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Topic - Electricity Market of the Future

Electricity Market of the Future A modern electricity market


Renewables already cover around a third of our electricity consumption. However, the greater the share of our electricity supply that 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.

What does an electricity market do? This question can be answered as follows: On the one hand, the electricity market must ensure that generation and consumption constantly remain synchronised and, on the other, it needs to provide for sufficient capacity even during times of peaks in demand. In other words: it must ensure security of supply. Thanks to the rules on competition established by government, private and commercial customers are now able to choose their electricity provider among a large number of options. Competition ensures efficiency and cost-efficient offers.

Facts and figures on the electricity market in Germany

Symbolicon für Solarhaus

was the value for domestic electricity consumption in 2016 (gross value).

Symbolicon für Stromtrasse

was the delta between exports from Germany in 2016 and imports from abroad.

Symbolicon für Windräder

per cent
of electricity consumption in Germany in 2016 were supplied from renewable energy.

Symbolicon für Bürogebäude in Deutschland

direct neighbouring countries
with whom Germany physically exchanges electricity.

Electricity generation

Facts and figures

Germany sits at the heart of an interconnected European electricity system. Because of its central geographical situation within Europe, it is an important player on the European electricity market and a hub for Europe-wide power flows. Germany is also exporting more and more electricity to its neighbouring countries. Import and export flows are driven by the whole-sale prices on international electricity bourses which are influenced by the respective demand for electricity, the amount of electricity generated from renewable energy, and the fuel costs for fossil-fuel power plants.

European power generation

Electricity is physically exchanged with nine direct neighbouring countries – Denmark, the Netherlands, Luxembourg, France, Switzerland, Austria, the Czech Republic, Poland, and Sweden (via a submarine cable) . Germany exported around 82.0 billion kWh of electricity to its neighbours in 2015, while itself importing 26.6 billion kWh.

Germany has the highest installed power plant capacity in Europe and also generates and consumes the most electricity.
Further information on the energy data of the countries of Europe can be found on the internet pages of Eurostat, the Statistical Office of the European Union.

National power generation

The Federal Network Agency's (BNetzA) list of power plants maps the power generation market in Germany.

Currently, there are generating facilities with a net rating totalling around 204.1 gigawatts (current as of 16 November 2016, BNetzA List of Power Plants). Of this net rating, renewable energy sources account for about 94 GW is from solar and about 45 GW from wind power. The installed capacity of photovoltaic and wind power units together already adds up to around 84 GW.

However, this capacity is not the same as the output available on the electricity market to meet demand at any given time, as the latter depends on the weather conditions. In order to ensure that the electricity supply remains secure when there is no wind or sun, electricity from conventional power stations is used.

Renewables becoming ever more important in electricity generation

In 2016, nearly 191 billion kilowatt-hours of electricity were generated from renewable energy sources. This enabled renewables to build substantially on their leading position in the electricity mix, ahead of lignite, reaching a share of 32.3% of gross electricity consumption.

The electricity mix is changing

In Germany around 648 terawatt hours (TWh) of electricity were generated in 2016 – that is 648 billion kilowatt-hours (kWh). Despite an increasing contribution from renewable energies, the share of nuclear energy, lignite and hard coal in the energy sources mix in the German power supply is falling.

Energy sources2012201320142015 2016 [1] 
bn kWh%bn kWh%bn kWh%bn kWh%bn kWh%
Gross electricity generation Total628,6100637,7100626,7100646,9100648,2100
Nuclear power99,515,897,315,297,115,591,814,284,913,1
Hard coal116,418,5127,3 [4]19,9118,618,9117,7018,2110,017,0
Natural gas76,412,167,510,661,19,762,09,678,512,1
Petroleum products7,61,27,21,15,70,96,21,05,80,9
Wind power50,78,151,78,157,49,179,212,279,812,3
Hydropower [2]22,13,523,03,619,63,119,02,921,53,3
Domestic refuse [3]5,00,85,40,96,11,05,80,96,11,0
Other energy sources19,92,120,43,221,23,421,53,322,33,4

1) Preliminary figures inc. some estimates.
2) Generation in run-of-river and reservoir power plants and from natural inflow into pumped-storage power plants
3) Only generation from biogenic waste (approx. 50%).
4) 5.6 TWh higher than official statistics. Subsequent correction in 2015 not taken into account in official statistics for 2013.

Sources: Federal Statistical Office, Federal Ministry for Economic Affairs and Energy, German Association of Energy and Water Industries (BDEW), Statistik der Kohlenwirtschaft e.V (an organisation tasked with providing the Government with statistics from the coal industry), Centre for Solar Energy and Hydrogen Research Baden-Wuerttemberg (ZSW), Working Group on Energy Balances.

Electricity market 2.0

An electricity market for Germany's energy transition

We are developing a new electricity market for the 21st century: the electricity market 2.0. The central tasks? Integrating renewable energy, like solar and wind, into the grid in a clever way and ensuring that the power supply remains secure, affordable and environmentally compatible.

