Our most important findings

Market Design

  1. 1

    Die Energiekrise verursacht 2023 für Verbraucher:innen Mehrkosten für Strom und Erdgas von mehr als 100 Milliarden Euro gegenüber dem Vorkrisenniveau.

    Haushalte, die mit Erdgas schlecht gedämmte Gebäude heizen, sind außerordentlich belastet – auch bei mittlerem Einkommen. Die Wirtschaft steht ebenfalls zum Teil vor erheblichen Herausforderungen. Eine gezielte und ausreichende staatliche Unterstützung ist daher dringend erforderlich.

  2. 2

    Es bedarf einer Zufallsgewinnsteuer, um die Finanzierung der notwendigen Entlastungen zu unterstützen.

    Die Steuer sollte so ausgestaltet sein, dass sie mit einem moderaten Steuersatz alle fossilen Energieträger abdeckt und zugleich Anreize für neue Investitionen in Energieunabhängigkeit und Klimaschutz erhält. Damit birgt sie geringere Risiken für Umgehungsstrategien und für zukünftige Investitionen als eine Abschöpfung von Zufallsgewinnen über den Strommarkt.

  3. 3

    Die Grundsätze der Preisbildung am Strommarkt funktionieren und müssen erhalten bleiben.

    Eine Preissetzung durch das jeweils teuerste Kraftwerk zeigt die Kosten von zusätzlichem Stromverbrauch bzw. den Wert von Einsparungen korrekt an. Dieses Prinzip ist für die Integration von Erneuerbaren Energien zentral, denn nur so können etwa Wärmepumpen oder Elektroautos effizient und dynamisch auf den Strompreis reagieren.

  4. 4

    Investitionen in Erneuerbare Energien und Energieeffizienz gehören ins Zentrum der kurz- und mittelfristigen Krisenpolitik.

    Zusätzliches Angebot an Wind- und Solarenergie und effizientere Nachfrage sind Voraussetzungen für eine Normalisierung der Energiepreise und für eine ambitionierte Klimapolitik.

  1. 1

    Short-term, well-targeted measures to protect consumers from power price shocks must be consistent with Europe’s transition to a power system based on high shares of renewables.

    Such a fully decarbonised system will be much more decentralised while relying on renewables, flexibility and an active ­demand-side. The EU Commission should initiate a well-prepared debate on necessary further adjustments to EU power market rules during the legislative period that starts in 2024.

  2. 2

    Ramping up renewables and energy efficiency will provide a structural solution to the supply crisis while keeping Europe on track to achieving climate neutrality. A well-­functioning internal electricity market is crucial for the efficient operation of an increasingly renewables-based power system.

    Renewables investment should be ramped up to close the supply gap and reduce Europe’s dependence on fossil fuel imports. Annual onshore wind deployment needs to triple while annual offshore wind and solar PV deployment needs to quadruple by 2030. Marginal ­pricing on wholesale markets will ensure the efficient use of electricity, balance supply through cross-border trade and enable demand-side flexibility and storage.

  3. 3

    Voluntary two-sided contracts for difference (CfDs) should become the standard approach for governments to support renewables investment, alongside merchant approaches such as power purchase agreements (PPAs).

    CfDs can ensure predictable revenue streams from renewable energy projects, thus reducing risks for investors and lowering financing costs. CfDs can also facilitate the market integration of renewables and skimming-off of windfall profits, generating revenues that can be used for targeted support. To quickly scale up renewables deployment, investors should be able to decide whether to use government-backed CfDs or to develop merchant-based renewables projects, e.g. through PPAs.

  4. 4

    The combination of two-sided CfDs, PPAs, and the skimming-off of windfall ­profits in emergency situations will help protect consumers from spiking power prices in the event of future fossil-fuel supply shocks.

    A harmonised EU approach to reducing windfall profits during emergency situations should replace the current inframarginal revenue cap, as the uneven and unpredictable implementation of the revenue cap is scaring off renewables investors. In the medium term, with a growing volume of renewable electricity produced under CfDs and PPAs, windfall profit claw-backs will become less relevant.

  1. 1

    Der anhaltende Einbruch beim Neubau von Windkraftanlagen gefährdet den Standort Deutschland.

