German renewables shift welcomed by energy firms

A push to increase the number of German renewable energy producers that directly market their output has received a positive reception from energy trading firms, which are likely to benefit from the changes

Energy trading firms are welcoming a recent change to Germany’s renewable energy legislation that will require the owners of all but the smallest renewable generation facilities to take responsibility for directly marketing their electricity.

The amendments to the German Renewable Energy Sources Act – also known as the EEG – came into effect on August 1. An increase in the number of renewable producers that must directly market their power is expected to be good news for utilities and other energy trading firms that play a critical role in this process. The move is also popular with the broader energy trading community, with firms hoping that a proper integration of renewables with the wholesale market will improve grid stability and reduce the incidence of negative prices.

"The direct marketing scheme and its participants are helping to change the course on negative pricing, because if there are prices of –€80–90 per megawatt-hour (/MWh), then we can control and turn off our assets and that will help with grid stability in Germany," says Eddie Weissenborn, Hamburg-based country manager for renewables at energy trader Danske Commodities. "It will also help the prices to go up because, of course, the more power you take out of the market, the more the price will stabilise."

Germany's EEG has undergone numerous changes as renewable electricity production has increasingly made up a higher share of the country’s total output. In January 2012, renewable generators first gained the option of using the ‘direct marketing model’, rather than simply receiving a fixed feed-in tariff, which guarantees producers a high price for their power.

Under the direct marketing model, if generators are willing to take responsibility for bringing their own electricity to market, they receive a monthly premium, in addition to the price of wholesale electricity. The idea is to incentivise generators to reduce imbalances in the system, rather than encouraging them to transmit power under any circumstances – something that has previously led to prices of less than –€500/MWh in the intraday market.

With this new law, the [direct marketing] model is confirmed… [this is] good news for us

Many of Germany’s renewable installations are owned by investors, municipalities and industrial corporates, which lack the ability to trade and optimise their output in the wholesale market. As a result, this function is typically undertaken by utilities and trading firms, which aggregate and manage large portfolios of renewable power. The recently-strengthened mandate for direct marketing is applauded by such firms.

"Previously, [direct marketing] was voluntary for our customers and it wasn't entirely clear whether it might also be drastically changed again from the regulatory side, or whether the lawmakers would stick with it," says Janosch Abegg, Düsseldorf-based head of market access and renewables integration at Norwegian state-owned utility Statkraft. "With this new law, the model is confirmed… [this is] good news for us, because we can more safely invest in it."

Many renewable generators had previously only signed one-year contracts with Statkraft to directly market their energy, notes Abegg. But in the past couple of months, such clients have shown greater interest in signing three- to five-year contracts.

Since the introduction of the direct marketing model in 2012, take-up has varied among different types of renewable producers. The owners of wind turbines generally receive more attractive returns from direct marketing compared with traditional feed-in tariffs, so demand for direct marketing for such facilities has been high, says Danske’s Weissenborn. "We have a 90% penetration for onshore wind… so that has been a huge success.”

But it's a different story for solar, he says. "If you look at solar power, [it is] below 15% and that is mostly due to the fact that there are a lot of smaller plants where it is currently not viable to go into the direct marketing scheme – a lot of roof installations and things like that."

The use of direct marketing by solar generators is likely to rise in future. Under the amendments to the EEG, any new renewable installations producing 500 kilowatts (kW) or more will be required to use the direct marketing model. The exemption is for small plants that generate less than 500kW and were built before January 1, 2016. After January 1, 2016, only new plants generating less than 100kW will be able to opt out.

Statkraft, Danske Commodities and other aggregators of renewable production, such as Swedish utility Vattenfall, say they are starting to see more interest from smaller solar producers and are looking to expand in this segment of the market. However, there are drawbacks to direct marketing for smaller generators. One is that facilities must be able to be remotely controlled to add them to an aggregator’s portfolio – a measure that could cost several thousand euros, deterring smaller solar producers.

Another problem is the weather. In order to effectively trade and optimise renewable generation, accurate weather forecasting is required. This can become difficult if an aggregator is trying to manage many smaller solar installations dotted around the country. "You are strongly depending on the quality of your weather forecasts, and of course, it is a bit more challenging if you have small solar farms distributed over the country, compared to a few large wind farms," says Christine Lauber, director of asset optimisation sales and renewables at Vattenfall.

Nonetheless, Vattenfall and its competitors believe such problems can be overcome, saying they are confident that advances in forecasting technology should help. And the EEG makes clear that – with the exception of the smallest generators – the energy industry will have to find a way of properly integrating renewable production with the broader power market.