06 Jul 2023, 13:24
Carolina Kyllmann

Energy industry proposes capacity mechanism for Germany’s electricity market

Clean Energy Wire

Energy industry association BDEW has presented a proposal for a new electricity market design in Germany, with a new capacity mechanism at the heart of the plan. “The current market design avoids disruptions, but is no guarantee that the triad of renewable energy, affordability and supply security will succeed,” BDEW head Kerstin Andreae said. “Due to the multitude of uncertainties, the federal government should quickly provide clarity on how security of supply is to be organised in the medium and long term,” she added. A capacity market – where operators are paid to be ready to produce electricity when needed, not only for every kilowatt hour (kWh) they produce – should be created to cover the residual load (what is left after substracting electricity generated by variable renewables like wind, solar and hydro) in a future system. This market should for example be open to climate-friendly conventional plants (e.g. hydrogen-ready gas units), facilities producing with renewable sources, electricity storage facilities, or power import. All these facilities have to ensure that the respective investment contributes to achieving the 2030 and 2045 climate targets, BDEW said.

Germany’s government should, within this legislative period, tackle the necessary incentives for the construction of new hydrogen-ready power plants in the short term, and devise a systematic approach for a capacity market in the mid- to long-term, the association said. “We do not have much time left. This in particular applies to achieving expansion and conversion targets for 2030,” Andreae warned. According to BDEW, the necessary conditions for building the required capacity to ensure electricity supply security by 2030 are not yet in place.

On the path to a climate neutral electricity system that is largely covered by renewable sources, Germany is planning a reform to its electricity market. The government launched a dialogue platform to prepare for the comprehensive reform in February, aiming to present the first findings of the platform in a summer report. Germany aims to cover 80 percent of its electricity demand with renewable energy by the end of the decade. The EU is also currently reforming parts of the bloc's electricity market design.

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