    Für 2021 droht sogar ein Rückgang der installierten Leistung. Dies gefährdet die Wirtschaft, denn ohne deutlich mehr günstigen Windstrom steigt der Börsenstrompreis in den nächsten Jahren deutlich an. Dies gilt erst recht angesichts erwartbar steigender CO₂-Preise im Zuge der Umsetzung des höheren EU-2030-Klimaziels.

  2. 2

    Deutschland braucht schnellstmöglich wieder einen jährlichen Zubau von mehr als 5 Gigawatt Windkraft an Land.

    Das 2017 erreichte Zubauniveau ist dauerhaft nötig. Denn bis 2030 müssen die Erneuerbaren nicht nur die Kohle ersetzen, sondern auch den zusätzlichen Strombedarf im Zuge der Sektorenkopplung decken. Der im EEG-Entwurf vorgesehene Ausbau, der zudem erst 2028 wirklich steigen soll, geht an der Realität vorbei.

  3. 3

    Im Zuge der EEG-Novelle 2021 ist ein umfassendes „Sofortprogramm Windenergie“ nötig.

    Es umfasst eine Erhöhung der Ausschreibungsmengen, Maßnahmen zur kurzfristigen Bereitstellung

    zusätzlicher Flächen, Regelungen für Weiterbetrieb und Repowering von EE-Altanlagen, eine vereinfachte Planungsmethodik sowie erste Schritte hin zu einem modifizierten Artenschutzregime.

  4. 4

    In der nächsten Legislaturperiode muss ein „Masterplan Windenergie an Land“ den Zielkonflikt um Abstandsregeln und Naturschutz grundsätzlich und dauerhaft befrieden.

    Klimaneutralität ist Deutschlands Beitrag zum Erhalt einer intakten Natur. Um sie zu erreichen, braucht es Windkraft an Land mit einer Leistung von etwa 130 Gigawatt bis spätestens 2050.

  1. 1

    Weil der Ausbau der Windenergie an Land aktuell kollabiert, droht eine große Ökostromlücke: Erneuerbare Energien decken 2030 bei Fortschreibung der aktuellen Trends nur etwa 55 Prozent des Strombedarfs.

    Hierbei wurde bereits unterstellt, dass die Solarenergie weiterhin mit vier Gigawatt pro Jahr und Offshore-Windenergie auf 20 Gigawatt bis 2030 zugebaut wird. Das 65-Prozent-Erneuerbaren-Ziel für 2030 rückt so in weite Ferne.

  2. 2

    Weniger Ökostrom und mehr Strom aus fossilen Energieträgern führen zu höheren Industriestrompreisen und höheren CO₂-Emissionen.

    Bei nur 55 Prozent Erneuerbaren-Anteil steigen die Börsenstrompreise im Jahr 2030 um etwa 5 bis 10 Euro je Megawattstunde und die Emissionen um etwa 5 bis 20 Millionen Tonnen CO₂.

  3. 3

    Um die Ökostromlücke zu schließen, muss die Offshore-Windkraftleistung bis 2030 auf mindestens ­ 25 Gigawatt steigen, Onshore-Windkraft wieder um mindestens 4 Gigawatt pro Jahr zugebaut und/oder eine Solaroffensive auf 10 Gigawatt pro Jahr gestartet werden.

    Bei gleichbleibendem Stromverbrauch sind für das 65-Prozent-Ziel zwei der drei genannten Zubaupfade für Offshore-Windkraft, Onshore-Windkraft und Solarenergie nötig. Geht man für 2030 von einem höheren Stromverbrauch aus – wegen zunehmender Elektromobilität, mehr Wärmepumpen, Wasserstoffgewinnung und zusätzlichem Ökostrombedarf in der energieintensiven Industrie –, müssen alle drei Maßnahmen umgesetzt werden.

  4. 4

    Die Zubaukrise der Windenergie muss rasch politisch gelöst werden, andernfalls droht auch der Energiewende insgesamt schwerer Schaden.

    Hierzu gehört ein Maßnahmenpaket, das durch geeignete und einheitliche Planungsverfahren für ausreichend Flächen zur Errichtung von Windenergie an Land sorgt und Genehmigungsverfahren beschleunigt. Auch bei Offshore-Windkraft müssen jetzt rasch die Weichen für höhere Zubaumengen bis 2030 gestellt werden.

  1. 1

    Renewables will provide 50% of SEE power demand in 2030. The European energy transition is underway.

    By 2030, renewables will account for 55% of power generation in Europe, and 50% of power generation in SEE. Nearly 70% of renewable power in SEE will stem from wind and solar, given the excellent resource potential of these renewables in the region.

