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Support schemes for renewable energy sources

The document provides an overview of support schemes for renewable energy in Europe, outlining their motivations, classifications, and integration into the energy market. It distinguishes between generation-based and investment-focused instruments, discussing various models such as feed-in tariffs and feed-in premiums, and emphasizes the need for effective market integration to enhance renewable energy's competitiveness. Additionally, it explores evaluation criteria for the effectiveness and efficiency of these policies in achieving renewable energy goals.

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© Fraunhofer ISI C o m p r e h e n s i v e C o u r s e o n E u r o p e ‘ s S u s t a i n a b l e E n e r g y P o l i c y P r o f . D r. M a r i o R a g w i t z , F r a u n h o f e r I S I INTRODUCTION TO RENEWABLE ENERGY SUPPORT SCHEMES AND INSTRUMENTS
© Fraunhofer ISI Seite 2  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
© Fraunhofer ISI Seite 3 Motivation:  Correction of negative externalities from the use of fossil fuels  Achieving dynamic efficiency by stimulating technical change Institutional implementation:  Based on RES-Directive EC/28/2009 and European Commission guidance for the design of renewables support schemes SWD(2013) 439 final. Claims & objectives  Desired share of RE cannot be delivered by markets alone  Support schemes needed to overcome market failure and increase competitiveness of RET  Design in order to maintain functioning of energy market + lower costs for households and businesses Motivation and regulatory background of support schemes: Source: EU COM, 2013, Menanteau, (2003)
© Fraunhofer ISI Seite 4 General requirements regarding support schemes:  Flexibility and freedom of choice  Responsiveness to decreasing production costs  Support should be gradually removed, market integrating instruments should be incentivized  Strengthening of investor confidence by avoiding unannounced or retroactive changes  Ensuring efficiency of RE rollout by using cooperation mechanisms in the EU Features of support schemes Source: EU COM, 2013
© Fraunhofer ISI Seite 5  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
© Fraunhofer ISI Seite 6 Direct Indirect Price-driven Quantity-driven Regulatory Investment focussed Investment subsidies Tendering system Environmental taxes Tax incentives Generation based Feed-in tariffs Tendering system Tax incentives Rate-based incentives Quota obligation (RPS) based on TGCs Voluntary Investment focussed Shareholder Programs Voluntary agreements Contribution Programs Generation based Green tariffs Classification of energy policy instruments
© Fraunhofer ISI Seite 7 • RE purchase obligation for system operators • Tariff determined by public authorities • Guaranteed for specified period of time • Support allocated to producers of RE • Highest profit for projects with lowest production costs • Costs covered by levies on consumers or by taxpayers • Price set, quantity determined by market Generation based support: Feed-in tariffs Source: Menanteau et al., (2003); Haas et al., 2004
© Fraunhofer ISI Seite 8 This kind of tariff scheme is for example used for wind energy in Germany, France and Portugal. pF80 pF150 pF100 producer surplus (profit) guaranteed feed-in tariff gain for public / consumer due to stepped feed-in tariff marginal generation costs Electricity generation compared to reference plant (efficiency) prices, costs [EURO/MWh] 150 140 130 120 110 100 90 80 reference plant (100% efficiency) lower efficiencyhigher efficiency expected producer surplus [EURO/MWh] efficiency indicator (e.g. for wind turbines: - electricity generation by installed kW) efficiency indicator (e.g. for wind turbines: - electricity generation by installed kW) Stepped Feed-in tariffs
© Fraunhofer ISI Seite 9 Quota obligation based on tradable green certificates (TGCs)  Given amount of RES-E set by government (i.e. legally enforceable quota to producers for specified amounts of RES-E to be sold)  Main objective: securing the penetration of a pre-defined amount of renewable energy.  In general two different approaches exist:  Non-tradable quotas: Renewable Portfolio Standards and Obligations  Tradable quotas: Electricity or emission (e.g. CO2) based certificates  Advantage of TGCs: facilitate fulfillment of the quota obligation by developing the RES-E potential at minimum generation costs + increase economic efficiency in terms of total system costs.  Quantity is set, price determined by market Source: Haas et al., 2004
© Fraunhofer ISI Seite 10 Value of electricity generation Renewable energy source Certificates Value of conventional electricity Value of green certificate trading / consumption conventional power plant trading / consumption Quota obligation based on TGCs A tradable green certificate (TGC) is used to represent the ‘added value’ or ‘greenness’ of one pre-defined unit of electricity produced from RES. If only a TGC system operates, each producer of RES-E is producing two goods: 1. physical electricity, which is fed into the grid (exported) and sold at market prices for conventional electricity 2. TGC, which represents the added value of the ‘greenness’
© Fraunhofer ISI Seite 11 Feed-in Premium Systems to improve market integration Market revenues Feed- in Tariff Management premium Market premium Chance to increase income
© Fraunhofer ISI Seite 12 Increasing number of MS use FIP systems as main support scheme for RES-E The following reasons for use of FIP are frequently given:  Higher investment security as compared to TGC system  Improved compatibility with electricity market as compared to FIT  All different market places for selling RES power may be used, which may increase the value of RES  Creativity of RES generators for creating better forecasts, new balancing products, use of storage options, optimising plant design and operation etc. can be activated Motivation for using FIP systems
