Germany launches dialogue platform to prepare comprehensive electricity market reform

To enable a future where electricity demand is largely met by renewable sources, Germany has launched a ‘Climate Neutral Electricity System’ platform (Plattform Klimaneutrales Stromsystem), with the central aim of reforming the country’s electricity market design. “The electricity market is the cardiac system of the energy transition,” economy and climate protection minister Robert Habeck said during the inauguration of the platform, adding that the electricity supply of the future should be secure, sustainable and affordable.

The debate on the reform of Germany’s electricity market design will address how to ensure favourable electricity prices, how to set the right investment signals for renewable energy projects and hydrogen power plants, and how to make the system more flexible. It should also set the path for the financing of renewable power sources in future, the creation of a secure back-up capacity, open up the possibility for local price zones, and consider flexibility options for electricity demand. Some of the electricity market proposals the dialogue platform will discuss include:

• A uniform merit-order-principle for the deployoment of power plants
• Development of 'capacity instruments' to ensure enough back-up power plants are available at times of little renewable power generation
• Local differentiation of support schemes for renewable power
• Power prices for industry
• Strengthening of power purchase agreements (PPAs)
• Restructuring the system of surcharges and levies

24 GW of new gas capacities needed by 2030

The energy crisis showed the importance of having reserve capacities available, Habeck said, adding that Germany will need big power generating capacities that don’t run all the time as the country aims to cover 80 percent of its electricity demand from renewable sources by 2030. With electricity demand set to increase in future through the electrification of the mobility and heating sectors, an expected consumption of 750 terawatt hours (TWh) would still need to be covered by conventional (molecule-fired) power plants, Habeck said. To back up fluctuations in renewable energy generation as the nuclear and coal phase out are implemented, the economy ministry (BMWK) aims to tender 24 gigawatts of hydrogen-ready gas plants by 2030.

A power plant strategy (Kraftwerkstrategie) should be presented before the end of March so that planning and construction can start soon, he announced. “Creating alternative baseload will be a specific challenge,” Habeck said. “In a way, it will be like teaching an elephant how to dance.”

Ahead of the platform’s inauguration, renewable energy associations advocated for a “swift reform process” to create an energy system fully based on renewable sources. The electricity market design of the future must therefore be oriented towards the needs of renewable power generation, the German Renewable Energy Federation (BEE), Solar Association (BSW-Solar) and Wind Energy Association (BWE) said.

An increasing share of renewables in the electricity system made the market’s weaknesses clear, the lobby groups said. These included negative electricity prices, curtailment of renewable power production and a lack of incentives to use flexibility options in generation, consumption and storage.

A market reform in the European context

“Flexibility is the central currency of the future electricity market,” BEE head Simone Peter said. “Decentralised back-up from flexibly controllable bioenergy, hydropower, geothermal energy, storage, green combined heat and power and sector coupling is the intelligent partner of wind and solar energy, alongside grid expansion and load management,” she explained. “It is good that the German government is now tackling this Herculean task,” BSW head Carsten Körnig added.

Representatives from business, science and civil society alongside government ministries will now discuss how the electricity market can be made fit for the electricity system of the future. The platform should explore how a reform of Germany’s electricity market design could compliment the planned European reform, for which the EU Commission recently ran a public consultation and aims to adopt any relevant amendments to the design by the end of March 2023.

“Europe has one of the best functioning electricity markets in the world,” Habeck said, adding that “we must preserve the positive achievements while making the market fit for the future.” The economy ministry aims to present the first essential findings of the platform in a summer report by the end of June, which is planned to be followed by a winter report before the end of the year.