But with electricity prices on the broad power market steadily rising in tune with fossil fuel prices, selling wind power directly into the market, instead of through the feed-in mechanism, is becoming a better economic option, at least for some wind plant owners. The rate for older turbines is EUR 62/MWh, while future contracts for electricity on the broad market are now fetching EUR 80/MWh, points out Bischof.

Prices on the spot market tell the same story. In June, the average base load price for the month was EUR 73.24/MWh and the peak load price EUR 103/MWh. At that rate the peak price was higher than the increased payments for onshore wind power as laid down in the revised renewable energy law. These come into force at the start of 2009.

To the frustration of energy traders keen to take advantage of the new opportunity for trading wind power outside the feed-in tariff market, the rules governing the new system will not be in place until mid-2009 at the earliest. "Regulations setting out the details have yet to be drawn up, rubber stamped by cabinet and then passed by parliament, and we are right at the beginning of the process," says Jürgen Maa§ from the environment ministry, which is in charge of fleshing out the details of the renewable energy law. "A first draft may be available in October, so the regulations could be in place by next summer," he says.

What has been promised in the new law is a bonus payment for wind operators who decide to opt out of the feed-in tariff and into the market. This per kilowatt hour bonus, paid on top of the purchase price, could help cover the costs of paying trading companies for their services and any balancing costs charged to wind power.

More efficiency

The new law also aims to bring far greater efficiency to the TSOs' administration of the feed-in tariff market. Currently, in an exercise on paper only, the system operators package wind power with other generation to supply "blocks" of firm power to electricity retailers, a service they charge for. In reality, wind power feeds into the grid and is mixed with all other generation. On a system as large as Germany's, which is also interlinked to its neighbours, the potential for large discrepancies in supply and demand is greatly reduced compared with a smaller system, with the result that actual power balancing is far less than the paperwork indicates. In other words, balancing costs are lower in real terms than the charges levied to cover them.

Largely at fault is the rigidity of Germany's power scheduling system, which was devised for an earlier era. Smaller municipal utilities are particularly hard hit. A year ahead of making their electricity purchases on the wholesale market, retailers are told by the TSOs how much renewable energy they can expect to receive. Since these forecasts cannot be accurate a year later, retailers find themselves forced into a market where they are all competing at the same time to either buy power to make up for a deficit in renewables supply, which pushes prices up, or selling power excess to requirements, which pushes prices down. The beneficiaries are largely the sister marketing companies of the four major conventional power generators.

The new renewable energy law promises to stop this inequity. It rules that in future the TSOs must market wind power "efficiently." How this will be achieved remains to be seen. The national association of new energy producers, the Bundesverband Neuer Energieanbieter (BNE), advocates a straightforward solution -- requiring the TSOs to sell wind power directly into Germany's spot market for electricity through the EEX electricity exchange. Any shortfall suffered by the TSOs between the price they pay for wind power by law and that obtainable on the EEX can be covered by revenues from the renewables levy paid by all electricity customers, says BNE.

Meantime, the electricity market regulator is insisting that the division of Germany by the TSOs into four areas for balancing supply and demand must stop. A far larger balancing region will reduce costs to all and greatly help the smooth integration of wind power.

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