© Fraunhofer ISI Seite 13  Investment support  Grants  Preferential loans  While production-based support maximizes production irrespective of price, investment support decouples production from the sales price  Often provided on sub-national level  Tax exemptions or reductions  Encourage investments  Financing of RES by taxpayers instead of energy consumer Investment focused support schemes
© Fraunhofer ISI Seite 14 Market price RES-support TGC revenues FIT FIP Quota fixed premium - cap & floor - sliding/Cfd Quota Gov fixes quantity, market decides price  Obligation for suppliers:  Minimum RES-E share  Increasing over time  Penalty  Tradable certificates for RES-E production (‘market’ price)  Obligation is met by submission of certificates to competent authority  Power sold on conventional markets Fixed feed-in tariff (FIT) Gov fixes price, market decides quantity  Fixed tariff (€/MWh)  Guaranteed during lifetime or x years  Purchase obligation  (Grid (access & use) priority) Feed-in premium (FIP)  Fixed premium (€/MWh)  Guaranteed during lifetime or x years  Power sold on conventional markets Summary: Key features FIT, FIP & Quota
© Fraunhofer ISI Seite 15 A clear majority of EU countries uses FIPs and FITs as main instrument 4 countries use quota obligation with TGCs as main scheme Dominating support schemes for RES-E in the EU
© Fraunhofer ISI Seite 17 Both, Feed-in tariffs & Quota obligations based on TGCs create an artifical market! … either by setting a price (Feed-in tariff) with the uncertainty with regard to the resulting demand … or by setting a demand (Quota based on TGCs) with the uncertainty with respect to the resulting price Summary: Concluding remark
© Fraunhofer ISI Seite 18 Continuous transition between different support schemes Fixed Feed-in traiffs Feed-in premium with electricity price index Fixed feed-in premiums Technology neutral quota models Banded quota models + low investment risk + high technology diversity + low windfall profits for mature technologies + broad spectrum of investors - low compatibility with electricity markets + high compatibility with electricity markets + competition between generators - high risks and uncertainties (prices and market growth) - low incentives for less mature technologies - windfall profits
© Fraunhofer ISI Seite 19  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
© Fraunhofer ISI Seite 20 1.Effectiveness (target achievement) 2.Efficiency (static and dynamic) 3.System conformity (with other instruments/ jurisdiction) 4.Practicability 5.Reliability for industry and investors 6.Transaction costs and low social costs 7.Competition 8.Transparency 9.Equal burden sharing 10. Acceptance Evaluating polic y meas ur es : C r iter ia for the r ating of ener gy and envir onment polic y meas ur es
© Fraunhofer ISI Seite 21 Growth and Existing Potential - Biogas UK 0 2 4 6 8 10 12 14 16 18 20 2002 2003 Total potential for 2020 [TWh] Additional realisable Potential in 2002 until 2020 A B C Effectiveness Indicator represents the RES-E produced compared to the remaining potential E = (B-A)/C The meas ur ement of the pr ogr es s of R ES - E implementation
© Fraunhofer ISI Seite 22 0% 2% 4% 6% 8% 10% 12% 14% MT SI SK LV FI CZ LU HR HU BG PL FR UK AT NL BE IT CY LT RO EE SE EL IE DE ES PT DK EffectivenessIndicator Averageeffectivenessindicator2011-2013 Effectiveness indicator2013 Feed-in tariff Quota / TGC Tender Tax incentives/ Investmentgrants Achievements for wind on - shor e in the per iod 2011 - 2013
© Fraunhofer ISI Seite 23 C os ts vs pr ic es for w ind on - s hor e in the EU - 2 7
© Fraunhofer ISI Seite 24 Potential pr ofit r anges - w ind ons hor e ( = c o s t - e ff e c t i v e n e s s o f p o l i c i e s ) AT BE BG CY CZ DE DK EE ES FI FR GR HU IE IT LTLV MT NL PL PT RO SE SISK UK HR 0% 2% 4% 6% -50 0 50 Policyeffectivenessindicator2013 Potential profit range [€/MWh]
© Fraunhofer ISI Seite 25 Source: BMWI, 2014 D evelopment o f EEG differ ential c os ts ( 2000 – 2 0 1 5 ) * Prognosis
© Fraunhofer ISI Seite 26 Development of policy costs and market value for RES-E in Germany
© Fraunhofer ISI Seite 27  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
© Fraunhofer ISI Seite 28 Renewable electricity generation: 1. creates fluctuating spatial and temporal generation patterns in the power system, resulting in  dynamically varying demand for conventional generation  complex congestion patterns in the transmission grid 2. creates new challenges for the forecast of power generation resulting in new requirements for  flexible intraday dispatch  balancing products 3. impacts hourly electricity prices, based on the merit-order-effect resulting in lower average prices and potentially increasing spreads Market and system integration of RET
© Fraunhofer ISI Seite 29 Some of these aspects can be solved by new responsibilities for RES generators: 1. Quickly increasing RES-E shares require higher market integration and system responsibility from RES plants 2. RES plants should react to total system demand in particular during periods of negative prices 3. RES plants should be balancing responsible by fulfilling own schedule of balance to activate the creativity of RES generators to facilitate the full flexibility of the system 4. RES plants operators should provide good forecasts to make use of the full information on RES plant status  Feed-in premiums (FIP) to facilitate system and market integration of wind energy Market and system integration of RET
