There has been a consolidation in Germany’s wind power wholesale sales recently with some smaller direct marketing companies exiting the segment or having their market shares reduced, market participants said.
Their views differ on the implications of the relatively high market concentration and on whether the consolidation is likely to continue. The fall of wind power marketing charges that has accompanied the consolidation might reverse, putting some producers in a precarious situation, one source said. This could contribute to the slowdown of wind power expansion, which is likely to happen if existing proposals for Germany’s new renewable energy subsidy system are approved.
Wind power is subsidised by fixed feed-in-tariffs and market-price dependent premiums in Germany. The power subsidised by feed-in tariffs is sold by transmission system operators (TSOs) on EPEX SPOT exchange, but most wind power is in the market premium system, whereby producers take responsibility for its sales in exchange of getting slightly higher remuneration compared to feed-in-tariffs. The producers in the market premium system have a choice of selling their power themselves or passing this responsibility to companies offering renewable energy direct marketing services.
Even though wind power is increasingly sold without TSO involvement, the number of companies selling it on the wholesale market has diminished rather than increased, market participants said.
One example is small renewable energy company Grundgrun, which is in the process of selling its direct marketing business to large German utility EnBW, citing intensive competition and worsening market conditions as the reason.
Economies of scale
Economies of scale is the main reason for the consolidation, according to market participants.
“Especially because of the need to obtain a certain portfolio size in order to balance out [wind power] forecast errors, companies try to develop big portfolios and to bind clients in the long term,” a spokesman for Germany’s wind energy union BWE said. “From our members, we know that there is a threshold at around 1.5GW.”
Concentration in Germany’s wind power sales is not harmful at its current level, said Hendrik Samish, chief executive of German renewables direct marketer Next Kraftwerke. There is still pressure on direct marketing companies to reduce their charges, which points to sufficient competition, he said.
Risk to producers
However, according to a spokesman for Greenpeace Energy, which sells wind power bought from producers directly to end-consumers, the charges have fallen to lows that are not sustainable in the longer term considering the costs of direct marketing, and they are likely to increase sooner or later. “We do not comment on market speculations,” said a spokesman for utility Vattenfall, which is active in German renewables direct marketing, about the charges.
The government’s plan to increase the cost of being imbalanced at delivery is also likely to increase direct marketing charges, besides incentivising direct marketers to offer variable rates to wind farms, Greenpeace Energy’s spokesman said.
This is because the predictability of production levels varies depending on farm’s location and direct marketers might want to take this into account when the cost of imbalances increases. As a consequence, some farms in less favourable locations might face high charges that do not enable them to be profitable or they might not find a direct marketer who accepts to service them, the spokesman said.
High uncertainty about future direct marketing charges is likely to cause a headache to renewable energy producers at planned wind power tenders, where their new projects have to compete to get subsidies, he added.
This might induce consolidation in wind power production as well as direct marketing. If producers factor in high direct marketing charges, they might not be awarded at tenders while if they factor in low charges, they might not be able to be profitable even with subsidies.
“This risk can be handled best by big players with lots of projects in the auctioning in cooperation with big marketing companies with big portfolios,” the spokesman for Greenpeace Energy said.