EWG’s statement on German government’s proposed electricity market design
The German government’s proposed electricity market design would significantly curb renewable electricity generation and increase its costs.
The Energy Watch Group (EWG) has evaluated the ‘Electricity market design of the future’ proposed by the German government. The proposed changes and end of government support for expanding renewable energy generation in the middle of the transition to a CO₂-free would significantly increase the price of electricity, impact the federal budget far more than today and significantly slow down the expansion of renewable energy. Other elements of the proposed ‘electricity market design’ are clearly helpful.
The design of the electricity market is of decisive importance for future electricity prices, the demands on the federal budget and the speed with which Germany achieves a CO₂-free energy supply.
Evaluation elements
These elements of the proposed electricity market design are helpful:
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Technology-open procurement of dispatchable electric power generation (including biogas power plants converted from base load to peak load).
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Procuring dispatchable electric power generation separately from the volatile electricity generation and on different conditions.
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Electricity tariffs that vary over time in order to utilize cheap wind and PV electricity as fully as possible by shifting demand.
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Grid charges that vary with distance, so as to incentivize distributed electricity generation and thus reduce the investment required for grid expansion.
These elements of the proposed electricity market design are not helpful:
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Ending government support of renewable power generation including feed-in tariffs that are guaranteed for 20 years long before a CO₂-free energy system has been achieved.
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The ‘investment cost subsidy’ instrument envisaged instead of the current feed-in tariff would burden the federal budget with some 600 billion €, if the investment subsidy is 50% and some €900 billion € should the investment subsidy be 75%.
Both elements would impose considerable risks on investors in wind and PV power, biogas and green hydrogen power plants, battery and other storage systems and would therefore significantly increase the price of electricity in Germany and slow down the expansion of renewable power generation. The result would be an expensive and paralyzing dead end for expanding renewable power generation in Germany.
Recommendations
Instead, the established and effective procurement within the framework of the Renewable Energy Law (EEG) should be continued until a CO₂-free electricity supply has been achieved. Then and only then should the decision be taken, if and how to end renewable energy support and the EEG framework.
In future tenders, the feed-in tariff should be fully paid for by the electricity price. This unburdens the federal budget significantly and fulfills EU legal requirements. Other than in the past, this does not put additional burdens on electricity customers, since the cost of wind and PV power come down considerably and now only costs around 6 cents/kWh.
These low and stable electricity prices of 6 cents/kWh for wind and PV are achieved in competitive procurements based on the feed-in tariffs. They should be passed on to electricity customers directly, instead of first being converted into highly volatile prices on the electricity exchange, as is the case today.
Removal of the volume caps for procurement. This will accelerate the transition to a CO₂-free electricity supply and remove this investment obstacle.
With the proposed adjustments, a 100% CO₂-free and reliable electricity supply will be achieved quickly and at favorable conditions – to the benefit of all electricity customers and slowing global warming.
Read the full statement & recommendations (in German) here.
