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Promoting the market and system integration of renewable energies through premium schemes: A case study of the German market premium

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  • Gawel, Erik
  • Purkus, Alexandra

Abstract

With the share of renewable energies within the electricity sector rising, improving their market (i.e. inclusion in the allocative processes of the electricity market) and system integration (i.e. enhanced responsibility for grid stability) is of increasing importance. To transform the energy system efficiently while ensuring security of supply, it is necessary to increase the alignment of renewable electricity production with short- and long-term market signals. By offering plant operators a premium on top of the electricity market price, premium schemes represent a potential option for achieving this, and have been implemented by several EU member states. This paper focuses on the case study of the German market premium scheme, which has been adopted as part of the 2012 amendment of the Renewable Energy Sources Act. Building on an evaluation of early experiences, we discuss whether the market premium in its current design improves market and/or system integration, and if it seems suitable in principle to contribute to these aims (effectiveness). Also, potential efficiency gains and additional costs of administering integration are discussed (efficiency). While market integration in a narrow sense (i.e. exposing renewables to price risks) is not the purpose of the German premium scheme, it has successfully increased participation in direct marketing. However, windfall profits are high, and the benefits of gradually leading plant operators towards the market are questionable. Incentives for demand-oriented electricity production are established, but they prove insufficient particularly in the case of intermittent renewable energy sources. It seems therefore unlikely that the German market premium scheme in its current form can significantly improve the market and system integration of renewable energies. To conclude, we provide an outlook on alternative designs of premium schemes, and discuss whether they seem better suited for addressing the challenges ahead.

Suggested Citation

  • Gawel, Erik & Purkus, Alexandra, 2013. "Promoting the market and system integration of renewable energies through premium schemes: A case study of the German market premium," UFZ Discussion Papers 4/2013, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  • Handle: RePEc:zbw:ufzdps:42013
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    1. repec:eee:enepol:v:109:y:2017:i:c:p:324-336 is not listed on IDEAS
    2. Hahn, Henning & Krautkremer, Bernd & Hartmann, Kilian & Wachendorf, Michael, 2014. "Review of concepts for a demand-driven biogas supply for flexible power generation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 383-393.
    3. Narbel, Patrick A., 2014. "Rethinking how to support intermittent renewables," Discussion Papers 2014/17, Norwegian School of Economics, Department of Business and Management Science.
    4. repec:eee:renene:v:113:y:2017:i:c:p:1111-1121 is not listed on IDEAS
    5. Mignon, Ingrid & Rüdinger, Andreas, 2016. "The impact of systemic factors on the deployment of cooperative projects within renewable electricity production – An international comparison," Renewable and Sustainable Energy Reviews, Elsevier, vol. 65(C), pages 478-488.
    6. Jägemann, Cosima, 2014. "An illustrative note on the system price effect of wind and solar power - The German case," EWI Working Papers 2014-10, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    7. Chaves-Ávila, J.P. & Hakvoort, R.A. & Ramos, A., 2014. "The impact of European balancing rules on wind power economics and on short-term bidding strategies," Energy Policy, Elsevier, vol. 68(C), pages 383-393.
    8. Narbel, Patrick A., 2014. "Rethinking how to support intermittent renewables," Energy, Elsevier, vol. 77(C), pages 414-421.
    9. Zipp, Alexander, 2015. "Revenue prospects of photovoltaic in Germany—Influence opportunities by variation of the plant orientation," Energy Policy, Elsevier, vol. 81(C), pages 86-97.
    10. Strunz, Sebastian & Gawel, Erik & Lehmann, Paul, 2016. "The political economy of renewable energy policies in Germany and the EU," Utilities Policy, Elsevier, vol. 42(C), pages 33-41.
    11. Jean Michel Glachant & Arthur Henriot, 2013. "Melting-pots and salad bowls: the current debate on electricity market design for RES integration," Cambridge Working Papers in Economics 1354, Faculty of Economics, University of Cambridge.
    12. Gawel, Erik & Strunz, Sebastian & Lehmann, Paul, 2014. "Wie viel Europa braucht die Energiewende?," UFZ Discussion Papers 4/2014, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    13. Auer, Benjamin R., 2016. "How does Germany's green energy policy affect electricity market volatility? An application of conditional autoregressive range models," Energy Policy, Elsevier, vol. 98(C), pages 621-628.
    14. Lund, Peter D. & Lindgren, Juuso & Mikkola, Jani & Salpakari, Jyri, 2015. "Review of energy system flexibility measures to enable high levels of variable renewable electricity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 45(C), pages 785-807.
    15. Winkler, Jenny & Gaio, Alberto & Pfluger, Benjamin & Ragwitz, Mario, 2016. "Impact of renewables on electricity markets – Do support schemes matter?," Energy Policy, Elsevier, vol. 93(C), pages 157-167.
    16. May, Nils, 2017. "The impact of wind power support schemes on technology choices," Energy Economics, Elsevier, vol. 65(C), pages 343-354.
    17. Marques, António Cardoso & Fuinhas, José Alberto & Menegaki, Angeliki N., 2014. "Interactions between electricity generation sources and economic activity in Greece: A VECM approach," Applied Energy, Elsevier, vol. 132(C), pages 34-46.
    18. Erik Gawel & Sebastian Strunz & Paul Lehmann, 2016. "Support policies for renewables Instrument choice and instrument change from a Public Choice perspective," WIDER Working Paper Series 006, World Institute for Development Economic Research (UNU-WIDER).
    19. Carsten Herbes & Lorenz Braun & Dennis Rube, 2016. "Pricing of Biomethane Products Targeted at Private Households in Germany—Product Attributes and Providers’ Pricing Strategies," Energies, MDPI, Open Access Journal, vol. 9(4), pages 1-15, March.
    20. Ayodele, T.R. & Ogunjuyigbe, A.S.O., 2015. "Mitigation of wind power intermittency: Storage technology approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 44(C), pages 447-456.
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    23. Wassermann, Sandra & Reeg, Matthias & Nienhaus, Kristina, 2015. "Current challenges of Germany’s energy transition project and competing strategies of challengers and incumbents: The case of direct marketing of electricity from renewable energy sources," Energy Policy, Elsevier, vol. 76(C), pages 66-75.

    More about this item

    Keywords

    Renewable Energies; Market Integration; System Integration; Market Premium; Renewable Energy Sources Act (EEG); Efficiency;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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