  2. 2

    Cross-border power system integration will minimise flexibility needs. Wind and solar pose challenges for power systems due to their variable generation. But weather patterns differ across countries.

    For example, wind generation can fluctuate from one hour to the next by up to 47% in Romania, whereas the comparable figure for Europe is just 6%. Moving from national to regional balancing substantially lowers national flexibility needs. Increased cross-border interconnections and regional cooperation are thus essential for integrating higher levels of wind and PV generation.

  3. 3

    Conventional power plants will need to operate in a flexible manner. For economic reasons, hard coal and lignite will provide less than 25% of SEE power demand by 2030.

    Accordingly, conventional power plants will need to flexibly mirror renewables generation: When renewables output is high, conventionals produce less, and when renewables output is low, fossil power plants increase production. Flexible operations will become an important aspect of power plant business models.

  4. 4

    Security of supply in SEE power systems with 50% RES is ensured by a mix of conventional power plants and cross-border cooperation.

    The available reserve capacity margin in SEE will remain above 35% in 2030. More interconnectors, market integration and regional cooperation will be key factors for maximising national security of supply and minimising power system costs. SEE can be an important player in European power markets by providing flexibility services to CEE in years of high hydro availability.

  1. 1

    To achieve a 50 per cent share of clean electricity by 2030 at a minimum cost, China needs to add around 35 GW of wind energy and 65 GW of solar energy per year between 2020 and 2030.

    This would be roughly in line with the quickest deployment levels seen in previous years. With a rapid decline in technology costs, wind and solar can serve as a substitute for new nuclear and hydro, which current plans foresee growing at an unrealistically high rate.

  2. 2

    “Flexibility” will need to become the new watchword in China’s power system, as by 2030 roughly 25 per cent of the power supply comes from variable renewables.

    Restructuring the power system will be essential in order to keep it reliable and cost-effective. Inflexible baseload technologies and non-merit-order-based, coarse-scale dispatch are incompatible with a system that is increasingly dominated by weather-dependent power generation technologies.

  3. 3

    China has initiated a number of important reforms already, but fundamental challenges still lie ahead.

    Recent policy reforms have moved in the right direction, as China has started pilot projects for emissions trading, has reviewed its renewables remuneration scheme, and has acknowledged the need to create a power spot market. However, fundamental challenges remain to be addressed. These include overcapacity in coal-fired assets, an inflexible dispatch system, and a lack of data transparency and accessibility for market participants.

  4. 4

    Five Golden Rules will help build a consistent policy regime and guarantee system reliability and cost-effectiveness.

    China has the opportunity to leapfrog to a renewables-led power system design that ensures cost-effectiveness and reliability. The Five Golden Rules we develop in this paper will help policy makers view the various policy instruments and emerging sectoral markets both pragmatically and coherently while taking into account interdependencies and avoiding inconsistencies:

    Golden Rule 1: Use existing generation capacity efficiently by implementing short-term markets

    Golden Rule 2: Incentivise flexibility to ensure system reliability and adequacy

    Golden Rule 3: Provide stable revenues for new investment in renewables

    Golden Rule 4: Manage the decline of coal and its structural consequences

    Golden Rule 5: Acknowledge the pivotal role of transparency and data accessibility

  1. 1

    In the PENTA region, effects from differences between national regulatory environments for the cost of renewables projects are significant and can even be larger than cost effects from differences in resource availability.

    Cumulated cost effects from national regimes on planning, permitting, grid connection and usage, taxation and financing range from 12 EUR/MWh in Germany to 26 EUR/MWh in Belgium. A wind park in Belgium would thus need to have 20% more full load hours than a German wind park to equalise these effects of the national policy environment.

  2. 2

    EU rules on renewable energy push for enhanced cross-border cooperation, but currently do not offer a consistent framework for implementation.

    Cross-border cooperation on renewables is addressed i.a. in the EU Renewable Energy Directive, in the EU Regulation on the Governance of the Energy Union and in EU State Aid rules. A prerequisite for successful implementation is to better understand how national regulatory environments outside renewable energy support frameworks shape investor choices.

  3. 3

    Cross-border renewables cooperation needs to address the impacts of differing regulatory conditions on LCOE.

    Governments and regulators involved may agree on the coordinated convergence of some regulatory conditions towards recognised best practice. Where convergence is not feasible or desirable, the focus will be on whether and how to account for existing differences in the design of competitive auctions.

