IEEE Power & Energy Magazine - July/August 2015 - 40

The Market Premium System

The market premium system is an attempt to incentivize renewable generators to operate their installations in a market-oriented
manner. Renewable generators can choose not to receive the
FiT and instead sell their electricity at the electricity exchange
directly (hence the term "direct marketing"). They thus receive
the wholesale market price, and on top of that, an EEG-financed
FiP, which depends on the type of renewable generator and the
average market price at the electricity exchange for the month in
question (see Gawel and Parkus in "For Further Reading" for a
comprehensive overview on the exact calculus). The purpose of
the market premium system is to provide renewable generators
with a financially superior alternative to the FiT if they are able
to produce when the market requires more generation production. Table 3 illustrates renewable generation within the EEG
and associated remuneration since 2001.
Nonintermittent generators (e.g., hydro, biomass, and biogas)
were quick in adopting the FiP since they have the best capabilities to adjust their generation to market conditions. For these
technologies, the switch into the FiP also relieved overall EEG
cost, mostly because off-peak production is desincentivized and
the EEG system does not have to finance the gap between EEG
tariffs and low market prices during off peaks. Under FiT, nonintermittent generators would just receive a fixed remuneration,
unrelated to market price. This is a major inefficiency of the FiT
relative to the FiP.
Grid operators and the regulator alike were surprised by
the heavy adaptation of wind generators to the FiP system. The
adaptation to the FiP did not bring along similar reductions of
remuneration for wind as it did for nonintermittent generators.
This is because of the quasi-zero marginal cost of wind generators who still have incentives to produce even at negative market
prices, as long as the market price plus the FiP yield positive
marginal revenue. Hence, the FiP did not fulfill its purpose of
aligning production with market parameters for wind generators. This also led Gawel and Parkus to hypothesize that there
are still high windfall gains in Germany, and the regulator is left
in a dilemma to find the right equilibrium between FiP effectiveness and efficiency. The FiP must be high enough to trigger
adaptation of it, and at the same time it must be low enough so
that generators indeed adjust production to market conditions.
After years of heavy turmoil and discussion on how to control EEG cost, the German regulator seems to put its bets on the
market premium system as a main tool to control EEG costs
and bring renewable generators closer to the market. The last
2014 amendment foresees future regulation in this direction.
Already today, new installations above 500-MW capacity must
use the market premium system (FiT is no longer available). For
2016, the plan is to be reduce this limit to new installations over
100 MW capacity.

Concluding Remarks
RES-E have considerably increased in the EU, thus helping to
achieve the EU energy objectives. However, this increase has
resulted in different impacts on electricity markets, affecting
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the wholesale markets, markets for ancillary services, network
costs, and finally retail prices. In general terms, wholesale market prices are reduced, and other costs increase, when RES-E
increase their share.
Spain and Germany have been pioneers in the integration
of RES-E in their systems with approaches that share some
features but differ in others. Both countries have moved from
a FiT to FiP system where RES-E gradually participate in different markets, improving the efficiency of the system. Specific
characteristics of the technologies have been considered in the
remuneration scheme, such as the effect on distribution networks costs. Finally, while Germany has passed through full
RES-E costs to final consumers (with higher proportion to residential consumers), Spain has not allocated full RES-E costs to
consumers, creating a tariff deficit. Spain has applied a series of
modifications to RES-E remuneration as a means to reduce the
tariff deficit that may increase the regulatory risk of the country.

For Further Reading
CEER. (2015). Status review of renewable and energy efficiency support schemes in Europe in 2012 and 2013.
[Online]. Available: http://www.ceer.eu/portal/page/portal/
EER_HOME/EER_PUBLICATIONS/CEER_PAPERS/
Electricity/Tab4/C14-SDE-44-03_Status%20Review%20
on%20RES%20 Support%20Schemes_15-Jan-2015.pdf
K. Würzburg, X. Labandeira, and P. Linares, "Renewable
generation and electricity prices: Taking stock and new evidence
for Germany and Austria," Energy Economics, vol. 40, supp. 1,
pp. S159-S171, Dec. 2013.
European Commission. (2014). Quarterly report on European electricity markets. [Online]. Available: http:// ec.europa.
eu/energy/sites/ener/files/documents/201410_q3-4_quaterly_report_electricity_market.pdf
P. Frías, P. Linares, L. Olmos, M. Rivier, F. Banez-Chicharro, C. Fernandes, M. Klobasa, J. Winkler, A. Ortner, and G.
Papaefthymiou. (2015, Mar.) Assessment report on the impacts
of RES policy design options on future electricity markets. [Online]. Available: www.res-policy-beyond2020.eu
L. Gelabert, X. Labandeira, and P. Linares, "An ex-post
analysis of the effect of renewables and cogeneration on Spanish electricity prices," Energy Economics, vol. 33, supp. 1, pp.
S59-S65, Dec. 2011.
E. Gawel and A. Purkus, "Promoting the market and system
integration of renewable energies through premium schemes-
A case study of the German market premium," Energy Policy,
vol. 61, pp. 599-609, Oct. 2013.

Biographies
José Pablo Chaves-Ávila is with Comillas Pontifical University, Madrid, Spain.
Klaas Würzburg is with Economics for Energy, Vigo, Spain.
Tomás Gómez is with Comillas Pontifical University,
Madrid, Spain.
Pedro Linares is with Comillas Pontifical University and
p&e
Economics for Energy, Madrid, Spain.
july/august 2015

http://www.ceer.eu/portal/page/portal/ http://http:// http://www.res-policy-beyond2020.eu

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2015