As the recent offshore wind auction in Germany showed, unsubsidized renewables are rapidly becoming a reality. But how do you calculate the revenues from intermittent solar and wind power plants that receive no financial support, in particular in view of the frequent occurrence of zero or negative power prices? Carlos Perez Linkenheil, Marie-Louise Niggemeier and Simon Göß from Energy Brainpool, independent Berlin-based energy market experts, have developed a model for a plausible and realistic price index that takes into account the effects of negative power prices on revenues.
Various price indices are available for assessing electricity market revenues. Most common are baseload, peakload and market value. Baseload is the average non-weighted price for electricity in the day-ahead market from Monday to Sunday, 0 to 24h. Thus, it is the average price of all hours in a defined period of time, while peakload only takes into account electricity prices in the day-ahead market from Monday to Friday, 8 to 20h.
Market value is the average weighted price of a technology in the spot market at all hours during which the corresponding technology is feeding electricity into the grid. Negative prices are taken into account when calculating market value.
The monthly market value provides the basis for the calculation of the market premium under the German Renewable Energy Act (EEG). The market premium received by solar and wind power plants varies with the prices the different renewable technologies can achieve on the EPEX spot market (market value). All installations larger than 100 kW (some 90-95% of wind power and 25% of solar power capacity) have to sell their electricity on the EPEX Spot exchange. The market premium, hence the support they get, is based on the difference between the feed-in tariff (FiT) and the (normally) lower market value, i.e. the price renewables achieve on the exchange.
In a power market with variable renewable energy sources (vRES), power prices react to the fixed remuneration systems which sell electricity even at negative prices. However, renewable power plants that are not supported via a feed-in tariff will switch off at negative prices in order to avoid losses. For this reason, a non-supported plant will switch off more frequently than a supported plant and thus achieve lower sales volumes.
Taking this into account, Energy Brainpool developed the sales value index. This is the average weighted price a technology (solar or wind) can achieve in the spot market at all hours during which the corresponding technology can feed in electricity. Only positive prices are considered in this concept.
The sales value recognizes the fact that vRES are switched off in times of negative prices to avoid losses. So, put differently, the sales value is the average weighted price a technology (solar or wind) can achieve in the spot market in all hours during which the price is higher than or equal to 0 EUR/MWh.
Figure 1: Example of a typical feed-in behaviour of subsidised and non-subsidised fluctuating renewable energies
Conversely, the share of annual production that cannot be marketed due to prices less than 0 EUR/MWh, is not taken into account when determining the sales value. The marketable quantities, or sales volumes, will be lower than current marketed volumes of feed-in tariff supported vRES.
Using a combination of the sales values and the sales volume for individual assumptions of annual production and full load hours of vRES, the sales revenue can be calculated. It is the revenue that a technology can receive on the electricity market (energy-only market),. This approach is explained in the following example calculation for a wind power plant.
Revenue estimation based on installation specific full load hours
Details of a hypothetical wind power plant:
- Installed capacity: 3 MW
- Expected full load hours: 2,000 h/a
- Expected generation: 6,000 MWh
Annual average for Germany, modeled by Energy Brainpool:
- Sales volume (no generation at prices below 0 €/MWh) relative to total generation: 80%
- Sales value: 70 EUR/MWh
Full load hours x installed capacity x (sales volume / total generation) x sales value
- 2,000h/a x 3 MW x 80 % x 70 EUR/MWh = 336,000 EUR/a
For a realistic assessment of the sales revenue potentials of unsupported renewables, the sales value in combination with the sales volume should be chosen. This metric takes into account that variable renewable energies do not feed in continuously and that operators of power plants switch off at times of negative prices.
Offshore tenders with 0 €/MWh need to consider this index
In mid-April, the first German tender for offshore wind turbines took place with surprising results. Dong Energy and EnBW offered a total of 1380 MW at a price of 0 cent/kWh. That means they will receive no FiT support. In the light of this result, the Energy Brainpool approach described above becomes pertinent to calculate the potential revenue of these projects.
We have followed this approach to evaluate the revenue potential of offshore wind farms in the years from 2025 to 2035.
Current power price scenarios from Energy Brainpool model the expected average revenues of offshore wind plants in Germany until 2050 in three scenarios characterized by different sensitivities: Standard, Conservative and Low-Price. Figure 2 shows the main differences between the three modeled scenarios.
Figure 2: Scenario premises
The three scenarios vary in their most important parameters:
The Low price scenario and the Standard scenario follow the plans of the federal government in Germany with a share of renewable energies in gross electricity consumption of 80% in 2050. The Conservative scenario follows the “reference” scenario of the European Union which is based on a share of renewable energies in gross electricity consumption of 57% by 2050. Thus, the three scenarios cover a broad range of possible developments in a plausible and consistent way.
Figure 3 shows the range of results of the sales values modelled for the period 2025 to 2035.
Figure 3: Results of the sale values of the three different scenarios
In the Standard scenario, an offshore wind power plant can achieve a sales value of 53 EUR/MWh in the year 2025. The sales value could rise to 76 EUR/MWh by the year 2035. In comparison, the sales value of the Conservative scenario, relative to the Low-price scenario, is 23 percent higher for the year 2025 and 37% higher in 2035. For the Standard scenario the sales value ranges in between. (The higher value in the Conservative scenario is caused by a higher general price level in this scenario and fewer negative prices.)
As unsupported vRES must switch off more frequently at negative power prices, they cannot sell all quantities. Figure 4 shows the share of sales volumes compared to annual generation for onshore and offshore wind power from 2025 to 2035 in Germany.
Figure 4: Sales volumes of onshore and offshore power plants in comparison
Due to the high installed capacity of onshore wind, the “cannibalization-effect” for onshore installations is more serious than it is for offshore installations. A further factor influencing the sales volumes is the production profiles of the technologies, which are different for onshore and offshore wind farms. Based on these differences, sales volumes for offshore plants are higher than for onshore plants. In the Standard scenario, an average of 95 percent of the offshore production in the years 2025 to 2035 can be marketed at positive prices, compared to only 89 percent for onshore plants. This volume risk in the marketing of non-supported plants must be taken into account in any sound assessment of potential revenues.
Calculation of annual revenues of unsupported offshore wind turbines
So for a hypothetical offshore plant with a size of 1 MW and expected full-load hours of 3200, the following revenues would result for the years 2025 and 2035:
- Year 2025 -> = 159,904 EUR
- Year 2035 ->= 231,040 EUR
We believe our approach will help make plausible and solid assessments of the potential revenues of unsupported renewables projects. Risks due to negative electricity prices are taken into account, whereas at the same time the expectations of sales revenues compared to current market values are increased. The comparison of sales volumes for onshore and offshore plants is very relevant to sales revenue, since the volumes marketed at positive prices represent a decisive factor in the revenues of both technologies.
Those who are interested in cost comparisons between wind power and other forms of power generation, may conclude that, if the most recent bids are based on rational economic calculations, the cost of offshore wind will be something between 53-76 EUR/MWh over 20 years.
An in-depth discussion of the topics sales value, sales volume, sales revenue and the effect on unsupported offshore wind can be found in the White Paper „Valuation of electricity market revenues of fluctuating renewable energy sources“ and in the case study “Assessment of revenue potentials of offshore plants” by Energy Brainpool
 (Compare appendix 1 Nr. 2 EEG 2017 and appendix 1 Nr. 2 EEG 2014).
 IEA, „World Energy Outlook 2016“
 EU Commission, „EU Energy, Transport and GHG Emissions Trends to 2050 (2016)“, Pläne der Bundesregierung und das EEG17