Germany Contemplates Electricity Market

The Federal Ministry for Economic Affairs and Energy last week published the White Paper “An electricity market for the energy transition”.

The Ministry advocates a further development of the electricity market to become an electricity market 2.0, and argues against the introduction of a capacity market. In the electricity market 2.0, the necessary capacities can be remunerated via existing market mechanisms. Taking a “belt and braces approach”, the capacity reserve safeguards the electricity market 2.0, but is not allowed to participate in the market.

Rainer Baake, State Secretary in the Federal Ministry for Economic Affairs and Energy, said: “We have opted for the electricity market 2.0 so that Germany’s electricity supply can remain reliable and cheap. This is because the general public, small businesses and industry must be able to rely on electricity being available as and when they need it. They also need to be able to rely on electricity being affordable and delivered at internationally competitive electricity prices. The electricity market 2.0 ensures security of supply, is cheaper than a capacity market, creates incentives for innovation and permits high proportions of renewable energy to be integrated. It also fits into the European internal market.”

The White Paper is the outcome of a broad and transparent discussion process in Germany and with their European neighbours. In October 2014, the Federal Ministry for Economic Affairs and Energy published a Green Paper and invited comments from the public over a four-month period. Some 700 comments from authorities, associations, trade unions, companies and private individuals were received, and were fed into the White Paper. It contains the principles for 20 measures implementing the electricity market 2.0, such as:

• Guaranteeing free price formation: The principle of free pricing in electricity trading is to be anchored in the Energy Industry Act. Prices send important information to the market players. They are the only way to show how scarce electricity is at any time.
• Monitoring security of supply: An ongoing monitoring process will use the latest methods to see whether the supply actually is secure.
• Introducing a capacity reserve: This will safeguard the electricity supply against unforeseeable events.
• Developing the balancing capacity markets further: In order to keep the system stable at all times and to offset erroneous forecasts, the transmission system operators use balancing capacity. More providers are now to receive access to the balancing capacity markets. This increases competition on these markets and thus reduces costs.

The Federal Ministry for Economic Affairs and Energy will discuss the White Paper with the relevant stakeholders directly following the summer break in the context of the Electricity Market Platform. Comments can also be sent to [email protected] until 24 August.

The White Paper will be followed by the enactment of legislation, while the bill for the Electricity Market Act is due to be approved by cabinet in October. The relevant legislative process is to be completed in spring 2016.