Source: fotolia.com/designsoliman

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Renewables already cover around a third of our electricity consumption. However, the greater the share of our electricity supply which derives from weather-dependent energy sources like the wind and the sun, the greater the fluctuations in the amounts fed into the grid. A modern electricity market for the energy transition aims to address this challenge: it needs to be able to guarantee a secure, low-cost and environmentally compatible supply of electricity when a large proportion of the power is derived from renewable energy sources. A secure supply is quite simply crucial for a highly developed industrial country like Germany.

The goal: the best possible integration of renewable energy into the market

We must make the electricity market fit for renewables: a reformed electricity market will optimally integrate the sun, wind, etc. into the market - whilst delivering better security of supply. This will require a new statutory framework: the new Electricity Market Act. The aim of the Electricity Market Act is to give the electricity market a thoroughly market-based and European orientation and to optimally integrate the various elements of the electricity supply. The Act reforms the electricity market and makes it fit for the energy transition. The draft Electricity Market Act and the Capacity Reserve Ordinance were adopted by the Federal Cabinet on 4 November 2015.

The key principles of the Electricity Market Act were established in an open, broadbased and transparent discussion process - after all, these are key decisions for the future of our energy supply. The White Paper "An Electricity Market for Germany's Energy Transition" brought together the outcome of several weeks of public consultations with experts, businesses and consumers, and with our European neighbours. The Federal Ministry for Economic Affairs and Energy discussed the White Paper with the relevant stakeholders in the context of the Electricity Market Platform on 4 September 2015. The comments (in German) submitted to the ministry can be found here.

The key measures in the White Paper are now being implemented in the Electricity Market Act and the Capacity Reserve Ordinance. Important measures include:

  • Guaranteeing free price formation: The price signal will be the heartbeat of the further developed electricity market. Prices send important information to the market players. They are the only way to show how scarce electricity is at any time. The measures taken will strengthen free, competition-based price formation and will permit price peaks to occur on the electricity markets.
  • Monitoring security of supply: Monitoring of security of supply will be improved in order to safeguard energy security in the new regulatory environment. The monitoring will no longer focus solely on national output levels, but will give greater consideration to the contribution to security made by the European internal market in electricity. The electricity market 2.0 is to take a thoroughly European approach. This will also reduce the cost of maintaining capacity in Germany.
  • Upholding balancing group commitments: The responsible electricity providers and traders (i.e. in this context the "balance responsible parties") will be required more rigorously to purchase sufficient electricity for their clients. To achieve this, the balancing group and balancing energy system, as the key instrument for a secure power supply, will be adapted, and the requirement to uphold balancing group commitments will be strengthened.
  • Prolonging the grid reserve: In order to respond to congestion in the grid and to ensure secure grid operation, the grid reserve will be prolonged beyond 31 December 2017, and the rules on cost reimbursement will be brought into line with practical needs. The grid reserve will be needed until key grid expansion projects have been finished.
  • Improving transparency on the electricity market: Transparent and up-to-date electricity market data can promote efficient generation, consumption and trading decisions. For this reason, a national information platform and a core market data register will be set up.
  • Reducing and sharing more fairly the costs of grid expansion: More efficient grid planning reduces the costs of grid expansion. In future, it will no longer be necessary to expand the grids to cope with the "last kilowatt-hour" generated by wind and PV installations. The costs will also be shared more fairly. The level of grid charges varies considerably from region to region in Germany. A major cause of differing regional grid charges is what is known as "avoided grid charges". For this reason, avoided grid charges will be abolished for installations which are newly constructed from 1 January 2021.
  • Introducing a capacity reserve: The capacity reserve will be established outside the electricity market in order to ensure security of supply in the face of unforeseeable events. Taking a "belt and braces approach", the capacity reserve safeguards the electricity market 2.0. After all, security of supply is of key significance for an industrialised country like Germany.

To achieve this, the Electricity Market Act will gradually remove lignite-fired power plant units with a total capacity of 2.7 GW from the market and provisionally close them down from 2016. For four years each, they will still serve as a last resort in order to back up the power supply. In this period, they will be fully mothballed and will not generate any power. They will only be fired up if, exceptionally, there is a request for this from the transmission system operator. After the four years, they will be finally decommissioned. On 2 November 2015, a political understanding was achieved between the Federal Government and the lignite industry.

The Electricity Market Act is an umbrella act. It amends various acts and ordinances, including the Energy Industry Act, the Renewable Energy Sources Act and the Reserve Power Plant Ordinance. The details of the capacity reserve will be mapped out in the Capacity Reserve Ordinance.

New Electricity Market Act to take effect from spring 2016

The Länder and associations were invited to comment on the draft Electricity Market Act until 29 September 2015. Provided that the submitters have agreed to publication, their comments are available (in German) here. It was also possible to submit comments on the Capacity Reserve Ordinance until 19 October 2015. Provided that the submitters have agreed to publication, their comments are available (in German) here. The Bundesrat provided its comments on the draft on 18 December 2015. The counterstatement by the Federal Government in response to the comments of the Bundesrat was adopted by the cabinet on 20 January 2016.
The legislative process for the Electricity Market Act is to be completed in spring 2016. The Capacity Reserve Ordinance is also to enter into force once the legislative process is finished. Comprehensive information on the Act on the Digitisation of the Energy Transition can be found here. It is providing an additional important stimulus for the further development of the electricity market.