© Fraunhofer ISI Seite 30 Feed-in Premium tariff design  RES-E is sold directly on the market  Premium is paid on top of the market price  Typically no purchase obligation is provided Level of remuneration = Market electricity price + premium for long run costs of RES generation technology + premium for market participation + premium for system services
© Fraunhofer ISI Seite 31 FIP systems differ regarding: 1. Mandatory or optional introduction of FIP model • Intervals to change between premium and alternative system 2. Type of premium: fixed, cap and floor, sliding 3. Methodology to determine (technology specific) reference prices • Period for averaging reference prices: hourly, monthly, annually • Consideration of value of wind / solar hourly generation at spot markets  profile factor 4. Methodology to determine balancing costs 5. Consideration of other fixed costs, e.g. trading platform, etc. Differences in FIP design
© Fraunhofer ISI Seite 32 Differences in FIP design  Fixed premium / Cap and floor / Sliding versus fixed FIT and Quota sytem based on TGC
© Fraunhofer ISI Seite 33 Floating Market Premium: Trader ’s Perspective Market revenues Feed- in Tariff Management premium Market premium Chance to increase income
© Fraunhofer ISI Seite 34 Design of floating market - premium in Germany Income=Market revenues + support premium Support premium Feed-in Tariff Benchmark for market revenues Management premium Covers the cost of balancing the renewable portfolio Monthly average market value of the national technology profile Individual tariff of each plant
© Fraunhofer ISI Seite 35  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
© Fraunhofer ISI Seite 36 Demand-orientated electricity production Aim / Implementation  Aim: Shift of generation in periods of higher demand  Implementation: apply hourly load signal to RES plant operation FIT by using HT/NT-tariffs or residual demand FIP / QS using hourly electr. price Obligation for plant operator Possible Variants a) no obligation, i.e. optional choice of FIP or demand-dependent FIT b) obligation of FIP or demand-dependent FIT in a limited number of hours per year c) general obligation of FIP / QS or demand-dependent FIT Issues for Discussion  In case of FIT implementation of HT/NT-Tariff possible, but peak / off-peak structure increasingly distorted by variable RES Better system integration by using residual demand as control signal  fluctuating tariffs results in higher planning effort for plant operator but also better system integration  In case of FIP / QS high level of system- and market integration
© Fraunhofer ISI Seite 37 Balancing responsibility / forecast obligation Aim / Implementation  Aim: RES plants fulfill own schedule of balance and help reducing of balancing costs  Implementation:  Shift part of balancing responsibility from TSO to plant operator  Possible by obliging plant operators in FIT, FIP or QS Obligation for plant operator Possible Variants a) Only informing TSO on non-availability of plant, e.g. snow coverage of plant b) Day-ahead market responsible ( forecast obligation) c)Intra-day market responsible until last minute ( forecast obligation) Issues for discussion  In case of FIP / CP / QS typically full transfer of balancing responsibility  Proper incentives for good forecast in case of FIT  Penalty or bonus payment at certain threshold level (e.g. mean percentage error)  Full transfer of balancing costs to plant operator and payment of a general bonus oriented at the actual costs of TSOs
© Fraunhofer ISI Seite 38 Online-plant control and dispatch  Aim: Contribution of RES plants to system stability, early warning in case of critical situations, avoiding extreme negative prices  Implementation: real time monitoring of plant operation, Remote control of plants in critical situations  Provision of access to plant data to TSO  Otherwise no obligations, compensation payments by TSO in case of reduction of generation to avoid extreme negative prices Issues for discussion  Such measures useful in case of higher penetration of fluctuating RES  Need for infrastructure investments (data transfer, remote control)  Regulatory framework conditions: In which situations is the system operator entitled to reduce plant output?  Online-Monitoring: Analysis of added value compared to top-down online prognosis necessary Aim / Implementation Obligation for plant operator
© Fraunhofer ISI Seite 39 Provision of system services  Aim: Contribution of RES plants to system stability, efficient provision of balancing power and energy  Implementation: Participation of RES plants in auctions for reserve / balancing products  Temporary reduction of power output for provision of negative balancing power  Partial curtailment of electricity generation for provision of positive balancing power Issues for discussion  Provision of balancing power requires balancing and forecast responsibility  Typically high minimum capacity requirements for auctions of balancing power  pooling of small plants necessary  communication infrastructure needs to be installed in the first place Aim / Implementation Obligation for plant operator
© Fraunhofer ISI Seite 40 Evaluation of measures for FIP and FIT Measure FIP / QS FIT Demand oriented generation Fulfilled since RES plants are fully subject to price signal Fulfilled if market price or residual demand is used as relevant signal Balancing responsibility Fulfilled because RES generators need to comply with schedule as all other plants Depends on the detailed implementation. Online-Monitoring and remote control Can be fulfilled and reasonable under both schemes Provision of balancing power In principle provided, economic attractive- ness depends on market details. Can be implemented but transaction costs and opportunity costs higher than in case of FIP.
