What does direct marketing mean?
Terms briefly explained
What is Direct Marketing?
Direct marketing is a form of marketing renewable electricity that has been subsidised in Germany since 2012. Previously, operators of wind or solar power plants had to supply the electricity generated to the grid operator in return for a fixed feed-in tariff (see Renewable Energy Sources Act, EEG). With direct marketing, they can sell the electricity wholesale.
What are the advantages of direct marketing?
The aim of introducing direct marketing was to strengthen renewables and establish them on the market independently of subsidy systems. Direct marketing has played a central role in the electricity market, especially since many plants have been operating under the 20-year EEG subsidy: over 80 per cent of the electricity produced from renewable sources is already directly marketed.
In addition, a lot of data is collected for direct marketing, such as planned generation. This improves the forecasts for a stable electricity grid. Last but not least, plant operators assume the same responsibility as the operators of conventional power plants: they have an incentive to adjust their production by shutting down or throttling back their plants if too much electricity is produced and prices fall or even slip into negative territory.
Is Direct Marketing mandatory?
Since 1 January 2016, new renewable energy systems with an installed capacity of 100 kilowatts or more must be remotely controllable and market the electricity they generate directly. This does not apply to systems that were authorised and commissioned before August 2014. However, these can optionally switch to direct marketing in accordance with the market premium model.
Direct marketing and other direct marketing - what's the difference?
Direct marketing refers to systems with an output of over 100 kilowatts that have had to be remotely controllable since 2016 and whose electricity must be marketed directly.
Other direct marketing refers to old installations that are no longer subsidised under the EEG after 20 years and then switch to (voluntary) direct marketing for continued operation. This will affect around 200,000 installations by 2025.
What does a direct marketer do?
As a rule, operators of renewable energy systems do not sell their electricity themselves. Direct marketers who are familiar with electricity trading and have stock exchange licences, bank guarantees and the necessary IT infrastructure have established themselves for this purpose. Direct marketers sell the electricity and receive the proceeds as well as an additional service fee.
Concluding a direct marketing contract - the benefits
A lot of data is required for direct marketing and it is important to comply with prescribed processes and data formats - for example for trade and in co-operation with authorities. A competent marketer with many years of experience can best guarantee this.
The direct marketer sets up the remote controllability of the systems and assumes the roles of ‘operation manager’ and ‘operator of the technical resources’. It secures the processes with the grid operators and handles the REMIT notifications.
In trading, it assumes the risks of fluctuating electricity prices and ensures that electricity revenues are credited reliably and quickly. As security, established direct marketers have contracts with all reputable banks and offer flexible contracts and different billing options.
What data is required for direct marketing?
A direct marketer requires the following data for the evaluation and calculation of a contract and for subsequent marketing:
- the master data of the wind farm e.g. the geo-coordinates of the wind turbines, the hub height and the rotor diameter,
- the turbine type,
- load profile data of the distribution grid operator at quarter-hour intervals,
- the load profile data from the past, including the outage work for redispatch measures.
Additional information such as shutdowns due to maintenance, shadow flicker, bats, birds or grid bottlenecks are helpful for calculating the service fee and reduce the risk in the assessment.
What is the data needed for?
Direct marketers need to know as precisely as possible when and how much electricity is generated and what revenue can be realised from marketing. In order to estimate the quantities, direct marketers compare the past, real load profiles with an idealised load profile of the turbine. In other words, they compare how much a wind farm has generated and how much it could have generated. This gives them an impression of the performance of the turbines. Uncertainties are buffered with risk premiums in the calculation.
What role do guarantees of origin (HKN) play in direct marketing?
A guarantee of origin is an electronic document that certifies when and in which renewable energy plant electricity was produced - it is the ‘birth certificate’ of a green megawatt hour, so to speak.
During the EEG subsidisation period, a guarantee of origin ensures that the renewably generated and subsidised energy can only be sold once: Due to the ban on double marketing, a plant operator cannot simultaneously generate HKNs and sell the electricity in subsidised direct marketing, as HKNs are only generated for non-subsidised electricity.
If a plant switches from EEG support to continued operation after 20 years - for example, to direct marketing - then not only the electricity is traded, but also the guarantees of origin that prove the green characteristics of the electricity fed into the grid.
A direct marketer can take over the handling of the guarantees of origin for a plant operator in addition to marketing the electricity.
What is the market premium model?
Direct marketing is generally based on fluctuating wholesale prices and therefore - at first glance - represents a risk for an installation operator. The market premium model was introduced to reduce this risk. It compensates for differences between potential wholesale revenues and the conventional EEG subsidy.
Did you already know?
A market value is calculated for an energy source on the basis of the average hourly prices on the spot market (see EEX and EPEX Spot) and the energy source-specific factors - e.g. for wind power plants or photovoltaic systems.
The value to be applied - together with the market value - is used to calculate the market premium. Initially, the value to be applied was based on the subsidy rate under the Renewable Energy Sources Act (EEG). Since the EEG 2017, however, it has been based on auction procedures that plant operators must go through before building the plants.
Those who market electricity from renewable energies directly usually sell it via the market premium model on the electricity exchange (see EEX). Instead of the EEG subsidy, they receive the average market value and the market premium. If the current market value is below the value to be invested - i.e. the original subsidy amount - the market premium compensates for the difference between the market value and the value to be invested. If the average market value is higher than the value to be invested, the market premium is zero.
The management premium is the service fee that the direct marketer receives. It remunerates the work of the direct marketer, such as setting up remote controllability, fulfilling the roles of ‘operation manager’ and ‘operator of technical resources’ as well as REMIT notifications. It also covers risks such as balancing costs.
