White Paper: electricity supply remains secure and affordable

The decision is clear: the Federal Ministry for Economic Affairs and Energy has decided to transform the electricity market into an electricity market 2.0, and has rejected a capacity market. The recently published White Paper explains and details this decision.

A green and a white plug converging as puzzle pieces.© Fotolia.com/designsoliman

Electricity supply has to remain secure and affordable even as the share of renewables grows. A number of questions have to be addressed in this context: How can weather-dependent, fluctuating electricity supplies from wind and solar energy be cushioned? What role shall be given to conventional power plants? How can we encourage consumers to use electricity when it is cheapest? In a nutshell: how can we make the electricity market fit for the energy transition? The recently published White Paper, which sets out the details for the electricity market 2.0, is a solid basis for answering these questions.

Green Paper sparked off broad-based debate

The White Paper is the result of a broad-based and transparent discussion process initiated by the Federal Ministry with the publication of a Green Paper in October 2014 which outlined the energy market of the future. Authorities, associations, trade unions, companies and citizens submitted around 700 comments which were incorporated into the White Paper. Thus, the fundamental decision in favour of an electricity market 2.0 was based on a joint development process.

After weighing a number of different points, the stakeholders clearly opted in favour of an electricity market 2.0 and against a capacity market. The electricity market 2.0 preserves and strengthens the existing market mechanisms. It is particularly important to make sure that pricing on the electricity market is not interfered with and that electricity suppliers are compelled to meet consumers’ energy demand at all times.

A point has been made to not create a capacity market, because this would introduce a separate market remunerating the maintenance of capacity. The expert reports commissioned by the Federal Ministry for Economic Affairs and Energy find that the electricity market 2.0 model is more cost-effective than the capacity market model.

Capacity reserve safeguards electricity supply

Further, the electricity market 2.0 will be backed up by a 4 gigawatts capacity reserve. However, this reserve is made up only of power stations that do not participate in the electricity market and therefore cannot distort competition. These power stations will be used only if, despite free price formation on the wholesale market and contrary to expectations, supply does not cover demand at a particular time. The capacity reserve is directly connected to the government coalition’s agreement to build on the energy transition and to meet climate mitigation targets, as 2.7 gigawatts of the capacity reserve will come from especially climate-damaging lignite power stations whose emissions will be reduced to close to zero as a result.

"We have opted for the electricity market 2.0 so that Germany’s electricity supply can remain reliable and cost-efficient. 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," State Secretary Rainer Baake said during the presentation of the White Paper. "They also need to be able to rely on electricity being affordable and delivered at internationally competitive electricity prices."

More flexibility in terms of weather-dependent electricity supply

One key concept of the electricity market 2.0 is "flexibility". Renewables generation is dependent on weather conditions and the electricity market has to be able to react flexibly to that. The options on the table include high-performance grids, modern power stations, combined heat and power generation, load management and storage facilities. On the electricity market 2.0, these options are competing to provide the most innovative and affordable solutions.

"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," State Secretary Baake said.

The White Paper lists 20 measures for implementing the electricity market 2.0. Apart from the principle of free pricing and the introduction of a capacity reserve, the measures also include a continuous monitoring system using state-of-the-art methods to check whether supply is really secure.
Balancing markets are also developed further: more suppliers are to be granted access to these markets to increase the level of competition and therefore reduce costs.

The White Paper serves as the basis for the legislative process

Directly after the summer recess of Parliament, the Federal Ministry for Economic Affairs and Energy will debate the White Paper with all relevant stakeholders at the Electricity Market Platform, a national multi-stakeholder dialogue forum. Stakeholders will also be able to submit statements until 24 August to weissbuch-strommarkt@bmwi.bund.de. The legislative process for implementing the measures specified in the White Paper will start in the autumn. The electricity market bill is to be passed by the German Cabinet in October and the associated legal process to be completed by spring 2016.