© Fraunhofer ISI Seite 41  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
© Fraunhofer ISI Seite 42 • In feed-in systems: Determination of tariffs based on administrative tariff setting (based on LCOE and political negotiation processes) • Involves risk of excessive or insufficient support, if real costs are not well- known • Increase of cost-effectiveness requires competitive price formation • Auctions / tender offer an option to introduce elements of competitive price formation • Volume control: tender /auctions used to allocate financing to different technologies • Use of auctions in electricity sector common, their use for RES-support has increased considerably in recent years • In practice, combining auctions/tender with FIT/FIP is typical Motivation to use tender/auctions
© Fraunhofer ISI Seite 43 Auction / tender and RES support • Tender / auctions are no independent support scheme category as FIT, FIP, quota • Tender / auctions are a measure for competitive price formation  Combination with different support schemes possible Support scheme Main objective Feed-in tariff Determination of support level (Avoiding administrative tariff setting) Feed-in premium Determination of support level (Avoiding administrative tariff setting) Investment incentive / Capacity payment Determination of support level Quota obligation E.g. determination of value of long-term contracts
© Fraunhofer ISI Seite 44  Different auction design leads to different bidding strategies through different incentives Terminology and auction types • Auction: Price only award criterion (combined with qualification requirements) • Tender: Multi-criteria auction: Price is combined with other award criteria Terminology • Single-item auction: only one bid/project wins (e.g. offshore Denmark) • Multiple-item auction: several bids/projects are accepted up to the auction volume Single- or multiple- item • Static / simultaneous auctions (sealed bid): Bidders have no information on other bids • Dynamic (e.g. descending clock): Bidders react dynamically to each others bids Auction procedure • Pay-as-bid: each winner receives the price of its bid • Uniform pricing: all winners receive the same price (clearing price) Price rule
© Fraunhofer ISI Seite 45 Comparison of auction procedures Auction procedure Advantages Inconveniences Static auction (e.g. sealed bid) Missing interaction between bidders reduces influencing prices / strategic behaviour Price determination difficult if costs are uncertain („the winner‘s curse“) Dynamic auction (e.g. descending clock) Improved price determination through iterative bids (learning) Higher risk for strategic and collusive behaviour
© Fraunhofer ISI Seite 46 Sources BDEW Bundesverband der Energie- und Wasserwirtschaft e.V. (2015): Erneuerbare Energien und das EEG: Zahlen, Fakten, Grafiken. Available online at https://www.bdew.de/internet.nsf/id/foliensatz-erneuerbare-energien-und-das-eeg- ausgabe-2015-de/$file/Foliensatz%20Energie-Info_Erneuerbare_Energien_und_das_EEG_2015_11.05.2015_final.pdf, checked on 6/17/2015. Bundesministerium für Wirtschaft und Energie (2014): EEG in Zahlen: Vergütungen, Differenzkosten und EEG-Umlage 2000 bis 2015. Available online at http://www.erneuerbare-energien.de/EE/Redaktion/DE/Downloads/eeg-in-zahlen- pdf.pdf?__blob=publicationFile&v=4, checked on 6/17/2015. European Commission (2013): European Commission guidance for the design of renewables support schemes SWD(2013) 439 final. Available online at http://ec.europa.eu/energy/sites/ener/files/com_2013_public_intervention_swd04_en.pdf, checked on 6/12/2015. Haas, R.; Eichhammer, W.; Huber, C.; Langniss, O.; Lorenzoni, A.; Madlener, R. et al. (2004): How to promote renewable energy systems successfully and effectively. In Renewable Energy Policies in the European Union Renewable Energy Policies in the European Union 32 (6), pp. 833–839. DOI: 10.1016/S0301-4215(02)00337-3. Mayer, J.; Fraunhofer ISE (Burger, B.) (2014): Kurzstudie zur historischen Entwicklung der EEG-Umlage. Available online at http://www.ise.fraunhofer.de/de/downloads/pdf-files/data-nivc-/kurzstudie-zur-historischen-entwicklung-der-eeg- umlage.pdf, checked on 6/17/2015. Menanteau, Philippe; Finon, Dominique; Lamy, Marie-Laure (2003): Prices versus quantities: choosing policies for promoting the development of renewable energy. In Energy Policy 31 (8), pp. 799–812. DOI: 10.1016/S0301- 4215(02)00133-7. Ragwitz, Mario; Held, Anne; Breitschopf, Barbara; Rathmann, Max; Klessmann, Corinna; Resch, G. et al. (2011): Review report on support schemes for renewable electricity and heating in Europe. In A report compiled within the European research project RE-Shaping, Karlsruhe.

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Support schemes for renewable energy sources

  • 1.
    © Fraunhofer ISI Co m p r e h e n s i v e C o u r s e o n E u r o p e ‘ s S u s t a i n a b l e E n e r g y P o l i c y P r o f . D r. M a r i o R a g w i t z , F r a u n h o f e r I S I INTRODUCTION TO RENEWABLE ENERGY SUPPORT SCHEMES AND INSTRUMENTS
  • 2.
