Berlin Wind and solar power are to replace nuclear and coal-fired power plants in Germany. Power plant capacity that is reliably available at all times is therefore becoming scarce. However, the energy crisis has delayed the schedule for the necessary electricity market reform. The Federal Ministry of Economics is now belatedly moving the issue up its list of priorities.
However, having power plant capacities available is currently not rewarded. The construction and operation of a new power plant, with which money can be earned in just a few hours a year, is therefore not worthwhile. That should change.
The coalition agreement between the SPD, Greens and FDP states that a “climate-neutral electricity system” platform will be used, “which will make concrete proposals in 2022 and involve stakeholders from science, business and civil society”. However, given the major energy policy challenges that arose from the Ukraine war, this did not happen.
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The Federal Ministry of Economics has now agreed to push the issue forward. The platform should “start in the first quarter”, announced the Ministry of Economic Affairs. The aim is to discuss the electricity market design for a system with predominantly renewable energies with stakeholders from business, science and society.
According to the ministry, details such as meeting formats and participants have not yet been determined. There is also no exact start date yet.
How important it is to have power plant capacity that is available at all times only became clear again shortly before Christmas. According to the electricity generation data from the Federal Network Agency, wind turbines and photovoltaic systems did not make any significant contribution to the electricity supply between December 9th and 13th. Most of the demand for electricity had to be covered by conventional power plants.
Energy industry urges timely decisions
Even if the share of renewables increases sharply in the coming years, there will always be days when the wind hardly blows and the sun doesn’t shine. Since the direct storage of electricity to cover the demand for electricity over longer periods of time and in large quantities will only be possible to a very limited extent in the foreseeable future, alternatives must be found.
In addition to the power plants operated with natural gas, there are flexibility options: For example, industrial companies can adjust their demand for electricity in order to reduce the back-up requirement.
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The energy industry demands timely decisions from politicians. Kerstin Andreae, General Manager of the Federal Association of Energy and Water Industries (BDEW), warns that realizable results for a new electricity market design should be available this year. Investors must have a reliable basis for their investment decisions. “That means, first and foremost, strengthening incentives through a smart investment framework,” she said.
2031 is the crucial year
The companies in the gas industry also want clarity as soon as possible. Although today’s market design is “fundamentally efficient, it cannot sufficiently stimulate the conversion to climate neutrality with sun and wind,” said Thimm Kehler, board member of the “Zukunft Gas” industry association.
“In view of the approaching supply gap in 2031, it is important that clear political decisions are made this year,” he said. 2031 is significant because by 2030 a large proportion of coal-fired power plants will be shut down. Last year, the federal government, the state government of North Rhine-Westphalia and the energy company RWE agreed to take the lignite-fired power plants in the Rhenish mining area off the grid by 2030.
>> Read here: Germany now has to build six wind turbines a day
Federal Economics Minister Robert Habeck (Greens) recently said that he had a similar solution in mind for the lignite-fired power plants in East Germany. It will therefore be crucial to have sufficient back-up capacities available until 2030. “The project implementation times in power plant construction are up to seven years. The time until 2030 is also very tight with regard to supply chains and skilled workers,” said BDEW General Manager Andreae.
Kehler from “Zukunft Gas” said that “a legal basis and a central authority that determines the capacity quantities to be tendered” are required. These capacities are then procured through auctions, where the price is formed. “CO2 factors, for example, are also important here and are used as selection criteria in the tendering process. In this way, the use of climate-neutral and low-carbon capacities can be incentivized and high-carbon capacities can be excluded,” he said.
The aim must be a technology-open capacity mechanism in which different solutions such as hydrogen-based gas power plants, battery storage or industrial users can be used in the best possible way.
David Bothe from the consulting firm Frontier Economics warned that a system planned down to the last detail is wrong. “There will have to be a regulation, there is no doubt about that. What is important, however, is that market mechanisms can have an effect,” said Bothe.
Frontier Economics has been dealing with electricity market design issues for many years. In recent years there have repeatedly been massive political interventions in the electricity market, for example because coal or nuclear power should be pushed out of the system. “After all these interventions, we see the rest of the market, which is still left, clearly underinvesting in the guaranteed performance that is absolutely necessary. Regulating this guaranteed service with a state-planned system down to the last detail is misleading,” said Bothe. The “charm of the market idea would then finally be gone,” he warned.
More: Three scenarios for the future of German industry.