Energy Transition

Electricity market design

Electricity market design for the future

At the moment, the German electricity market is in the middle of decisive change. Because it has become impossible to earn sufficient margins with the production and sale of electricity, the traditional business concepts of energy suppliers reach their limits. At the same time, there is an overcapacity in the market. In view of the three targets of energy policy – security of supply, affordability and protection of the environment – a new regulatory framework for the electricity market 2.0 was established.

Participants of the German energy market are more dependent than ever on well-founded advice. In particular, they need to understand how the new electricity market design will affect both the spot market for electricity and the control energy market and also how the developments will affect their business models. The current structure of the electricity market will change extensively: The extra-costs of electricity (“Stromnebenkosten”) will be structured differently in order to encourage consumption which is in line with the market. Options for flexibility like e-mobility, emergency power systems, Power-to-Heat and Power-to-Gas shall Benefit from improved market conditions. The electricity sector is to be coupled to the heating and cooling sector.

These and other changes will have an enormous impact on the business models of many companies and will significantly change the production and consumption market.

Flexibility options offer great potential for value creation.

The energy transition will also redefine the role of market operators. Conventional power plants will no longer be solely responsible for the base load, but will become partners of renewable energies in order to integrate them into the electricity market. The different options of flexibility are of decisive importance for the market integration. They are supposed to compensate short-term production peaks. The technical potential of flexibility options is far from being fully tapped.

By changing Price components on generation and consumption side and through an adjustment of the remuneration structure for renewable energy the following flexibility options will have a high potential for value creation:

  • flexible conventional and renewable energy generation: producers will increasingly specialize in demand-related production.

  • flexible demand: industry, commerce and households can – at least partially – reduce their consumption during periods of high residual load.

  • energy storage like pumped-storage and battery storage: concepts like these will increasingly become economical due to changed conditions.

The flexibility options are supposed to compete with one another in future. This presupposes that they compete under the same conditions and, in particular, that they are equally burdened with extra-costs on electricity. A key element of the new electricity market design is therefore the evaluation and adjustment of extra-costs on electricity.

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Dr. Max Peiffer