    © Fraunhofer ISI Seite2  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
  • 3.
    © Fraunhofer ISI Seite3 Motivation:  Correction of negative externalities from the use of fossil fuels  Achieving dynamic efficiency by stimulating technical change Institutional implementation:  Based on RES-Directive EC/28/2009 and European Commission guidance for the design of renewables support schemes SWD(2013) 439 final. Claims & objectives  Desired share of RE cannot be delivered by markets alone  Support schemes needed to overcome market failure and increase competitiveness of RET  Design in order to maintain functioning of energy market + lower costs for households and businesses Motivation and regulatory background of support schemes: Source: EU COM, 2013, Menanteau, (2003)
  • 4.
    © Fraunhofer ISI Seite4 General requirements regarding support schemes:  Flexibility and freedom of choice  Responsiveness to decreasing production costs  Support should be gradually removed, market integrating instruments should be incentivized  Strengthening of investor confidence by avoiding unannounced or retroactive changes  Ensuring efficiency of RE rollout by using cooperation mechanisms in the EU Features of support schemes Source: EU COM, 2013
  • 5.
    © Fraunhofer ISI Seite5  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
  • 6.
    © Fraunhofer ISI Seite6 Direct Indirect Price-driven Quantity-driven Regulatory Investment focussed Investment subsidies Tendering system Environmental taxes Tax incentives Generation based Feed-in tariffs Tendering system Tax incentives Rate-based incentives Quota obligation (RPS) based on TGCs Voluntary Investment focussed Shareholder Programs Voluntary agreements Contribution Programs Generation based Green tariffs Classification of energy policy instruments
  • 7.
    © Fraunhofer ISI Seite7 • RE purchase obligation for system operators • Tariff determined by public authorities • Guaranteed for specified period of time • Support allocated to producers of RE • Highest profit for projects with lowest production costs • Costs covered by levies on consumers or by taxpayers • Price set, quantity determined by market Generation based support: Feed-in tariffs Source: Menanteau et al., (2003); Haas et al., 2004
  • 8.
    © Fraunhofer ISI Seite8 This kind of tariff scheme is for example used for wind energy in Germany, France and Portugal. pF80 pF150 pF100 producer surplus (profit) guaranteed feed-in tariff gain for public / consumer due to stepped feed-in tariff marginal generation costs Electricity generation compared to reference plant (efficiency) prices, costs [EURO/MWh] 150 140 130 120 110 100 90 80 reference plant (100% efficiency) lower efficiencyhigher efficiency expected producer surplus [EURO/MWh] efficiency indicator (e.g. for wind turbines: - electricity generation by installed kW) efficiency indicator (e.g. for wind turbines: - electricity generation by installed kW) Stepped Feed-in tariffs
  • 9.
    © Fraunhofer ISI Seite9 Quota obligation based on tradable green certificates (TGCs)  Given amount of RES-E set by government (i.e. legally enforceable quota to producers for specified amounts of RES-E to be sold)  Main objective: securing the penetration of a pre-defined amount of renewable energy.  In general two different approaches exist:  Non-tradable quotas: Renewable Portfolio Standards and Obligations  Tradable quotas: Electricity or emission (e.g. CO2) based certificates  Advantage of TGCs: facilitate fulfillment of the quota obligation by developing the RES-E potential at minimum generation costs + increase economic efficiency in terms of total system costs.  Quantity is set, price determined by market Source: Haas et al., 2004
  • 10.
    © Fraunhofer ISI Seite10 Value of electricity generation Renewable energy source Certificates Value of conventional electricity Value of green certificate trading / consumption conventional power plant trading / consumption Quota obligation based on TGCs A tradable green certificate (TGC) is used to represent the ‘added value’ or ‘greenness’ of one pre-defined unit of electricity produced from RES. If only a TGC system operates, each producer of RES-E is producing two goods: 1. physical electricity, which is fed into the grid (exported) and sold at market prices for conventional electricity 2. TGC, which represents the added value of the ‘greenness’
  • 11.
    © Fraunhofer ISI Seite11 Feed-in Premium Systems to improve market integration Market revenues Feed- in Tariff Management premium Market premium Chance to increase income
  • 12.
    © Fraunhofer ISI Seite12 Increasing number of MS use FIP systems as main support scheme for RES-E The following reasons for use of FIP are frequently given:  Higher investment security as compared to TGC system  Improved compatibility with electricity market as compared to FIT  All different market places for selling RES power may be used, which may increase the value of RES  Creativity of RES generators for creating better forecasts, new balancing products, use of storage options, optimising plant design and operation etc. can be activated Motivation for using FIP systems
  • 13.
    © Fraunhofer ISI Seite13  Investment support  Grants  Preferential loans  While production-based support maximizes production irrespective of price, investment support decouples production from the sales price  Often provided on sub-national level  Tax exemptions or reductions  Encourage investments  Financing of RES by taxpayers instead of energy consumer Investment focused support schemes
  • 14.
