Navigation

Internal hyperlinks for navigation

Topic - Electricity Market of the Future

Electricity Market of the Future A modern electricity market

Introduction

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 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: the electricity market must ensure that generation and consumption constantly remain synchronised and that sufficient capacity is available to balance supply and demand in electricity at all times. The key challenge lies in the fact that the electricity market will pass through a phase of transition in the coming years. This is because renewable energy sources will be expanded further and will take on a greater role in the electricity supply; the use of nuclear energy will end in 2022 in Germany; and the European electricity markets will grow closer. The electricity market will also have to reliably bring together generation and consumption in the forthcoming transitional phase.

Facts and figures on the electricity market in Germany

204.5
Symbolicon für Solarhaus

gigawatts of net nominal capacity
produced by electricity generation facilities in Germany (current as of 10 May 2016, BNetzA List of Power Plants)

51.8
Symbolicon für Stromtrasse

billions of kilowatt hours of electricity
more that Germany exported to neighbouring countries compared to the amount it imported (export surplus) (current as of 2 August 2016, Working Group on Energy Balances (AGEB))

97.8
Symbolicon für Windräder

gigawatts of net nominal capacity
produced using renewable energy – particularly solar and wind power (current as of 10 May 2016, BNetzA List of Power Plants)

9
Symbolicon für Bürogebäude in Deutschland

neighbouring countries
with which Germany engages in the physical exchange of 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. But what does its domestic electricity mix look like?

Electricity is physically exchanged with nine neighbouring countries – Denmark, the Netherlands, Luxembourg, France, Switzerland, Austria, the Czech Republic, Poland and Sweden. In 2015, Germany posted an export surplus of more than 51.8 billion kilowatt-hours (kWh) of electricity exchanged. Germany has the highest installed power plant capacity in Europe and also generates and consumes the most electricity.

Where does Germany’s electricity come from?

Currently, there are generating facilities with a net rating totalling around 204.5 gigawatts (current as of May 2016, BNetzA List of Power Plants). Of this, renewable energy sources account for about 98 GW, of which about 39 GW is generated from solar and just under 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, or stored / buy-back electricity (bought by consumers who are able to use electricity flexibly) is consumed. When this is the case, around 52 per cent of electricity comes from conventional power stations.

Renewables becoming ever more important in electricity generation

In 2015, nearly 188 billion kilowatt-hours of electricity were generated from renewable energy sources. This compares to 156 billion kilowatt-hours in 2014. This enabled renewables to build substantially on their leading position in the electricity mix, ahead of lignite, reaching a share of 31.6 % of gross electricity consumption (2014: 27.3 %). According to preliminary figures from the Working Group on Energy Balances, the percentage of renewables in gross electricity consumption in the the first half of the 2016 was 32.8 %. This share may, however, have changed over the second half of the year.

Coal and gas – we can't get by without them

In Germany, around 647 billion kilowatt-hours of electricity were generated in 2015. Despite an increasing contribution from the renewable energies, the share of lignite and hard coal in the energy sources mix in the German power supply remains high.

Energy sources2012201320142015 2016 [1] 
bn kWh%bn kWh%bn kWh%bn kWh%bn kWh%
Gross electricity generation Total628,6100637,7100626,7100646,9100648,2100
Lignite160,725,5160,925,2155,824,8154,523,9150,023,1
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
Renewables162,225,8171,726,9182,529,1208,732,3213,633,0
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
Biomass38,26,140,16,242,26,744,66,945,67,0
Photovoltaics26,44,231,04,736,15,838,76,038,36,0
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 manage 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 as 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.

Finally, 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.

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). Further information about this agreement with the European Commission and the need to implement it in 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: to raise investments in efficiency technology and to make electricity generation virtually carbon neutral 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. Further information (in German) can be found here.

FAQs on the electricity market 2.0

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

See answer Open detail view

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

See answer Open detail view

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

See answer Open detail view

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 just ensuring there is a sufficient supply of electricity to provide lighting and comforts. Electricity has become a fundamental basis for the way our lives are lived today. In an international comparison, Germany’s electricity supply is very reliable.

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). The TSOs plan and maintain the ultra-high voltage grid, organise the grid operation and coordinate electricity generation and demand.

The reliability of the electricity supply is measured in terms of the average time in which of electricity is unavailable, i.e. the length of time in a year during which end users are not supplied with electricity. In Germany, the unavailability data, which is collected by the Federal Network Agency, mostly indicates an extraordinarily high level of reliability. In 2014, the average time for which a household or business in Germany had to go without power was just 12 minutes and 17 seconds. This is the lowest level since records began in 2006. It shows that the electricity supply is not being affected by the large share of renewable energy being fed into the grid, which in 2015 totalled 31.6 % of gross electricity consumption.

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.

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 generation (CHP) 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) (in German) 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 CHP Act 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) came into force on 1 January 2016. As a next step, the legislation now needs to be scrutinised in order to assess whether it is in line with European state aid legislation. Following intensive talks with the European Commission, this scrutiny is also to be undertaken and completed as quickly as possible as part of the formal decision-making procedures.

For more information, please click here.

Electricity Market Platform

Shaping the electricity market of the future

How can we best develop the electricity market so as to ensure a reliable, cost-efficient and environmentally compatible power supply, despite the ever increasing share of wind and solar power? In order to discuss this question with the relevant stakeholders, the Federal Ministry for Economic Affairs and Energy has set up a dialogue forum called 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. For more information about the Platform, please click here.

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