BWE Industry Report - Wind Industry in Germany 2018

NEW REVENUE MODELS More

NEW REVENUE MODELS More and more direct electricity contracts with industry customers The cost of producing electricity from renewable energies is falling and could in future be increasingly financed through higher electricity prices and long-term supply contracts with major electricity consumers. However, “corporate PPAs” such as these are still unusual in Germany. Acording to the International Renewable Energy Agency (IRENA), all mainstream technologies in renewable energies such as wind power and solar energy will generate electricity at a cost “at the lower end of the range of fossil energies” by as early as 2020. In particular, wind and solar energy systems at favourable locations are set to produce the “cheapest electricity of all possible forms of generation”. Today, 4 US cent/kWh is already a “routine” cost for producing electricity from onshore wind turbines and will continue to fall. Globally, we are getting closer and closer to the point at which renewable energies will be financed entirely by direct sales of the electricity generated, and no longer through state-guaranteed tariffs. In this context, attention will turn increasingly to long-term supply contracts known as power purchase agreements (PPAs) between system operators and energyproviders or large consumers ( corporate PPAs). In a PPA, both sides agree on a given supply quantity over a specific period and at a defined price. The importance of PPAs of this kind is increasing worldwide. According to Bloomberg New Energy Finance, contracts for a total of 5.4 gigawatts were concluded in 2017, an increase of 25% over the previous year. Growing electricity sales to companies Annual volume (GW) 6 24 AMER 5 20 EMEA 4 16 APAC 3 12 Cumulative 2 1 0 8 4 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.6 1.5 0.8 3.2 1.1 0.6 2.5 1.3 3.1 1.1 Cumulative volume (GW) Windpower Europe is already predicting a “PPA Revolution”. The main countries so far are the USA and United Kingdom, where the law requires that a given percentage of electricity be generated from renewable sources, and they ensure this by means of PPAs. Volumes of electricity usage contracts between renewable energy producers and companies (corporate PPAs) relating to installed power in GW. EMER: Europe, Middle and Far East, Africa; AMER: America; APAC: Asia, Pacific Source: BNEF 2018 16 Wind Industry in Germany

Economic report | NEW REVENUE MODELS Virtually no PPAs in Germany According to Energy Brainpool, the fixed tariffs, low energy prices and procurement horizons of around three years on the current market in Germany mean that demand for PPAs is very limited. Existing contracts are characterised by extremely favourable plant locations and customers with a green image and long planning horizons, such as the frequently mentioned internet giants Google, Microsoft and Amazon. A mass market will not develop until the decade after 2020 when, after 20 years of operation, many wind energy plants will also lose their EEG subsidies. According to Energy Brainpool, the question will then turn to the way contractual conditions will be agreed in individual cases and whether one of the two parties will benefit more than the other. This depends on whether the price of electricity increases at more than or less than the rate calculated in the contract. For an example plant, Energy Brainpool calculated a “fair value” by which the opportunities and risks arising from the change in price are split equally between generator and consumer. German analysts calculate this price as being 3.2 ct/KWh. The International Energy Agency believes that by 2022, around half of the then-newly installed wind turbines worldwide will be financed via PPAs. Some businesses have shown an interest in PPA. For example, the initiative RE100 brings together 125 major corporations, ranging from Kellogg’s to Tata Motors, that wish to switch to 100% renewable energy sources. However, only four German companies figure among them, namely SAP, BMW, real estate company alstria, and Sky. In Germany, experts are not expecting to see any corporate PPAs in the near future, given that various legal taxation and usage rules and lower energy prices on the stock exchange stand against this. Nordex N117 at the wind farm CC4E of HAW technology centre, in Curslack/Hamburg. Wind Industry in Germany 17