The Philosophy of Power Marketing Expressed in the Draft of the New Renewable Energy Sources Act

Josef Göppel, Member of the German Bundestag
Dr. Andreas Lenz, Member of the German Bundestag
Florian Post, Member of the German Bundestag

31 March 2014

The Philosophy of Power Marketing Expressed in the Draft of the New Renewable Energy Sources Act (EEG)

The modification of the Renewable Energy Sources Act (EEG) equalisation scheme as of 1 January 2010 with the move from the physical distribution of renewable power to the purely financial distribution of the costs incurred under the EEG has resulted in the ‘green’ attributes of EEG-funded power being lost. Since then, power from renewable energies has no longer been supplied to the ultimate consumers who fund it through the surcharges imposed by the EEG apportionment mechanism, and those consumers have not had an immediate obligation to purchase this power. Following the modification of the equalisation scheme, the volume of EEG-funded power sold on the power exchange has become power of “unknown origin”. Direct marketers may no longer sell power that has been subsidised using the market premium as “green power” because this would mean they benefitted twice from their products’ designation as having the attributes of green power. The ruling out of this “double designation” is intended to prevent distortions on the green power market. Otherwise, unsubsidised Green power from other countries would be at a disadvantage compared to power that had already been subsidised sufficiently by means of the market premium. Such a distortion of competition would be impermissible under European law.

In summary, therefore, the proposed new EEG expresses the following philosophy: The EEG surcharge results in ecopower making up a certain proportion of the power purchased by all consumers. They have funded the power paid for with the EEG tariffs, and it therefore may not be sold once again as green power. Apart from this, Austrian hydropower, for example, would then be unable to compete with power subsidised under the EEG.

European Commission views the matter differently

Ever more people in Germany find it incomprehensible that renewable power is transformed into ‘power of unknown origin’ as soon as it is fed into the grid, even if it demonstrably comes from the local wind turbine or a consumer’s own solar panels. It is sound common sense that the attributes of green power are always associated with the fact that the power originates from a particular generating facility.

The European Commission has classified the EEG as state aid since 2010 because physical distribution with ‘obligations to purchase power from renewable energy sources’ has been replaced by a system of surcharges that ‘is not tied to the purchase of power from renewable energies.’ (Invitation to submit comments issued to the Federal Republic of Germany, para. 149, 18 December 2014, OJ C, 7 February 2014.)

The alternative: another marketing channel

The draft of the 2014 EEG relies wholly on the market premium as an instrument to promote power funded under the EEG. The market premium compensates for the difference between the price on the power exchanges and the tariffs paid under the EEG. This system is called direct marketing, but there is not actually anything direct about it. Wholesalers place renewable power on the exchange. End customers receive an anonymous mix of fossil and renewable power. The spot market continues to suffer from oversupply. This approach will not break the spiral of rising surcharges. The coalition will have to explain new negative headlines every year.

The neatest way to get out of both the financial dilemma and the dilemma posed by EU law would be the physical distribution of renewable power among the regional power retailers in accordance with their market shares.

If no majority is found for this solution, the option that would remain as a way out within the current system would be the development of a supplementary form of direct marketing that would facilitate direct customer relationships between generators and ultimate consumers, at the same time as permitting the attributes of ecopower to be exploited. It would remain to be seen whether the European Commission would then cease to classify the EEG as state aid. In any event, however, it would markedly reduce the tensions surrounding the negotiations with Brussels!

The concrete marketing channel (ecopower market model) could take the following shape:

The market premium would be applied in the customary way but, in return for retaining the attributes of green power, marketers would pay a levy to the EEG account that would be markedly higher than the average exchange price for green power certificates. This would prevent any distortion of competition in relation to the trading of green power with neighbouring European states and ensure compliance with the double subsidy prohibition (= prohibition of multiple sale). The generator would purchase back the attributes of ecopower they had lost as a result of the granting of the market premium. A handsome mark-up could then be charged for green power from the surrounding region when it was sold on the market. Under this model, marketers would not just trade power, but feed it into the part of the grid controlled by their energy balance group and supply it all the way to the end customer. The direct contractual relationship between generators and end customer marketers would make the management of fluctuations part of both parties’ core business. In consequence, generators too would have to assume responsibility for assuring the supply of power to the end customer at all times.

This proposal would make it possible for the anonymous market to be supplemented by putting in place a concrete market with a large number of actors. A comparison with the direct marketing of foodstuffs will clarify how the different elements of the system would fit together.

a)    A farmer initially consumes a proportion of what they produce in their own family (consumption of own power).
b)    They sell another proportion of it in their farm shop to people who travel to visit this outlet (delivery via a dedicated power line without contact with the public power grid)
c)    Finally, the farmer has a stall at the weekly market in the nearest town (direct sale under the ecopower market model). They see their customers, and their customers are familiar with them as a producer.
d)    They supply the last proportion of their produce to a wholesaler. The wholesaler combines products from various suppliers. The end customer purchases them in supermarkets (‘direct marketing’ under the draft EEG).

The most important advantages of the proposal once again:

1.    The burden imposed by the EEG surcharge would be reduced in real terms.

2.    The price on the power exchange would be stabilised.

3.    It would be possible for ecopower from other EU Member States to compete on a completely level playing field – a significant argument for the negotiations with the Commission.

4.    The market integration of renewable power would be speeded up by numerous regional solutions.