Promoting the market and system integration of renewable energies through premium schemes-A case study of the German market premium

With the share of renewable energies within the electricity sector rising, improving their market and system integration is of increasing importance. By offering plant operators a premium on top of the electricity market price, premium schemes represent an option to increase the alignment of renewable electricity production with market signals, and have been implemented by several EU member states. This paper examines the case study of the German market premium scheme adopted in 2012. Building on an evaluation of early experiences, we discuss whether the market premium contributes to the aims of market and/or system integration (effectiveness), and what potential efficiency gains and additional costs of "administering integration" are associated with it (efficiency). While exposing renewables to price risks is not the scheme's purpose, it has successfully increased participation in direct marketing. However, risks of overcompensating producers for marketing and balancing costs are high, and the benefits of gradually leading plant operators towards the market are questionable. Incentives for demand-oriented production are established, but they seem insufficient particularly in the case of intermittent renewable energy sources. To conclude, we provide an outlook on alternative designs of premium schemes, and discuss whether they seem better suited for addressing the challenges ahead. (C) 2013 Elsevier Ltd. All rights reserved.