    © Fraunhofer ISI Seite14 Market price RES-support TGC revenues FIT FIP Quota fixed premium - cap & floor - sliding/Cfd Quota Gov fixes quantity, market decides price  Obligation for suppliers:  Minimum RES-E share  Increasing over time  Penalty  Tradable certificates for RES-E production (‘market’ price)  Obligation is met by submission of certificates to competent authority  Power sold on conventional markets Fixed feed-in tariff (FIT) Gov fixes price, market decides quantity  Fixed tariff (€/MWh)  Guaranteed during lifetime or x years  Purchase obligation  (Grid (access & use) priority) Feed-in premium (FIP)  Fixed premium (€/MWh)  Guaranteed during lifetime or x years  Power sold on conventional markets Summary: Key features FIT, FIP & Quota
  • 15.
    © Fraunhofer ISI Seite15 A clear majority of EU countries uses FIPs and FITs as main instrument 4 countries use quota obligation with TGCs as main scheme Dominating support schemes for RES-E in the EU
  • 16.
    © Fraunhofer ISI Seite17 Both, Feed-in tariffs & Quota obligations based on TGCs create an artifical market! … either by setting a price (Feed-in tariff) with the uncertainty with regard to the resulting demand … or by setting a demand (Quota based on TGCs) with the uncertainty with respect to the resulting price Summary: Concluding remark
  • 17.
    © Fraunhofer ISI Seite18 Continuous transition between different support schemes Fixed Feed-in traiffs Feed-in premium with electricity price index Fixed feed-in premiums Technology neutral quota models Banded quota models + low investment risk + high technology diversity + low windfall profits for mature technologies + broad spectrum of investors - low compatibility with electricity markets + high compatibility with electricity markets + competition between generators - high risks and uncertainties (prices and market growth) - low incentives for less mature technologies - windfall profits
  • 18.
    © Fraunhofer ISI Seite19  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
  • 19.
    © Fraunhofer ISI Seite20 1.Effectiveness (target achievement) 2.Efficiency (static and dynamic) 3.System conformity (with other instruments/ jurisdiction) 4.Practicability 5.Reliability for industry and investors 6.Transaction costs and low social costs 7.Competition 8.Transparency 9.Equal burden sharing 10. Acceptance Evaluating polic y meas ur es : C r iter ia for the r ating of ener gy and envir onment polic y meas ur es
  • 20.
    © Fraunhofer ISI Seite21 Growth and Existing Potential - Biogas UK 0 2 4 6 8 10 12 14 16 18 20 2002 2003 Total potential for 2020 [TWh] Additional realisable Potential in 2002 until 2020 A B C Effectiveness Indicator represents the RES-E produced compared to the remaining potential E = (B-A)/C The meas ur ement of the pr ogr es s of R ES - E implementation
  • 21.
    © Fraunhofer ISI Seite22 0% 2% 4% 6% 8% 10% 12% 14% MT SI SK LV FI CZ LU HR HU BG PL FR UK AT NL BE IT CY LT RO EE SE EL IE DE ES PT DK EffectivenessIndicator Averageeffectivenessindicator2011-2013 Effectiveness indicator2013 Feed-in tariff Quota / TGC Tender Tax incentives/ Investmentgrants Achievements for wind on - shor e in the per iod 2011 - 2013
  • 22.
    © Fraunhofer ISI Seite23 C os ts vs pr ic es for w ind on - s hor e in the EU - 2 7
  • 23.
    © Fraunhofer ISI Seite24 Potential pr ofit r anges - w ind ons hor e ( = c o s t - e ff e c t i v e n e s s o f p o l i c i e s ) AT BE BG CY CZ DE DK EE ES FI FR GR HU IE IT LTLV MT NL PL PT RO SE SISK UK HR 0% 2% 4% 6% -50 0 50 Policyeffectivenessindicator2013 Potential profit range [€/MWh]
  • 24.
    © Fraunhofer ISI Seite25 Source: BMWI, 2014 D evelopment o f EEG differ ential c os ts ( 2000 – 2 0 1 5 ) * Prognosis
  • 25.
    © Fraunhofer ISI Seite26 Development of policy costs and market value for RES-E in Germany
  • 26.
    © Fraunhofer ISI Seite27  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
  • 27.
    © Fraunhofer ISI Seite28 Renewable electricity generation: 1. creates fluctuating spatial and temporal generation patterns in the power system, resulting in  dynamically varying demand for conventional generation  complex congestion patterns in the transmission grid 2. creates new challenges for the forecast of power generation resulting in new requirements for  flexible intraday dispatch  balancing products 3. impacts hourly electricity prices, based on the merit-order-effect resulting in lower average prices and potentially increasing spreads Market and system integration of RET
  • 28.
    © Fraunhofer ISI Seite29 Some of these aspects can be solved by new responsibilities for RES generators: 1. Quickly increasing RES-E shares require higher market integration and system responsibility from RES plants 2. RES plants should react to total system demand in particular during periods of negative prices 3. RES plants should be balancing responsible by fulfilling own schedule of balance to activate the creativity of RES generators to facilitate the full flexibility of the system 4. RES plants operators should provide good forecasts to make use of the full information on RES plant status  Feed-in premiums (FIP) to facilitate system and market integration of wind energy Market and system integration of RET
  • 29.
