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A more efficient and flexible approach to managing wind power purchases in Germany is set to reduce costs by millions of euros. The new regime was approved by the federal government on May 7. From 2010, all electricity generated under the national renewable energy act is to be funnelled through a spot market, be it operated by Germany's electricity exchange, the EEX, or another power trading business.

The choice of market will be down to Germany's four transmission system operators (TSOs), who are obliged by law to buy all renewables power at fixed prices. In future, they will sell the green generation entering their systems on the intraday, day-ahead or two-day ahead markets. The difference between the price they achieve on the market and the price paid to the renewables plant operator will be charged to all electricity retailers in an annual surcharge.

The new structure for managing wind power has been in the works for some time and was initiated last year by changes to the renewable energy law to allow for gradual integration of wind generation into the main power market. As well as bringing greater efficiency to the TSO's administration of wind power purchases, it also solves the problem of an increasingly large proportion of Germany's electricity not being properly integrated into power system operations (“uåX˜äŠÊ˜·³Ç, September 2008).

The amount of electricity to be sold through electricity exchanges is considerable. According to latest government figures, German renewables generation amounted to 72 TWh, meeting about 14% of demand, of which about 40.4 TWh was wind energy, supplying 6.4% of national electricity. Sale of the power on the spot and intraday markets will probably increase price spreads, depending on whether winds are blowing strongly or not. The more wind power on the system, the lower prices go.

Periods of negative pricing -- which occur when electricity generation threatens to exceed demand -- could well occur more frequently. By its nature, negative pricing hits fossil fuel generators harder than wind power operators, who do not have to pay fuel costs at the same time as paying to offload electricity to the grid. For this reason, fossil fuel generators are likely to be the first to curtail their generation if prices drop, opening up more capacity on the grid for wind power. As renewables generation has lower marginal costs than fossil fuel, cheaper electricity is the long term result.

Simple and transparent

Despite the likely increase in price volatility, the new "financial rollover" mechanism procedure is welcomed as being "simple, transparent and considerably reducing costs," by Robert Busch, managing director of the federal association of new energy suppliers, the Bundesverband Neue Energieanbieter (BNE).

In today's market structure, the TSOs manage wind power on their systems by virtually distributing the purchases between them on a pro-rata basis. This virtual power is shaped into a monthly fixed volume of electricity by making up any deficit with purchases of non-renewables power, or selling any excess. The resulting imaginary fixed bandwidth of power flowing into the grid is then sold on a pro-rata basis to all electricity suppliers, so that each retailer pays for Germany's wind power and for the supposed costs of balancing its variability.

In practice, variable supplies of green electrons feeding into the grid require no separate management, but become part of the overall process of balancing variable demand with available supply. That process becomes more arduous as the proportion of wind power rises, to a point when some actual cost is incurred in managing it all.

That cost, however, is less than the cost of virtually shaping variable supplies of wind energy into a virtual steady band of electricity supply. These were as high as EUR 650 million in 2007, say the TSOs, a sum that was rolled over onto network usage costs paid by all electricity customers. It is that cost which should now be greatly reduced by trading wind power through electricity exchanges.