- Aurora Energy Research says skimming off extra profits from renewables in Germany will lead to loss of revenue in the short term for generators
- It could range between 32% to 55% of revenues with subsidized and solar PV systems suffering more
- In the long-term, it will not impact renewables so much as high electricity prices are helping them achieve higher returns already
- Giving up excess profits will then be seen as an expression of social responsibility and enhance acceptability for renewables even more
In the long-term, renewable power generators have nothing to worry about German government’s plans to skim off extra profits from electricity producers as their profitability will be maintained despite the short-term revenue loss, according to Aurora Energy Research that does warn of this creating ‘uncertainty’ among market participants.
“The losses are between 32% and 55%, with (per market premium) subsidized systems being affected much more severely than non-subsidized ones due to stricter upper limits, and photovoltaic systems more than wind turbines (photovoltaic: subsidized -55%, unsubsidized -36%, wind power (onshore): subsidized -45%, non-subsidized -32%),” according to analysts with the energy market intelligence and consulting firm.
Even as the analysts call it ‘economically reasonable’ for power plant operators to give up some of the revenue, more so as an ‘expression of social responsibility’, they believe there is not much that renewables stand to lose in the long-term.
Lead Author of the study Lars Jerrentrup cites high electricity prices as the major reason for believing that this development will have ‘hardly any effect’ on the long-term profitability of renewable projects, subsidized or not.
“Even with the skimming off profits in the next 7 months, the investments are achieving higher returns than ever before over their entire lifetime and would be profitable even without subsidies. For nuclear and lignite-fired power plants, too, skimming off profits has only moderate consequences,” added Jerrentrup.
What the measure will do for sure is lead to a loss of confidence among investors and stakeholders in the short-term, due to the uncertainty related to its possible extension, especially at a time when electricity prices are going through the roof and the European Commission proposing capping revenues for infra-marginal electricity producers (see EU Proposes Capping Revenues Of Renewable Producers).
Nonetheless, Germany’s plans can also make a business case for renewables which is much needed. “So far, they have often been vilified as price drivers, and the EEG surcharge shown on the electricity bills strengthened the critics,” opined Aurora’s Project Manager Kornelia Stycz. “Now, on the other hand, consumers are seeing that they are benefiting from the cheap renewables. This could also increase the acceptance of projects in the future, which would be urgently needed, especially in the case of wind energy, in order to achieve the national expansion targets.”
For the background, the German Ministry of Economics and Climate has plans to secure windfall profits, around 90% on the spot market, from power generators between December 2022 and June 2023 with an aim to provide ‘financing relief’ for end consumers and companies that are paying higher energy prices. Projects that sell electricity on futures market or through direct power purchase agreements (PPA) will have separate regulations to skim off the profits.
This order is applicable to not only renewable energy plants, but also to nuclear and lignite projects.