- The conversion of the German electricity system - what it might look like
More and more power from wind and sun, more and more heat pumps and electric cars: this has consequences for the power system. Reforms are necessary. Now, the Ministry of Economics and Climate Protection has presented a comprehensive paper on a "power market design" for the future. The goal is a secure, affordable, and sustainable power system.
The transformation will cost billions, for example, for the expansion of power grids and investments in new gas power plants. The costs should be kept as low as possible, as stated in the paper. Public consultation on the proposals for the new power market design will take place until the end of August.
Power system in transition
Germany's power system is in the midst of a comprehensive modernization, according to a paper from Minister Robert Habeck's (Green Party) ministry. Germany aims to be climate-neutral by 2045. The share of electricity consumption from renewable energies such as wind and sun is set to rise to 80% by 2030. In the first half of this year, it was 58% according to industry figures.
Now begins the phase in which it should be possible to cover the power supply entirely with renewable energies - and in which there will be a "massive electrification" of energy supply in heat and transport, and coal, oil, and gas as fossil energy sources will be finally phased out.
A new "operating system"
The paper speaks of a new "operating system". The weather-dependent, "variable" power generation from wind and photovoltaics (PV) leads to a paradigm shift. "While previously, generation followed demand, in the decarbonized power system, demand is more strongly oriented towards supply." Large parts of the demand - for example, e-mobility or certain parts of industrial processes - will shift their consumption to time windows with a high supply of renewable energies and low prices. "The electric car will use the midday hours when the supply of PV power is high and the car is stationary anyway."
Back-ups
But there are times when there is no wind and no sun - the "dark doldrums". Even in these times, a secure power supply should be guaranteed. A "technology mix" is planned to balance seasonal fluctuations in renewable energy generation.
On the one hand, it's about "flexible loads" such as heat pumps or electric cars that could shift their power demand to a certain extent, as stated in the paper. Storage systems should balance short-term fluctuations in wind and PV generation. In addition, there are "controllable" backup power plants - they should step in when wind and PV, as well as short-term storage and flexible loads are not sufficient.
The federal government has been working on a strategy for building new gas power plants as backups for some time, as investments must be profitable for operators. State funding is planned for the new gas power plants, which are later to be operated with hydrogen.
New mechanism
By the year 2028, a new pillar of the power system is to be introduced: a "capacity mechanism". The ministry presented various, complex models for this in the paper. At its core, it's about rewarding providers for providing so-called controllable power plant capacities - even if the power plants may only run for a few hours a year. A competitive approach is planned, including pumped storage, battery storage, biogas plants, and backup power plants.
A capacity mechanism is intended to supplement the existing wholesale market. Its basis is the "Merit-Order" principle, which essentially states: always generate electricity from the most cost-effective power plants to meet electricity demand.
Consequences also open for electricity consumers
How this mechanism will look in detail is still open. A "central capacity market" is possible, where a central entity determines the need for controllable capacities and procures them through auctions. However, this mechanism would involve costs being passed on to consumers through a surcharge, as stated in the paper.
To also reduce a surcharge, the Ministry of Economics favors a combination with a "decentralized capacity market". In this, suppliers would be responsible for securing their power supplies with capacities. They could, for example, use incentive models to reduce their customers' consumption during peak load times when there is little wind or PV power.
More flexibility
Overall, the Ministry of Economics lists four fields of action in the paper on the transformation of the power system. These include a reform of the promotion of renewable energies. The current system, which provides a market premium in addition to the achieved exchange price, is still approved under European law until the end of 2026. A switch to an investment cost subsidy is now planned, among other things.
There should also be more flexibility in electricity usage. This also includes incentives for users to charge their electric vehicles when there is a lot of wind and solar power being produced and electricity prices are favorable. Consumers could also be rewarded with lower network charges, as the paper suggests.
Use green power better
The goal, according to the paper, is to use "green" electricity better locally, instead of having to regulate plants - which happens in case of impending power shortages. Measures to prevent overloads of the power grid cause high costs. Background: The wind power produced mainly in the north needs to reach major consumption centers in the south, for which thousands of kilometers of new power lines are necessary.
More flexibility in the power system requires digital power meters, "smart meters". Their deployment is to be accelerated. The Federal Network Agency is responsible for the design of network charges.
The transformation towards a climate-neutral power system by 2045 includes a significant increase in the use of electric cars, serving as flexible loads that can shift their power demand during periods of high renewable energy supply and low prices. The new capacity mechanism, set to be introduced by 2028, will provide financial incentives to operators of controllable power plant capacities, contributing to a secure power supply during periods of low renewable energy generation.