    © Fraunhofer ISI Seite30 Feed-in Premium tariff design  RES-E is sold directly on the market  Premium is paid on top of the market price  Typically no purchase obligation is provided Level of remuneration = Market electricity price + premium for long run costs of RES generation technology + premium for market participation + premium for system services
  • 30.
    © Fraunhofer ISI Seite31 FIP systems differ regarding: 1. Mandatory or optional introduction of FIP model • Intervals to change between premium and alternative system 2. Type of premium: fixed, cap and floor, sliding 3. Methodology to determine (technology specific) reference prices • Period for averaging reference prices: hourly, monthly, annually • Consideration of value of wind / solar hourly generation at spot markets  profile factor 4. Methodology to determine balancing costs 5. Consideration of other fixed costs, e.g. trading platform, etc. Differences in FIP design
  • 31.
    © Fraunhofer ISI Seite32 Differences in FIP design  Fixed premium / Cap and floor / Sliding versus fixed FIT and Quota sytem based on TGC
  • 32.
    © Fraunhofer ISI Seite33 Floating Market Premium: Trader ’s Perspective Market revenues Feed- in Tariff Management premium Market premium Chance to increase income
  • 33.
    © Fraunhofer ISI Seite34 Design of floating market - premium in Germany Income=Market revenues + support premium Support premium Feed-in Tariff Benchmark for market revenues Management premium Covers the cost of balancing the renewable portfolio Monthly average market value of the national technology profile Individual tariff of each plant
  • 34.
    © Fraunhofer ISI Seite35  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
  • 35.
    © Fraunhofer ISI Seite36 Demand-orientated electricity production Aim / Implementation  Aim: Shift of generation in periods of higher demand  Implementation: apply hourly load signal to RES plant operation FIT by using HT/NT-tariffs or residual demand FIP / QS using hourly electr. price Obligation for plant operator Possible Variants a) no obligation, i.e. optional choice of FIP or demand-dependent FIT b) obligation of FIP or demand-dependent FIT in a limited number of hours per year c) general obligation of FIP / QS or demand-dependent FIT Issues for Discussion  In case of FIT implementation of HT/NT-Tariff possible, but peak / off-peak structure increasingly distorted by variable RES Better system integration by using residual demand as control signal  fluctuating tariffs results in higher planning effort for plant operator but also better system integration  In case of FIP / QS high level of system- and market integration
  • 36.
    © Fraunhofer ISI Seite37 Balancing responsibility / forecast obligation Aim / Implementation  Aim: RES plants fulfill own schedule of balance and help reducing of balancing costs  Implementation:  Shift part of balancing responsibility from TSO to plant operator  Possible by obliging plant operators in FIT, FIP or QS Obligation for plant operator Possible Variants a) Only informing TSO on non-availability of plant, e.g. snow coverage of plant b) Day-ahead market responsible ( forecast obligation) c)Intra-day market responsible until last minute ( forecast obligation) Issues for discussion  In case of FIP / CP / QS typically full transfer of balancing responsibility  Proper incentives for good forecast in case of FIT  Penalty or bonus payment at certain threshold level (e.g. mean percentage error)  Full transfer of balancing costs to plant operator and payment of a general bonus oriented at the actual costs of TSOs
  • 37.
    © Fraunhofer ISI Seite38 Online-plant control and dispatch  Aim: Contribution of RES plants to system stability, early warning in case of critical situations, avoiding extreme negative prices  Implementation: real time monitoring of plant operation, Remote control of plants in critical situations  Provision of access to plant data to TSO  Otherwise no obligations, compensation payments by TSO in case of reduction of generation to avoid extreme negative prices Issues for discussion  Such measures useful in case of higher penetration of fluctuating RES  Need for infrastructure investments (data transfer, remote control)  Regulatory framework conditions: In which situations is the system operator entitled to reduce plant output?  Online-Monitoring: Analysis of added value compared to top-down online prognosis necessary Aim / Implementation Obligation for plant operator
  • 38.
    © Fraunhofer ISI Seite39 Provision of system services  Aim: Contribution of RES plants to system stability, efficient provision of balancing power and energy  Implementation: Participation of RES plants in auctions for reserve / balancing products  Temporary reduction of power output for provision of negative balancing power  Partial curtailment of electricity generation for provision of positive balancing power Issues for discussion  Provision of balancing power requires balancing and forecast responsibility  Typically high minimum capacity requirements for auctions of balancing power  pooling of small plants necessary  communication infrastructure needs to be installed in the first place Aim / Implementation Obligation for plant operator
  • 39.
    © Fraunhofer ISI Seite40 Evaluation of measures for FIP and FIT Measure FIP / QS FIT Demand oriented generation Fulfilled since RES plants are fully subject to price signal Fulfilled if market price or residual demand is used as relevant signal Balancing responsibility Fulfilled because RES generators need to comply with schedule as all other plants Depends on the detailed implementation. Online-Monitoring and remote control Can be fulfilled and reasonable under both schemes Provision of balancing power In principle provided, economic attractive- ness depends on market details. Can be implemented but transaction costs and opportunity costs higher than in case of FIP.