In June and July 2016, the Bundestag and the Bundesrat adopted the Acts on the Further Development of the Electricity Market and on the Digitalisation of the Energy Transition. These Acts put the rules in place for competition between flexible supply, flexible demand, and storage, and also enable innovative business models to be developed for use within the electricity market 2.0.

Renewables are to account for the main share of Germany’s energy supply in future. Their share is to amount to at least 80% of the electricity supply by 2050. For this reason, renewable energy must be continuously integrated into the electricity supply system so that it can increasingly replace conventional sources of energy. The legal and regulatory environment must properly accommodate an electricity system that is constantly evolving. It must also mange the transformation process in an intelligent manner. A reformed electricity market will optimally integrate the sun, wind, etc. into the market – whilst delivering security of supply.

Making the electricity market fit for renewable energy

The Act on the Further Development of the Electricity Market (in German) was adopted on 8 July 2016 makes the electricity market fit for growing shares of renewable energy and puts the rules in place for competition between flexible supply, flexible demand, and storage. This is the biggest reform of the electricity market since the deregulation of the 1990s. Our improved electricity market 2.0 will ensure that Germany can continue to rely on a cost-effective and reliable supply of electricity, even when the share of wind and solar energy keeps rising. We are making sure that the electricity traders live up to their responsibilities: if no-one is allowed to sell electricity which they don’t simultaneously feed into the grid, there will be no shortages and the supply will be secure.

Free price formation on the wholesale electricity market will ensure that investment takes place in the required capacities. The level of capacity maintained will be that demanded by the customers - no more, but also no less. A new capacity reserve, which is strictly separated from the electricity market, provides an additional safety net for unforeseeable events, safeguarding the electricity market 2.0.

The capacity reserve will initially have a volume of 2 GW, and will shortly be tendered. The Federal Ministry for Economic Affairs and Energy will review the scope of the capacity reserve at least every two years. The Draft Capacity Reserve Ordinance was sent to the Länder and associations for information and comments. The period for comments to be submitted ended on 11 November 2016. All of the comments received are published here unless the source has requested confidentiality.

The placing of 13% of lignite-fired capacities on “security stand-by” with subsequent decommissioning will help us to meet our climate targets in the electricity sector by 2020. On 1 October 2016, the Buschhaus lignite-fired power station will be the first power plant to be provisionally closed down and placed on security stand-by.

We are taking a truly European approach to the energy transition

The energy transition will only be successful if we adopt a pan-European approach to it, and if it is designed in conformity with EU law. This is especially true since Germany lies at the heart of what is an interconnected European electricity system that is subject to the rules of the internal market.

We have ensured that our energy policies are in line with EU law, we have engaged in intensive discussions with the European Commission, and we have agreed on the adoption of an energy package (which is subject to the official Commission process). On 1 December 2016, the Bundestag adopted the law which implements the agreement reached on the main energy subsidy dossiers. Further information about this agreement with the European Commission and the need to transpose it into national law resulting from this can be found (in German) here (PDF: 68 KB).

We are in a permanent dialogue with our neighbours about the future development of the electricity market, since we are convinced that the energy transition can only take place efficiently in the context of the internal market. This allows us, for example, to combine hydroelectric power from Scandinavia and the Alpine countries with wind power and photovoltaics from Germany.

In a Joint Declaration on Regional Cooperation signed in June 2015, Federal Minister Gabriel and the energy ministers of 11 neighbouring countries agreed not to intervene in free pricing and cross-border electricity trading – even in times of scarcity and high prices on the electricity exchanges. Germany and its neighbours believe that the internal market offers major advantages because it can deliver security of supply at lower costs.

‘Electricity 2030’ discussion process launched

Germany has set itself ambitious targets: it wants to increase investments in efficiency technologies and to avoid greenhouse gas emissions as much as possible by 2050. The time up to 2030 is crucial. The Federal Economic Affairs Ministry is therefore looking towards the future and has launched a discussion process on its input paper ‘Electricity 2030’. This paper outlines twelve long-term trends in the electricity sector based on current studies. It has been drawn up in order to identify how the climate targets can best be reached, and how a secure and affordable supply of electricity supply can be guaranteed. The input paper will be discussed in detail in the working groups of the Electricity Market Platform and the Energy Grids Platform. The joint plenary of the Electricity Market Platform and the Energy Grid Platform will report on the results of the debate in early 2017. A final report will be drawn up to summarise the outcomes of the entire discussion process. Further information can be found here.

Introduction of a market master data register

The Electricity Market Act (Strommarktgesetz) requires the Federal Network Agency (Bundesnetzagentur) to set up an manage an electronic register that includes energy data - the so-called market master data register. The exact details of what the register should include will be laid down in/by an ordinance.

On 14 December 2016, the Federal Ministry for Economic Affairs and Energy has launched the hearing of the Länder and associations on the draft ordinance on the core market data register. The ordinance governs for example the specific details of the register and the registration procedure.

Comments on the draft legislation may be submitted to the Federal Economic Affairs Ministry until 25 January 2017. All of the comments received are/will be published on the website of the Federal Economic Affairs Ministry unless the source has requested confidentiality.

