Markets - 23/September/2019

Germany feels its way to competitive green electricity market

Germany is exploring the potential of PPAs to provide revenue to owners of wind farms and photovoltaic installations after state support expires in the coming years

Germany has long been considered an energy transition leader, but the reality is more complicated as the country falls behind in meeting its EU renewable energy targets. Turning to commercial power purchase agreements as an option for selling renewables generation in addition to Germany’s traditional controlled markets could help get wind and solar development moving briskly again, but significant hurdles remain

Little growth: Development of renewable energy in Germany is not keeping pace with the country’s commitment to deliver on EU climate targets by reducing carbon emissions

Market stimulation: Power purchase agreements (PPAs) for direct sales of renewable energy to commercial enterprises could boost the market for solar and wind, but there are legal barriers; for energy intensive industries, remaining with fossil fuels is often cheaper than transitioning to clean power

Key quote: Germany now needs to turn its attention to making sure the owners of new wind farms can sell their generation through PPAs

The development of renewable sources of energy in Germany is not sufficient for the country to meet national and EU emissions reduction targets. The slow growth of wind and solar is bad for the climate, as it means continued reliance on fossil fuels, and bad for the economy as the country could be liable for fines of billions of euros under EU law.

Auctions of contracts for onshore wind support in 2019 under Germany’s controlled wind market were undersubscribed and the project installation rate plummeted to 287 megawatts (MW) in the first half of 2019, 87% down on the same period in 2018 which already represented a severe wind market contraction. Growth in the solar fleet was healthier in 2018, with three gigawatts (GW) added, pushing up total capacity to 45.3 GW. Under the 2017 German renewable energy act, however, support for solar will cease when 52 GW of production capacity is reached, unless the law is amended.

Corporate power purchase agreements (PPAs) for renewables, signed between customers and energy generators, including independent power producers (IPPs), are routine in the US, Scandinavia and other countries. PPAs with IPPs also give utilities an extra option to expand their renewables portfolios in addition to building renewables projects off their balance sheet, for example. Industrial or commercial companies could, in theory, secure future supplies of green electricity through PPAs, reducing their carbon footprint in the process and improving their environmental image.
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