  • 40.
    © Fraunhofer ISI Seite41  Motivation and regulatory background of support schemes  Classification of support instruments  Generation-based vs Investment-focused  Price driven vs quantity driven  Evaluating support schemes  Market and system integration of RET  Feed-in premium systems  Support schemes and market integration requirements  Auction-based determination of remuneration levels Contents
  • 41.
    © Fraunhofer ISI Seite42 • In feed-in systems: Determination of tariffs based on administrative tariff setting (based on LCOE and political negotiation processes) • Involves risk of excessive or insufficient support, if real costs are not well- known • Increase of cost-effectiveness requires competitive price formation • Auctions / tender offer an option to introduce elements of competitive price formation • Volume control: tender /auctions used to allocate financing to different technologies • Use of auctions in electricity sector common, their use for RES-support has increased considerably in recent years • In practice, combining auctions/tender with FIT/FIP is typical Motivation to use tender/auctions
  • 42.
    © Fraunhofer ISI Seite43 Auction / tender and RES support • Tender / auctions are no independent support scheme category as FIT, FIP, quota • Tender / auctions are a measure for competitive price formation  Combination with different support schemes possible Support scheme Main objective Feed-in tariff Determination of support level (Avoiding administrative tariff setting) Feed-in premium Determination of support level (Avoiding administrative tariff setting) Investment incentive / Capacity payment Determination of support level Quota obligation E.g. determination of value of long-term contracts
  • 43.
    © Fraunhofer ISI Seite44  Different auction design leads to different bidding strategies through different incentives Terminology and auction types • Auction: Price only award criterion (combined with qualification requirements) • Tender: Multi-criteria auction: Price is combined with other award criteria Terminology • Single-item auction: only one bid/project wins (e.g. offshore Denmark) • Multiple-item auction: several bids/projects are accepted up to the auction volume Single- or multiple- item • Static / simultaneous auctions (sealed bid): Bidders have no information on other bids • Dynamic (e.g. descending clock): Bidders react dynamically to each others bids Auction procedure • Pay-as-bid: each winner receives the price of its bid • Uniform pricing: all winners receive the same price (clearing price) Price rule
  • 44.
    © Fraunhofer ISI Seite45 Comparison of auction procedures Auction procedure Advantages Inconveniences Static auction (e.g. sealed bid) Missing interaction between bidders reduces influencing prices / strategic behaviour Price determination difficult if costs are uncertain („the winner‘s curse“) Dynamic auction (e.g. descending clock) Improved price determination through iterative bids (learning) Higher risk for strategic and collusive behaviour
  • 45.
    © Fraunhofer ISI Seite46 Sources BDEW Bundesverband der Energie- und Wasserwirtschaft e.V. (2015): Erneuerbare Energien und das EEG: Zahlen, Fakten, Grafiken. Available online at https://www.bdew.de/internet.nsf/id/foliensatz-erneuerbare-energien-und-das-eeg- ausgabe-2015-de/$file/Foliensatz%20Energie-Info_Erneuerbare_Energien_und_das_EEG_2015_11.05.2015_final.pdf, checked on 6/17/2015. Bundesministerium für Wirtschaft und Energie (2014): EEG in Zahlen: Vergütungen, Differenzkosten und EEG-Umlage 2000 bis 2015. Available online at http://www.erneuerbare-energien.de/EE/Redaktion/DE/Downloads/eeg-in-zahlen- pdf.pdf?__blob=publicationFile&v=4, checked on 6/17/2015. European Commission (2013): European Commission guidance for the design of renewables support schemes SWD(2013) 439 final. Available online at http://ec.europa.eu/energy/sites/ener/files/com_2013_public_intervention_swd04_en.pdf, checked on 6/12/2015. Haas, R.; Eichhammer, W.; Huber, C.; Langniss, O.; Lorenzoni, A.; Madlener, R. et al. (2004): How to promote renewable energy systems successfully and effectively. In Renewable Energy Policies in the European Union Renewable Energy Policies in the European Union 32 (6), pp. 833–839. DOI: 10.1016/S0301-4215(02)00337-3. Mayer, J.; Fraunhofer ISE (Burger, B.) (2014): Kurzstudie zur historischen Entwicklung der EEG-Umlage. Available online at http://www.ise.fraunhofer.de/de/downloads/pdf-files/data-nivc-/kurzstudie-zur-historischen-entwicklung-der-eeg- umlage.pdf, checked on 6/17/2015. Menanteau, Philippe; Finon, Dominique; Lamy, Marie-Laure (2003): Prices versus quantities: choosing policies for promoting the development of renewable energy. In Energy Policy 31 (8), pp. 799–812. DOI: 10.1016/S0301- 4215(02)00133-7. Ragwitz, Mario; Held, Anne; Breitschopf, Barbara; Rathmann, Max; Klessmann, Corinna; Resch, G. et al. (2011): Review report on support schemes for renewable electricity and heating in Europe. In A report compiled within the European research project RE-Shaping, Karlsruhe.