The massive expansion of renewable energies from wind and solar has consequences for the electricity system. Comprehensive reforms are planned.
More and more electricity from wind and sun, more and more heat pumps and electric cars: this has consequences for the electricity system. Reforms are necessary. The Ministry of Economic Affairs and Climate Protection has now presented a comprehensive paper for an “electricity market design” of the future. The goal is a safe, affordable and sustainable electricity system.
The restructuring will cost billions, for example for the expansion of electricity networks and for investments in new gas-fired power plants. The costs are to be kept as low as possible, as the paper states. A public consultation on the proposals for the new electricity market design will initially take place until the end of August.
Electricity system in transition
Germany’s electricity system is in the midst of a comprehensive modernization, according to a paper from the ministry headed by Robert Habeck (Greens). Germany is to become climate-neutral by 2045. The share of electricity consumption from renewable energies such as wind and solar is to rise to 80 percent by 2030. In the first half of this year, it was 58 percent, according to industry figures.
The paper states that the phase is now beginning in which the electricity supply should be completely covered by renewable energies – and in which a “massive electrification” of the energy supply in heating and transport is imminent and coal, oil and gas are finally replaced as fossil energy sources.
A new “operating system”
The paper speaks of a new “operating system”. The weather-dependent, “variable” electricity generation from wind and photovoltaics (PV) is leading to a paradigm shift. “While generation used to follow demand, in the decarbonized electricity system demand is more closely aligned with supply.” Large parts of demand – for example e-mobility or certain parts of industrial processes – would schedule their consumption in time windows with a high supply of renewable energies and low prices. “The electric car will use the midday period when the supply of PV electricity is high and the car is stationary anyway.”
Backups
However, there are times when there is no wind and no sun – the “dark lulls”. However, a secure power supply must be guaranteed even during these times. A “technology mix” is planned for this purpose, also to compensate for seasonal fluctuations in the generation of renewable energy.
On the one hand, it is about “flexible loads” such as heat pumps or electric cars, which could shift their electricity requirements to a certain extent, as the paper states. Storage is intended to compensate for short-term fluctuations in wind and PV generation. In addition, there are “controllable” back-up power plants – they are intended to step in when wind and PV as well as short-term storage and flexible loads are not sufficient.
The federal government has been working for some time on a strategy to build new gas-fired power plants as backups, because investments have to be worthwhile for operators. State funding is planned for the new gas-fired power plants, which will later be operated with hydrogen.
New mechanism
By 2028, a new pillar of the electricity system is to be introduced: a “capacity mechanism”. In the paper, the ministry presented various complex models. Essentially, it is about rewarding providers for providing so-called controllable power plant capacities – even if the power plants may only run for a few hours a year. A competitive approach is planned, including pumped storage, battery storage, bioenergy plants and backup power plants.
A capacity mechanism is intended to supplement the existing wholesale market. The basis is the “merit order” principle. This essentially states that the most cost-effective power plants always generate electricity to meet electricity demand.
Consequences also unclear for electricity consumers
It is unclear exactly what this mechanism will look like. A “central capacity market” is possible, in which a central body determines the need for controllable capacity and puts it out to tender through an auction. However, with this mechanism, costs would have to be passed on to consumers by way of a levy, the paper says.
The Ministry of Economic Affairs also favors a combination with a “decentralized capacity market” in order to reduce the levy. This would give suppliers the responsibility to secure their electricity supplies through capacity. For example, they could use incentive models to reduce their customers’ consumption during peak load times when there is little wind and PV power.
More flexibility
In total, the Ministry of Economic Affairs names four areas of action in the paper on the restructuring of the electricity system. This also includes a reform of the promotion of renewable energies. The current system, which essentially provides for a market premium in addition to the stock exchange price achieved, is approved under European law until the end of 2026. Among other things, a switch to investment cost funding is now planned.
There should also be more flexibility in electricity usage. This also includes incentives for users to charge their electric cars when a lot of wind and solar power is being produced and electricity prices are low. Consumers could also be rewarded with lower grid fees for this, as the paper shows.
Make better use of green electricity
According to the paper, the aim is to make better use of “green” electricity locally, instead of shutting down plants – this is what happens when there is a threat of power shortages. Measures to prevent overloading of the power grid are very costly. The background: the wind power produced mainly in the north has to reach large consumption centers in the south, which requires thousands of kilometers of new power lines.
Digital electricity meters, or “smart meters”, are a prerequisite for greater flexibility in the electricity system. Their use is to be accelerated. The Federal Network Agency is responsible for setting the network charges.
Source: Stern
