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Article - 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 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 from a large pool. Competition ensures efficiency and cost-efficient supply services.

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 wholesale prices on national electricity exchanges, which are influenced by the respective demand for electricity, the amount of electricity generated from renewable energy, and the fuel costs for conventional 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 80.7 billion kWh of electricity to its neighbours in 2016, while itself importing 27.0 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 website 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 (as at 7 November 2017) there are generating facilities with a net rating totalling 209.2 gigawatts (GW). Of this net rating, renewable energy sources account for about 104.5 GW; of this, approx. 40.7 GW is from solar and about 49.6 GW from wind power. The installed capacity of photovoltaic and wind power units together adds up to around 90 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.

SMARD keeps users updated on current developments in the electricity market

SMARD, the new electricity market platform, provides information on the electricity market in a form that is transparent, easy-to-understand and well-structured.

The website (in german) presents key electricity market data for Germany and specific statistics for Europe almost in real time. Information on electricity generation and consumption, wholesale trade prices, imports and exports, and balancing energy can be found, combined, and downloaded for various periods of time. The data are presented in a user-friendly format. The platform also offers comprehensive analysis functions for experts. This allows users to follow developments in the electricity market and stay up-to-date on the energy transition and its progress.

Renewables becoming ever more important in electricity generation

In 2016, 188 billion kilowatt-hours of electricity were generated from renewable energy sources, attaining a 31.7% share 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). In view of an increasing contribution from renewable energy, 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%
Total gross electricity generation 628,6100637,7100626,7100646,9100648,2100
Nuclear energy99,515,897,315,397,115,591,814,284,613,0
Hard coal116,418,5127,3 [5]20,0118,618,9117,7018,2111,517,2
Natural gas76,412,267,510,661,19,762,09,680,512,4
Petroleum 7,61,27,21,15,70,96,21,05,90,9
Renewable energy142,322,6151,323,7161,425,8187,429,0188,329,0
Onshore wind50,78,150,88,055,98,970,911,065,010,0
Offshore wind0,90,11,40,28,31,312,41,9
Hydropower [2]22,13,523,03,619,63,119,02,921,03,2
Domestic refuse [3]5,00,85,40,86,11,05,80,96,00,9
Other energy sources25,74,126,24,127,04,327,34,2 27,54,2
Balance of electricity exchange with other countries-23,1-33,8-35,651,8-53,7
Gross electricity consumption in Germany [4]605,6603,9591,1595,1594,7

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) Including grid losses and in-house consumption
5) 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.

In the future, renewables are to account for the main share of Germany’s energy supply. 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. It has made the electricity market fit for growing shares of renewable energy and put 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 electricity traders live up to their responsibilities: if no-one is allowed to sell electricity which they do not 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, will provide an additional safety net for unforeseeable events, safeguarding the electricity market 2.0.

The capacity reserve will have a volume of 2 GW. The Federal Ministry for Economic Affairs and Energy reviews the scope of the capacity reserve at least every two years. The Draft Capacity Reserve Ordinance (in German) was sent to the Länder and associations for information and comments on 2 May 2018. The period for comments to be submitted ended on 17 May 2018.

On 7 February 2018, the European Commission gave the go-ahead under state aid rules for the capacity reserve.

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. On 1 October 2016, the Buschhaus lignite-fired power station was be the first power plant to be provisionally closed down and placed on security stand-by. Blocks P and Q of Frimmersdorf power station followed on 1 October 2017.

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.

The Federal Government has ensured that its energy policies are in line with EU law, has engaged in intensive discussions with the European Commission, and has agreed on the adoption of an energy package (which is subject to the official Commission process). On 15 December 2016, the Bundestag adopted the law which implements the agreement reached on the main energy subsidy dossiers.

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, the Federal Ministry for Economic Affairs and Energy 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 eliminate 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 launched a discussion process on its input paper ‘Electricity 2030’ in the summer of 2016. 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 was discussed in detail in the working groups of the Electricity Market Platform and the Energy Grids Platform. up to the spring of 2017. The conclusions were published in a paper containing the results. Further information can be found here.

The core energy market data register – enhancing transparency in the energy sector

A core energy market data register is being set up to improve the data situation and transparency in the energy sector. For the first time, the register – which can be used by everyone – covers all generation installations – new and existing ones, installations to generate electricity from renewable and conventional energy, from electricity and gas – as well as certain consumption facilities and the facility operators. It facilitates monitoring and helps to cut red tape by replacing or simplifying existing reporting requirements.

The legal basis is the Core Energy Market Data Register Ordinance (PDF, 132 KB, in German), which entered into force on 1 July 2017. The Federal Network Agency will operate the register as an online database. The website is currently being set up. At present, only electricity and gas system operators can register their companies on the website. All other market players will be able to use the site from 4 December 2018. Further information can be found here from the Federal Network Agency.

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 for business and consumers

Security of electricity supply is very important for a highly developed industrial country like Germany in particular. It is about more than delivering lighting and comfort. 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.

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.

The reliability of the electricity supply is measured in terms of the average time for which 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, has been indicating a downward trend since 2006. In 2016, 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 energy.

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.

Offshore wind farm; Source: ABB


Ready for the next phase of the energy transition

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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) is a key element for making the energy transition a success. CHP plants generate heat and power simultaneously whilst keeping carbon emissions low. The heat that is captured as part of the power generation process is used directly on-site, or by feeding it into a heat network. As the fuel is used for generating both heat and power, CHP plants are much more efficient and require less fuel.

Since 2002, the Combined Heat and Power Act (CHP Act) has been the legal basis for funding CHP plants. The Act provides a framework for funding the highly 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 based on the amount of combined heat and power kilowatt-hours they produce and that they receive 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 made several amendments to 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 Germany’s energy transition.

The 2016 amendment to the CHP 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 2017 amendment to the CHP Act ensures that CHP legislation continues to be compatible with EU state aid rules and therefore delivers long-term legal security. The Act also sets out rules that make the funding procedure more competitive: Since the end of 2017, the funding rate for electricity from combined heat and power (CHP) plants of between 1 and 50 megawatts has been determined via auction. A separate auction will be held for innovative CHP systems in order to provide funding for highly flexible, low-emission CHP plants that use heat from renewable sources. This new category of funding is intended to open up promising new prospects for combined heat and power and to provide incentives for necessary investment in flexible technologies. Find out more.

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

What are the key objectives and measures of the amendment?

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How is the CHP surcharge financed and what are the costs for consumers?

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What changes will occur when funding for medium-sized CHP installations and innovative CHP systems is raised through auctions?

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Is funding support for self-suppliers limited?

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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.

Further information

  • 07/02/2018 - Press release - Electricity Market of the Future

    European Commission approves reserve to ensure the stability of the electricity market

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