German gov't slashes market incentive for offshore wind

Management premium to fall by a quarter in 2013

A draft government regulation sets out to cut the lucrative management premium market mechanism that supports the output of Germany's 283MW current offshore wind capacity.

The management premium for offshore wind was to amount to €1.0/MWh in 2013. Under the new regulation, it will be reduced to €0.75/MWh. Taking into account the management premium cut across all renewables types, support costs will be reduced by €160m in 2013, allowing a €0.0004/kWh (0.04 eurocent/kWh) cut in the renewable energy levy paid by customers. The levy is currently €0.036/kWh.

The premium was introduced at the beginning of 2012 as an alternative to, but based on, the traditional feed-in tariff system. For offshore wind, it is the difference between the feed-in tariff for offshore wind and the monthly ex-post average energy exchange electricity price, corrected by an offshore wind value factor.

The management premium is added to cover the costs involved if the predicted offshore wind output does not meet actual generation, and the costs of electricity trading, including energy exchange charges and IT infrastructure. Expert investigations have demonstrated that this premium was set too high, the government has stated.

The German government claims there remains sufficient incentive in the premium mechanism to persuade offshore wind and other renewables operators to market the electricity themselves, rather than rely on feed-in tariffs. The latter system involves passing the electricity to transmission system operators, which then market it on the day-ahead or intraday wholesale markets.

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