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The German Electricity Market in the European context

Bocconi University. 21.1.2014. Karsten Neuhoff German Institute for Economic Research / Technical University Berlin. The German Electricity Market in the European context. The cost of German energy transition. 0. Total consumption by households. Share of power in household expenditure.

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The German Electricity Market in the European context

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  1. Bocconi University 21.1.2014 Karsten Neuhoff German Institute for Economic Research / Technical University Berlin The German Electricity Marketin the European context

  2. The cost of German energy transition 0 Total consumption by households Share of power in household expenditure • Housholds • 2,5% ofconsumptionexpenditurefor power, 1986 2,3% • Poor householdsspend 4.5% -> canbeaddressedwithtailoredpolicies • Industry • Ongoingdiscussion on structureofspecialprovisions

  3. Financing costs determine competitiveness of solar&wind 1 Assumptions: 2% Inflation, Fossil conversion losses 50%, 66% of energy from on-shore Wind and 33% Solar, no infrastructure or further system cost considered

  4. No need to shift risks for investors – avoid them! 2 Risk from: Performance/operation Performance/operation Regulatory uncertainty Regulatory uncertainty Revenue requirement (Financing costs) Future market evolution Future market evolution Green Certificates Fixed Premium Floating Feed-in Costs Costs Project risk and Balancing costs TGC market price Energy price risk Policy design TGC developers margin Transmission constraints

  5. Why the fuzz about RE targets? 3 Credibilityof LT Carbon Targets Guidanceforpolicy design 2030 RE targets: Reducepolicyuncertainty Facilitatecoordination Enhanceinnovation & reducecosts Project pipeline Policyscenarios Construction Permitting Planning % of EU Power from RE Network Reference scenario Capacity expansion Innovation Supplychain National Renewable Energy Action Plans EU Roadmap 2050

  6. Why feed-in tariffs did struggle … Weekly PV installations and feed-in tariff levels for systems of up to 30 kW in Germany Installations based on data from the German Federal Network Agency (Bundesnetzagentur), feed-in tariff based on 900 full-load hours per year and 4.5% interest. 4

  7. .. and why deployment responsive adjustment now works Advanced model: Evolution of weekly PV installations for systems up to 30 kW 5 Installations are modeled based on profitability and project duration. Source: Grau, Thilo (2012), Responsive adjustment of feed-in tariffs to dynamic PV technology development, DIW Berlin Discussion Paper No. 1189.

  8. Is there a case for continued technology differentiation? 6 Strategic choices Policy driven deployment Private sector determined (financed on balance sheet)

  9. Conclusion Focus on reducing financing costs for renewables Use financing capacity of sector for (re-)investment in conventional generation (difficult to regulate) For Renewable Energy: short-term market essential Short-term sales efficient – independent of actor Basis for long-term remuneration (feed-in, tender) For Conventional Generation: short-term market essential Remunerate full value provided to system Provide reference price for mid-term contracting 9

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