German energy industry calls for 'urgent' fundamental power market reform

Germany's electricity market design needs a fundamental overhaul more urgently than ever before to make the economic value of supply security visible, the country's energy industry said. Presenting a stakeholder report that also involved think tanks and trade unions, the industry called for a new revenue stream for power plants that are available for generating electricity when needed, in addition to revenue from electricity generation. The current energy-only market (EOM), where the sole compensation for owners of power plants is the price per kilowatt hour produced, is “increasingly revealing deficits when it comes to ensuring security of supply with electricity,” the group writes, as simply being available does not ensure compensation. Additionally, it “does not provide sufficient incentives for investments” especially in photovoltaic (PV) and wind power plants, whose permanent refinancing must be secured to match the risk profile of potential investors, and have a lasting dampening effect on prices, according to the joint press release by energy industry associations, energy providers, and grid operators.

Investments in cheap generation technologies alone cannot guarantee supply security for periods without sufficent sun and wind, the industry said. This is why economic incentives are needed for investments in controllable capacities, especially those that can be operated with climate-neutral fuels, such as hydrogen or biomass. With an ever-increasing share of renewable energy in the electricity system, plants that generate electricity independent of weather conditions ensure the security of power supply. Availiability is “increasingly becoming the ‘reserve currency’ of the electricity market,” the group said. “Market incentives should be created for additional flexibility to be created on the supply and demand side,” the group concludes.

Germany aims to meet 80 percent of its electricity needs with supplies from renewable sources by 2030 and 100 percent by 2035, with a goal to have a system that is climate-neutral, affordable and secure. Critics of Germany's energy-only market model have long argued that it is difficult to find investors for peak load plants that might only run for a few hours per year. They often call for a so-called capacity market to guarantee supply security.