The German electricity system is undergoing the transition toward a high share of renewable energy, notably wind and solar photovoltaics. For the most part onshore wind energy and solar PV installations are connected directly to the distribution grid. Price formation in electricity markets, i.e., in the day ahead-market and in the intraday-market (Germany consists of one price zone), does not reflect congestions in the transmission and distribution grid. In situations where generation exceeds available transmission or distribution capacity to transport power to load, congestion may occur if electricity cannot be used locally. In order to maintain system reliability, grid operators then have to take measures such as redispatch of conventional power plants or curtailment of renewable power production. Increasing deployment of flexibility options enables the local utilization of electric power generated by renewable energy installations rather than curtailing them. There already exists a large variety of flexibility options both on the demand and on the supply side, such as power-to-heat, flexible demand, batteries (including electric vehicles), storage and regulating power by renewable energy producers. However, there is no regulatory framework for a so-called “smart market” that incentivizes the deployment and use of flexibility options for managing grid congestions. The aim of this study is to develop concepts for such “smart market” designs. In doing so, the study takes account of the heterogeneous structure of the German grid (different configurations of wind and solar PV shares and load). The study is carried out by Ecofys Germany GmbH and Fraunhofer IWES. Based on the developed concepts of a smart market design, a regulatory roadmap will be proposed. Specifically, this regulatory roadmap will provide policy recommendations how the German regulatory framework can be amended or changed in order to enable and incentivize the emergence of smart markets.
