Federal Minister Sigmar Gabriel (centre) joined together with a number of European Member States to sign a range of political declarations aimed at strengthening regional cooperation on supply security for electricity. © Charles Caratini/ European Council, Luxembourg

Germany's new energy policy is not an isolated, national project. On the contrary: In the future, Germany will cooperate even more closely with its neighbours. The trade in electricity with neighbouring states means that the supply will be secure and cost-efficient when demand is high and when the level of renewable energy being fed into the grid is low – for example, when there is no wind or sun.

In a common market, neighbouring states help each other out. Instead of having to meet demand with national power plants alone, they can use electricity from abroad in times of shortages. Or, to put it the other way round: If states produce more electricity than they need, their neighbours can use it. This is a great advantage. Experience shows that peak demand for electricity does not occur in all countries at the same time – there is almost always plenty of wind somewhere in Europe. This creates real synergies: as a group, each country needs less secure capacity and can save huge amounts of money.

The declaration of the "electricity neighbours" of 8 June marks the first time this has been confirmed at a high political level. Twelve neighbouring states in the heart of Europe want to work together on energy security – they have pledged to be reliable partners, even though there are some major differences between their individual energy policies. The agreement will help to make full use of the advantages of the internal energy market. "Today, twelve neighbouring states situated in the heart of Europe have ushered in a new era in energy policy: in future, they want to follow a European approach to energy security, rather than a purely national one," said Sigmar Gabriel, Federal Minister for Economic Affairs (read the interview with the minister here).

"Electricity neighbours": Ensuring cross-border energy security

The agreement of the "twelve electricity neighbours" – the geographical neighbours plus Norway and Sweden – was signed at the margins of the Energy Ministers Council in Luxembourg on 8 June. The ministers adopted concrete steps for cooperation to ensure a secure, cost-effective and sustainable energy supply. For example, the cooperation agreement defines common principles for restructuring the energy supply: the so-called "no-regret" measures. It lays out which steps to take together, even though members may later go down “different roads” when designing their national electricity markets. The key points of the joint declaration are as follows:

• The neighbouring states want to make full use of the advantages of the European internal energy market to ensure energy security.
• Even in times of electricity scarcity, the member states will not restrict the electricity trade; instead they will continue to upgrade the grids and link their electricity markets even further.
• In future, the neighbouring states will place greater focus on assessing their energy security levels as a group; they will achieve this by developing a common understanding and methodology.
• The neighbouring states have agreed to place greater focus on supply and demand management by sending strong market signals and by using price peaks. They have agreed to refrain from introducing price caps and to eliminate barriers that stand in the way of greater flexibility.

Flexibility has a key role in our future energy supply system. Minister Gabriel said that while the past was all about helping renewables cope with the market, the present is about helping the market cope with renewables. It lies in the nature of renewables that they are highly fluctuating energy sources. Therefore, if the share of renewables in the overall energy mix continues to increase, it will be vital to have flexible energy demand – e.g. with shiftable loads – and flexible supply – e.g. with high-performance grids that can transport electricity wherever it is needed, and modern power plants that can be ramped up quickly.

Energy security at the regional level equals low costs

The joint declaration of the "electricity neighbours" was the result of a series of dialogues launched in July 2014 by Rainer Baake, State Secretary at the Federal Ministry for Economic Affairs and Energy to coordinate the decisions for designing the electricity market with our European neighbours. This led to substantial and open talks about the challenges of the energy transition within the group. Ultimately, the four conference sessions helped to build trust and resulted in a concrete political agreement.

However, this is not the only forum where Germany is cooperating with its neighbours: The declaration of the "electricity neighbours" goes hand in hand with the "Second Political Declaration of the Pentalateral Energy Forum" which was signed also on 8 June to mark the 10th anniversary of this group. The Pentalateral Forum has seen representatives of the governments as well as TSOs, supervisory authorities and market players of the Benelux states, France, Germany, Austria, and Switzerland work together to ensure that the electricity markets of these countries are successfully coupled.

In March 2015, the Forum published its first regional energy security report, showing that energy security can be achieved much more efficiently in the group. At the end of May, the Pentalateral Energy Forum states were the first in Europe to introduce Flow-based Market Coupling, allowing them to precisely determine cross-border transmission capacities in the grid. This maximises the level of electricity trading across borders, improves energy security and reduces the price of electricity as it becomes easier to compensate for shortages.

Joint declarations support the decision in favour of the Electricity Market 2.0

Federal Minister Gabriel highlighted the relevance of the declarations for the impending decisions that are to be taken in Germany and Europe with regard to market design: "The declarations we have signed together are in support of the decisions we will take in favour of the Electricity Market 2.0. I hope that the message will be heard in Brussels, as well. The fact that we have had the Commission actively support us on these declarations makes me confident that this is the case," the minister said. With its White Paper on the Electricity Market 2.0, the Federal Ministry for Economic Affairs and Energy (BMWi) will soon publish a number of concrete solutions suitable for ensuring a secure and cost-efficient electricity supply in the future, which is increasingly relying on renewable sources. The solutions are based on a structured debate with all the relevant stakeholders. The Green Paper "An Electricity Market for Germany's Energy Transition", published in the fall of 2014, reflected the current state of the debate and was then publicly discussed. The states, associations, companies and authorities have submitted about 700 comments on the paper.