Market Integration of Wind Generation in Germany
After describing the
special characteristics of wind energy it is important to analyze the market integration
of wind generation in Germany.
Klessmann et al.
(2008) therefore analyze the integration of wind energy in Germany, Spain and
Great Britain. In the paper at hand, only Germany’s market is discussed.
As there are
fluctuations in the wind yield, wind power plants are limited in replacing
conventional power generators. In Germany there are currently 21,164 wind
energy plants with a power of about 25,777 MW and an amount of 7.58 percent of
the gross electricity consumption and thus wind power generation is the most
used form of renewable energy in Germany (BWE, Statistics, 2009). There are
different support schemes in Europe for the market integration of renewable
energy. Germany’s scheme is the feed-in tariff where renewable electricity
(RES-E) generators sell their produced electricity at a legally regulated price
per kWh to the electricity suppliers. The Renewable Energy Sources Act (“Erneuerbare
Energien Gesetz”, EEG) guarantees with this priority feed-in and fixed feed-in
tariffs for each renewable energy source. Most often, the tariffs are
guaranteed for a fixed period of 20 years but tariffs for new installations are
decreased every year by a certain percentage in according to technological
improvement (Klessmann, 2008).
RES-E Generators sell
their electricity under a guaranteed price to the Distribution Network Operator
(DNO) to whose grid the energy plant is physically connected. Market prices, rules
and risks of the market are not relevant for the generators; however, the
electricity is still integrated into the market. The DNO transfers this
electricity at a fixed price to one transmission system operator (TSO) who is
responsible for the transformation of the profile into standard load profiles
and also for forecasting, scheduling and balancing. The DNO charges additional
costs such as price differences between the tariffs and the market prices to
the consumers. The advantage of the forecasting of the TSO is that forecasting
is more precise but on the other hand there is no incentive to minimize possible
forecast errors and the balancing costs as they are paid by the customers
(Klessmann, 2008).
A significant effect
of using renewable energy is that after the Renewable Energy Sources Act (EEG) all
the RES-E will be taken first in the merit order and so the revenues of fossil
fuel plants will decrease. Plants with the lowest variable production costs are
put into operation first. Most renewable energy technologies have low variable
costs and zero fuel costs. That is one reason for taking renewables first in
the merit order. However, this could lead to lower capacity investments or even
disinvestments in fossil fuel plants, which could be a problem at times when
wind energy and its availability is low as the lower investments in fossil fuel
plants could increase spot prices for fossil plants (Klessmann, 2008).
Furthermore the EEG
guarantees easy grid access. The RES-E plant operator only pays for the connection
to the nearest grid connection point. In case that there is not enough capacity
to transport the generated electricity, the network operator has to reinforce
the grid. Originated costs can be charged to the consumers.
Neubarth et al. (2006)
also discuss the effect of RES-E on electricity market prices. They state that
spot market prices at the European Energy Exchange in Leipzig (EEX) were lower
than average on days with high predicted wind power feed-in. For the pricing
the wind forecast should not be composed of hours but rather of the wind
conditions of the whole day. They estimate an average spot market price
reduction of 1.89 €/MWh for every 1000 MW forecasted wind power. However, the
price reductions are not relevant for the generators as they are paid fixed
feed-in rates. It is more important for the TSO that trades parts of this
electricity day-ahead on the market.
Another important part
of wind energy generation is the offshore wind generation. According to studies,
the yield is 40% higher than the generation onshore (BWE, Offshore, 2009). The
development in Germany is still behind in this field. Reasons for this are for
example the lack of know-how in building and the costs – especially at the
beginning. With the EEG from 2009 the payment for offshore wind power has been
set to 15 ct/kWh for the first 12 years. This improved the conditions. It is assumed
that about 25,000 MW power could be realized until 2030. In combination with
onshore wind generation 25% of the used electricity in Germany could be
realized only with wind power but there are still many requirements that have
to be fulfilled (such as better knowledge of building) (BWE, Offshore, 2009).
Discussing the
different impacts of the market integration of wind generation in Germany, the
different power markets and in turn the impacts of the integration on the
markets should be also considered. Klessmann et al. (2008) integrate some
impacts in their study.
In forward markets the
electricity is traded ahead of its delivery. It is possible to trade years
ahead but also only hours ahead. Day-ahead markets and intra-day markets are
most relevant for stochastic RES-E like wind energy as their output cannot be
predicted far in advance.
The balancing market
is a more physical market, as all trades correspond to actual power flows.
Power that is sold in forward markets but not delivered in real time will be
purchased in the balancing market from the system operator at the imbalance
energy price.
Due to the fact that
wind energy is limited in the predictability and the TSO is responsible for
forecasting, forecasting errors should be reduced because thereby the RES-E can
be better integrated into generation dispatch and so the remaining balancing
costs are lower. The use of the intra-day market could help as schedules can be
delivered just minutes before the actual delivery which also improves the
market response. With the structure of the intra-day market it is nearly
possible to fix the forecasting problems. The closer the actual delivery the
easier and better the scheduling.
More problems are
defined by Klessmann et al. (2008). Price risks in forward markets and the exposure
to them will lead to high risk premiums for the RES-E generators but it will
lead to a better match of supply and demand because the generators are then
able to plan their generation according to market prices. This is hardly
relevant for wind power generators and so it is just a very low risk.
Besides, there are
also forecasting and balancing risks. If RES-E generators (and not only the
TSO) should forecast and balance their generation, they would have an incentive
to minimize imbalance costs. This method has also disadvantages as smaller
producers would have higher risk premiums and this could lead to a market
concentration of lager producers because the forecasting quality improves with
the number of forecasted generators.
Furthermore, the
increased use of wind energy will lead to a devaluation of existing
conventional power plants due to decreasing full-load hours. A cost-efficient
structure of conventional power plants will reflect the impacts of renewable
energies in the system. Extreme prices could be the result if the adjustment of
the conventional power plants to the increased shares of the renewables does
not work. Capacity payments may help the market to adjust the power system to
provide appropriate amounts of flexible capacity (Klessmann, 2008).
Summarizing it can be
said that under the feed-in tariff the risks for renewable energy generators
are (relatively) low as the electricity is sold at a regulated price and moreover,
with the EEG priority feed-in is guaranteed. As wind power is subject to
fluctuations it is more difficult to predict exactly the generation which could
lead to imbalancing costs. To avoid unnecessary expense resulting from errors,
the forecasting by the TSO should be more and more improved which could be
achieved for example by incentives for minimizing costs. The limitations of the
predictability of wind power have also effects on the mentioned markets
(forward markets and balancing markets).
Literature:
Klessmann,
C., Nabe, C. and Burges, K.:
Pros and cons of
exposing renewables to electricity market risks – A comparison of the market
integration approaches in Germany, Spain and the UK; Energy Policy, 2008, Vol.
36, pp. 3646-3661
Neubarth,
J., Woll, O., Weber, C. and Gerecht, M.:
Beeinflussung der Spotmarktpreise
durch Windstromerzeugung; Energiewirtschaftliche Tagesfragen, 2006, Vol. 56,
Heft 7, pp. 42-45
BWE (Bundesverband WindEnergie e.V.) – Statistics:
Die Entwicklung der Windenergie in
Deutschland 2009; ,
Recall: 20.01.2010
BWE (Bundesverband
WindEnergie e.V.) – Offshore:
Zukunftsmarkt: Offshore (2009); , Recall: 20.01.2010
EEG (Erneuerbare
Energien Gesetz):
Das Erneuerbare-Energien-Gesetz (EEG); , Recall: 20.01.2010
DE
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