The market value of wind energy.
The renewable and conventional power sectors are merging within a short period of time: The electricity market is becoming the melting pot for different electricity generators that have to sell their product to one common market. In future renewable energy projects will depend on revenues from the wholesale power markets to realize their full economic potential.
Introduction of direct marketing in France
For the direct marketing of electricity from renewables, the recent introduction of mandatory direct marketing in France is no longer associated with absolute annual income, but also its temporal distribution, similar to the German market premium. The hourly feed-in rate determines which revenues can be achieved by the sale of electricity at fluctuating hourly rates on the electricity exchange. The value of the electricity therefore depends on both the temporal distribution of the income at the site and the technical parameters of the plants themselves.
Formerly the fixed feed-in tariff in France was paid for every kilowatt-hour, regardless of the time of feed-in. The risk of revenue with such a remuneration system is reduced to the yield risk. There has not been a price risk due to the fixed feed-in tariff for the operator. With the introduction of compulsory direct marketing for wind turbines with more than three megawatts (MW) installed capacity, or for parks with more than six plants, the legislator in France has taken a step towards electricity market integration. According to the French Law on energy transition from 2015, further details of the model were regulated within the framework of regulations. Basically a system has been created that is similar to the German market model in the main characteristics, but differs in some details.
Background of direct marketing in France
A monthly sliding market premium ("complément de rémunération"), which is calculated as the difference between the value to be applied (feed-in tariff or bid in auction) and reference market value "M0", is paid to the operator. Based on the number of plants, the assessment basis will be determined either by law or by a tender. The "M-zéro" is calculated on a monthly basis from the volume-weighted spot market revenues of the entire portfolio of wind energy in France, whereby hours with negative prices are not included in the calculation. Similar to the market premium model in earlier German EEGs, plant operators who do not have to participate in auctions are also awarded a management premium (MP), the amount of which is fixed by the legislature for the entire funding period.
Another characteristic design element is the integration of the French capacity market (CM) into the RE promotion mechanism. In the case of the feed-in tariff, revenues from this market are deducted from the market premium in order to avoid double funding. As soon as the value to be applied is determined by auctions, it is assumed that the bidders will include any revenue from capacity marketing into their bids. Therefore, no explicit offsetting of the capacity market occurs. The following figure illustrates the system and the revenue components of the French direct marketing model.
Evaluation of the market value of wind
For a reliable calculation of the market value of wind a systematic economic evaluation of site- and technology-specific parameters is necessary. Patterns of wholesale prices, price indices, power curves of wind turbines and regional and local wind conditions play an important role in this context. For investment decisions in wind power the future development of market values has to be considered. Mandatory basics for this analysis are market price forecasts, which provide the basis for revenue expectations and the overall project value as well as for financing decisions. Calculating a project-specific market value for a wind farm requires therefore know-how in two fields: power markets and meteorology.
Calculating a project-specific market value for a wind farm requires therefore know-how in two fields: power markets and meteorology.
Support for direct marketing companies, investors, plant operators, project developers and manufacturers
Market value analyses (Market Value Atlas and Revenue Reports) are used as support for wind farm planning and project evaluation. They offer direct marketing companies, project developers, investors and banks the following competitive advantages:
- Direct marketing companies can analyze the specific market values differences of wind sites to the national market value. This helps to determine the optimal direct marketing conditions especially for new projects for which no historical feed-in data is available.
- Investors can also enhance the performance of a project by choosing the most suitable technology for a certain wind farm site. Compared to each other, different wind turbines and hub heights create different market values. Market value analyses highlight these differences and consequently serve as a decision support for investors.
- Project developers and investors can use the competitive advantage of a market based evaluation of revenues to determine the correct value of a project. This prevents the risks of selling a project at less than fair value or overpaying.
- Banks that finance wind power projects have to evaluate the risk of financial underperformance. Market value analyses provide an adequate instrument to quantify these risks and therefore support financing decisions.
- Operators of existing wind power plants can determine the market value of their projects and verify the conditions of their direct marketing contracts with the help of market value analyses.
- Wind turbine manufacturers can review and optimize the design of their turbines based on market value analyses to develop revenue optimized wind turbine technologies.
Market value atlases and revenue reports by enervis and anemos
To provide quality market value analyses an integrated modelling of site-specific wind time-series and developments in the power market is necessary. Especially the forecast of power market developments requires extensive and integrated data sets as well as technical expertise in the energy industry. enervis and anemos, two highly specialized consulting firms with a long standing experience in the electricity and wind energy markets, combine their expertise in this cooperation.
Together we offer the Market Value Atlas as well as Revenue Reports, two innovative products that are necessary to determine the economic potential of existing and new wind power projects.
We are looking forward to discuss this further with you. Please feel free to contact us.