Market and Policy Risks for VRE Investment and their Impacts on Effectiveness and Efficiency of RES-E Policy Targets – An Agent-Based Modelling Approach

Kurzfassung

With the implementation of the Renewable Resource Act (EEG) in the year 2000 and feed-in-tariffs (FiT) as main policy instrument to support the deployment of renewable energy source for electricity (RES-E), the RES E share in power generation has risen successfully from initially five to over 30 % in the year 2015. With the strong increase of the use of variable renewable energies (VRE) like wind and solar radiation, a better market integration of RES-E is postulated. Hence, optional direct marketing of RES-E via the variable market premium (var. MP) has been introduced in the year 2012 and in 2014 direct marketing of RES-E power generation has become mandatory for almost all new plants over 100 kW. Introducing tenders is expected to be the next big policy adaptation within the revision of the EEG in the year 2016. The intention is to expose VRE to wholesale power price signals that reflect the different value of electricity, and therefore facilitate a more demand oriented feed-in as well as the incentive to invest in more "system friendly" power plants. But VRE are capital-intensive and supply-dependent technologies and, as such, highly sensitive to investment risk, which is increased by short-term price exposure. The IEA concludes that an appropriate future policy and market design "will need to strike a delicate balance between these two objectives" (IEA 2014). A the same time, studies on the future development of the market values of VRE expect a tremendous drop with increasing shares (Hirth 2013). This is due to the “concurrence-effect”: the simultaneous feed- in off VRE reasoned by the fact that meteorological conditions are similar in large geographical areas. Combined with more frequently market driven curtailment of VRE due to the introduced incentives of the above mentioned policy schemes, this situation leaves the investors and plant operator with high uncertainty about future revenues. In general, all of the discussed policy instruments go along with higher remuneration risks compared to FiTs; with higher risks usually resulting in risk premiums. There is evidence, that many investors of the past in Germany will not be able to diversify these new risks adequately. Therefore a sudden and radical change in policy support can lead to an abrupt ending of VRE investment activities, risking to fulfil the RES-E targets set by the German government. In order to evaluate policy instrument uncertainty from an actor’s perspective and its impact on the system development as a whole, an agent-based simulation model has been developed (Reeg et al. 2012).