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Mandatory Direct Marketing of Wind Power Increases Financing Costs

DIW Weekly Report 21 / 2015, S. 283-288

Thilo Grau, Karsten Neuhoff, Matthew Tisdale

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The 2014 reform of the Renewable Energy Sources Act (Erneuerbare-Energien- Gesetz, or EEG) entailed that a mandatory direct marketing of green electricity be introduced. According to this law, operators of larger wind turbines must sell their electricity production on the electricity market. In addition to the wholesale price they receive a floating market premium, which is based on the average market value of all wind power in Germany. The mandatory direct marketing affects both the costs incurred, as well as the revenues earned, by the plant operator. The costs of compensating for forecast deviations in particular, as well as the changes in revenue due to differences in site-specific production profiles, create new risks for investors, and can increase financing costs of project-financed wind turbines. The dimensions of these effects were examined in various scenarios. Depending on the underlying assumptions, mandatory direct marketing may create additional support costs ranging from 3 to 12 percent for new wind turbines. Ensuring favorable financing costs should therefore be an important criterion in the further development of the EEG.

Karsten Neuhoff

Head of Department in the Climate Policy Department

JEL-Classification: G32;L51;L94
Keywords: Feed-in tariff, project finance, wind energy
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