FAQs on the electricity market 2.0

1. What exactly does 'electricity market 2.0' mean?

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2. How does the electricity market 2.0 guarantee security of supply?

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3. Why is the electricity market 2.0 cheaper than a capacity market?

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Energy security

A reliable electricity supply or business and consumers

Energy security is very important for a highly developed industrial country like Germany in particular. It is about more than delivering lighting and convenience. Electricity has become a fundamental precondition for our daily life. In an international comparison, Germany’s electricity supply is very reliable.

Grid reliability at a record level

In Germany, the transmission system operators (TSOs) are responsible for ensuring that grid operation remains secure (Section 12 of the Energy Industry Act). They plan and maintain the ultra-high voltage grid, organise the grid operation and coordinate electricity generation and demand.

Reliability of electricity supply is measured in terms of the average unavailability of electricity, i.e. the period of time of the year during which end users are not supplied with electricity. In Germany, the unavailability data, which is collected by the Federal Network Agency, has been indicating a downward trend since 2006. In 2015, the average time for which a household or business in Germany had to go without power was just 12 minutes on average. This shows that the electricity supply is not being affected by even a large share of renewable energies.

Ongoing monitoring of security of supply

Every two years, the Federal Ministry for Economic Affairs and Energy undertakes monitoring of the security of the grid-based supply of electricity in accordance with Section 51 of the Energy Industry Act. As part of the monitoring process, the current supply situation and its development over time are examined taking national and international market conditions into account. The findings are then published in a report. The report looks at whether and to what extent companies have taken sufficient precautionary measures – in relation to electricity generation, transmission and distribution – to ensure that demand for electricity is being and will continue to be met at all times, including in extreme situations. The last monitoring report to be published was in 2014, the next one will be released in early 2017.

Modern power plant technology / Combined heat and power (CHP)

Highly efficient yet climate friendly

Modern power plants with high environmental standards are a guarantee of what is needed for a reliable energy supply. Conventional power plants continue to make an important contribution to power generation while the long-term project restructuring of Germany’s energy supply towards an ever greater reliance on renewables continues to be pursued.

Combined heat and power

Combined Heat and Power Act (CHP Act) (in German) plays a major role in the restructuring of Germany’s energy supply. CHP is a low-carbon power plant technology that makes it possible to generate electricity and heat at the same time. The heat resulting from power generation is used as thermal energy for public and private consumers. This means a considerably more efficient and sparing use of the respective fuel.

Since 2002, the Combined Heat and Power Act (CHP Act) has been the main basis for the promotion of power plants with CHP technology. The Act provides a framework for funding the particularly efficient technology of combined heat and power generation based on the application of a surcharge. Pursuant to the CHP Act, the operators of funded CHP installations are entitled to a payment of a supplement for a limited period of time.

The Federal Ministry for Economic Affairs and Energy is thus creating incentives for investment in what are highly efficient, low-carbon CHP installations with the aim of raising the level of CHP-based power generation.

Amendment to the Act on Combined Heat and Power Generation (CHP Act)

The Federal Ministry for Economic Affairs and Energy has undertaken an amendment of the the CHP Act with effect of 1 January 2016 to ensure that the highly efficient and climate-friendly technology of CHP continues to play a key role in the implementation of the Germany’s energy transition. The amended act (PDF: 309 KB; in German) aims to increase the amount of net generation of electricity from CHP installations and to boost investment in particularly efficient, flexible and low-carbon CHP installations. The amendment to the CHP, which was adopted on 15 December, makes the Act watertight in terms of state-aid rules. At the same time, it opens the door to more competition: In the future, the funding rate for electricity from CHP installations of between 1 and 50 MW and for innovative CHP systems will be determined via auction. Find out more.

Approval of the 2016 CHP Act under EU state aid rules

Following intensive discussions, the European Commission has fundamentally given its approval under state aid rules for the above Act amending the current funding scheme for CHP plants. Funding can now be granted retroactively as from 1 January 2016. The Federal Office for Economic Affairs and Export Control (BAFA) has already started to dispatch funding approval notifications.

The approval under state aid rules is based on a prior agreement with the European Commission resulting in a need to amend German national law. See above. Find out more.

FAQs on the Amendment to the Act on Combined Heat and Power Generation

1. What are the key objectives and measures of the amendment?

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2. How will the CHP surcharge be financed and how much will consumers have to pay?

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3. New rules for self-consumption?

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4. Rules on direct marketing designed to flexibilise the operation of CHP installations

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Electricity Market Platform

Jointly shaping the electricity market of the future

In order to discuss how the electricity market can be further developed, the Federal Ministry for Economic Affairs and Energy has set up a dialogue forum entitled the Electricity Market Platform.

The Electricity Market Platform consists of a plenary group, as well as four topic-based working groups. The groups are made up of representatives from the authorities, associations, non-governmental organisations and scientific institutions. The plenary group meets regularly and mainly discusses topics that are relevant for all of the Working Groups. Find out more about the platform here.

Distribution system symbolizes the eletrcity market of the future; Quelle: Getty Images/Hans-Peter Merten/The Image Bank