Magnus Maier: "In the future, increasingly more renewable energy systems will go without market premium". Magnus Maier, advisor for the energy industry at the German Renewable Energy Agency (AEE), responds to seven questions regarding the further operation of photovoltaic systems without feed-in tariffs from the Renewable Energy Sources Act (EEG).
Mr. Maier, after 20 years in operation, the first photovoltaic systems will no longer be eligible for the EEG feed-in tariffs starting in 2021. What prospects do you see for the continued operation of the systems?
There are two options: self-consumption and direct marketing. Rooftop installations will be particularly affected until the mid-2020s. They will first and foremost be geared towards self-consumption. In order to enhance this self-consumption, photovoltaic system owners can combine the solar power collected with a storage device, electric car or heat pump.
What opportunities can direct marketing bring?
With direct marketing you have the option of directly supplying power without using the public grid – as is the case with tenant power – or feeding it into the grid. Systems will continue to be able to connect to the grid and take storage priority. Fed-in electricity will have to be commercialized without subsidies in order to gain revenue. If an operator want to do this on their own, they will become a utility company with all of the attached obligations and responsibilities, which involves a great amount of effort. Alternatively, the system owner can find a service provider or purchaser, for example the local municipal utility. Since the electricity will no longer be subsidized by the EEG, the operator will receive guarantees of origin and the solar power can be marketed as “green power”.
In subsequent years, increasingly fewer photovoltaic systems which have been in operation for a long time will receive EEG feed-in tariffs. According to the German Solar Association, this will affect over seven megawatts of photovoltaic output each year from 2030 to 2032. Will new opportunities for direct or energy exchange marketing be required by then to allow for continued cost-effective system production? There wouldn’t be any technical problems for the systems.
We are working with two central approaches. First, increased flexibility of taxes, levies and other charges, which could promote flexible consumption in accordance with the price signals. Second, a cross-sector carbon price, which would further improve the commercial returns of renewable electricity.
To what extent do more flexible prices help the electricity market?
Flexible electricity prices are key for developing sector coupling. Until now, price signals could not be used by the consumer, since the bulk of the electricity price is comprised of taxes, levies and other charges, which remain constant all the time. However, the variable component of the electricity price is too small to create incentives for flexibility.
In August 2018, the electricity generated by one photovoltaic system reached a higher price on the energy exchange than it reached through subsidies for the first time. Consequently, it was able to do without the EEG market premium. How does the market premium work?
Since the 2012 EEG amendment, operators of large renewable energy systems no longer receive a fixed feed-in tariff. Instead, they have to market the electricity themselves. Since 2017, the value of renewable electricity has been set via invitations to tender. The flexible market premium compensates for the difference between market returns from the energy exchange and the energy value established in tender. The higher the price is that a system operator reaches on the energy exchange for their electricity, the lower the system’s flexible market premium will drop. If 4.5 euro cents per kilowatt hour are applied to a solar farm is in a tender and the market return on the energy exchange is at 3.5 euro cents, then a market premium of one euro cent would be paid out. But if an operator sells their green power for 4.5 euro cents or more per kilowatt hour, then they will not receive any market premium, since the market value exceeds the tender value.
How do you view this in regard to the renewable energy industry?
In the future, increasingly more renewable energy systems in the coming months will do without market premium. The phasing out of nuclear energy, the tightening of emissions certificates and the dismantling of the overcapacity of coal-fired power plants will guarantee higher wholesale prices and raise the market returns on renewable energy even higher. Additionally, their market value will increase as soon as cumbersome baseload power plants are cut from the grid, enabling the electricity market to become more flexible. At the same time, the costs for producing electricity from renewable energies will continue to sink.
Contrary to populist remarks, photovoltaic electricity is not expensive. Rather, the price of electricity on the energy exchange is actually sinking. However, the levy on EEG electricity makes it appear increasingly expensive to the public. What is the Working Group on Renewable Energies (AEE) doing to clarify these associations?
The AEE makes it clear that the EEG levy is not equivalent to a price tag on the energy transition. First, a fair cost consideration of the external costs of conventional energies incurred by damages to the environment, climate and health must be factored in. These costs ultimately do not appear on electricity bills. Even when the external costs are factored out, solar power is in some ways already cheaper than electricity generated by new coal-fired power plants. Secondly, several other factors artificially increase the EEG levy. There has been a continuous rise in exemptions in the electricity intensive industry and overcapacities as well as low carbon prices in the EU Emissions Trading System are lowering the market price of electricity. Unfortunately, sinking market prices of electricity only benefit exempt companies. They don’t often get passed on to household users.