Market integration of renewable energies through direct marketing - lessons learned from the German market premium scheme

Abstract

Background: Increasing the market and system integration of renewable energy sources (RES) is regarded as key to reducing the costs of RES support and transforming the electricity system. In several EU countries, feed-in premium schemes have been implemented to better align RES production with electricity prices and to enhance the efficiency of RES marketing by increasing direct participation of producers in electricity markets. This paper examines the lessons learned from the German market premium scheme, which was introduced in the Renewable Energy Sources Act 2012 as an optional alternative to feed-in tariffs. The 2014 reform of that law has made direct marketing mandatory except for small RES plants, thus establishing the sliding market premium as the new primary instrument of RES support. Methods: Combining a qualitative economic analysis with insights from sociological research on direct marketing and simulation results from agent-based modelling, we evaluate how well the optional market premium has performed in setting incentives for demand-oriented RES production and efficient marketing of RES electricity. Furthermore, we examine what efficiency gains can be realistically expected from the changes implemented in 2014, and discuss whether the direct marketing model adopted in Germany is a promising approach for improving the market integration of RES. Results: We find that direct marketing has made a positive contribution to the marketing efficiency of dispatchable RES; for intermittent RES, it provides few structural changes compared to marketing through transmission system operators. The benefits of a greater demand-orientation of RES feed-in remain limited when considering the extent to which load shifting is incentivised. For intermittent RES in particular, incentives for demand-oriented feed-in are only effective in times of negative electricity prices when voluntary curtailment is encouraged. Conclusions: For the further development of mechanisms to support greater market proximity, differentiating between the various RES according to their ability to respond to electricity price signals can prove advantageous. Also, objectives such as improving security of supply and reducing the costs of transforming the electricity system cannot be reached through RES market integration efforts alone but require an adaptation of electricity market conditions to the requirements of RES.