Using market-based innovations instead of preventing them

Using market-based innovations instead of preventing them

13 Mar 2020 / Market

Next year, the German Renewable Energy Sources Act (EEG) subsidy will expire for the country's first solar power plants, especially small PV plants. The energy sector is already discussing how generation capacity can continue to be used economically. Now, the Federal Environment Agency (UBA) has taken a clear position in the debate with their own study.



In the expert report, the authority has examined how PV systems can continue to operate economically after the EEG support expires. The study comes to the conclusion that the costs for direct marketing of the electricity, for example to ensure remote controllability and quarter-hourly measurement, will be above the market value for small systems.

For this reason, UBA is advocating a return to a centralized, old-fashioned mechanism. The expert report proposes a simplified purchase scheme, under which operators of subsidized PV installations up to 100kW would be entitled to have the market value passed on.

The costs incurred by such an approach would be passed on to electricity consumers through network charges. Not only is this approach not transparent, it also lacks any incentive to minimize costs through innovative approaches.

Due to this, plus the fact that direct marketing of micro-installations is already economically viable, such a transitional arrangement is unnecessary. An arrangement of this type limits innovation and is short-sighted because it maintains an uneconomic and complicated status quo, instead of relying on cheap and practical digital possibilities. It would also have a serious impact on energy system transformation and the role of small-scale, decentralized generation capacity.

But that is not all. Such a measure would also put a stop to prosumer models. It would make the integration of flexible consumers, such as home storage and electric vehicles, into the grid uneconomic. Ultimately, the question is whether the decentralized energy system should be consistently developed, or if a centralized, rigid system should be retained?

The existing solutions are completely ignored in the report. There are already functioning economic direct marketing solutions for electricity from PV systems with low generation capacity. Companies such as Lumenaza or the virtual power plant of EnBW are able to integrate the generation of small PV systems and open up economically-attractive marketing opportunities. Both companies can take over the direct marketing of plants with a capacity much lower than 100kW.

Plant operators have a great interest in these innovative possibilities - especially for the period after the EEG subsidy ends. Digital approaches open up new options such as marketing electricity within a community. Such models offer two decisive advantages for operators of very small plants. Not only are direct marketing and all relevant energy industry processes taken over, but plant operators can also benefit from knowing the clear origin of the electricity - a decisive competitive advantage.

In Germany, companies such as Sonnen have proven that small plants can be included in the primary regulation energy. The advantages are obvious. The plants are grid-compatible and can flexibly handle grid bottlenecks, while at the same time offer their owners financial benefits.

Internationally, the UK has proved that the end of fixed feed-in tariffs can also be handled in an innovation-friendly manner. These tariffs expired in March 2019 and were replaced by market-based regulation. Instead of relying on rigid and immovable systems, digital platforms are gaining ground. The generation capacity of solar systems in particular are integrated and used at low cost. More and more tariffs that use the electricity generated by these systems are now being offered.

The UK example shows that solutions based on market-based innovation processes lead to attractive, customer-centered products. At the same time, it is precisely these efforts that lead to price competition that involves significant cost degression. The solutions that are already economical today will be even cheaper in the future.

A transitional regulation is well-intentioned, but it misses the mark. Existing solutions are the key to the success of the energy system transformation, because they are market-based, scalable and future-oriented. It is therefore imperative that the chosen path of direct marketing, combined with a digitalized transformation of energy systems, be continued.

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