  4. 4

    Insights from cross-border renewables cooperation are essential for future European approaches.

    These learnings will be relevant e.g. in the context of the EU 2030 renewables gap filler mechanism or the Renewable Energy Projects of European Interest.

  1. 1

    Renewable energy investments are more capital intensive than investments in fossil-fired power generation.

    They are also much more sensitive to political and regulatory risks. This is highly relevant when addressing Europe’s 2030 renewables framework consisting of a binding EU target without binding Member States targets.

  2. 2

    The costs of capital for renewables vary widely between Member States.

    Perceived ex-ante risks translate into country specific premiums on the costs for renewable energy investments that have nothing to do with technology risks or weather conditions.

  3. 3

    Equalising costs of capital throughout the EU would save taxpayers at least 34 billion Euros to meet the 2030 renewables target.

    It would also allow for broader sharing of the social, economic and health benefits of renewable energy investments, and would particularly benefit EU Member States with lower than average per capita GDP.

  1. 1

    Europe needs a “Renewable Energy Cost Reduction Facility (RES-CRF)” to fill the high-cost-of-capital-gap which currently exists in many member states in Central and South-Eastern Europe.

    Wind and solar are today cheap technologies that are on equal footing with coal and gas. However, high cost of capital oftentimes hinders renewables projects from going forward, even when there is excellent potential. Bridging that gap, a RES-CRF will bring significant cost savings to consumers and taxpayers in those countries

  2. 2

    The RES-CRF would provide a fifty-fold leverage of private-sector finance and will phase-out automatically as market confidence in high cost of capital Member States increases.

    The risk of the financial guarantee underpinning the RES-CRF ever being called is very small. We propose a set of concrete safeguards to ensure only high quality renewable energy investments will benefit and to avoid over-commitments.

  3. 3

    The next EU Multiannual Financial Framework should be used to finance the RES-CRF as a cheap support for the 2030-targets.

    Committed public funds to implement Article 3.4 of the new EU Renewable Energy Directive would create scope for establishing the RES-CRF. This would help Europe to meet its 2030-renewable energy target and enable all Member States to benefit from low-cost renewable energy.

  4. 4

    A pilot project should be launched before 2020 for proof of concept.

    A key design feature of the RES-CRF is its flexibility. Being largely based on contractual arrangements, it can be tested in specific sectors or Member States before a wider roll-out. Launching a pilot project before 2020 would help strengthen confidence in the instrument. A pilot can be financed from the running EU budget.

  1. 1

    Short-term markets in Central Western Europe are characterised by a rather inefficient patchwork of flexibility enabling and disabling design elements.

    Some key design elements of intraday and balancing markets as well as imbalance settlement rules distort wholesale power price signals, increasing the cost of providing flexibility. This highlights the need to adjust key market design elements and requires continuous political momentum to coordinate efforts regionally.

  2. 2

    Current market designs are biased against demand side response and renewables.

    Restrictive requirements for market participation, mainly relating to demand response and renewables, constrain the flexibility potential. In the balancing markets, small minimum bid sizes and short contracting periods would be required. A regulatory framework enabling independent aggregation should be implemented for fully tapping the flexibility potential.

  3. 3

    Balancing market rules show large differences across the region, leading to inefficient pricing in preceding day-ahead and intraday markets.

    A joint balancing market design in the PLEF region with short product duration, late gate closure and marginal pricing would enable efficient cross-border competition for flexibility services. Getting the pricing right in balancing mechanisms is important as it support sefficient pricing in preceding day-ahead and intraday markets – where most of the flexibility is traded.

  4. 4

    Cross-border intraday trading needs reform to improve efficiency and enhance liquidity.

    Intraday markets are critical for integrating wind and solar, as they allow for trades responding to updated generation forecasts. Today, explicit cross-border capacity allocation as well as misalignments in gate closure times across the region and differing product durations result in inefficient intraday energy and interconnector capacity allocation. Thus, harmonised rules and improved implicit cross-border allocation methods are needed, e.g. improved continuous trading or intraday auctions.

  1. 1

    Already now, Germany and France are helping each other guarantee security of supply.

    Whenever there iscapacity shortage in one country, prices in that country rise, favoring power plants in the other country to export. This is done automatically via market coupling.

  2. 2

    A joint German-French shortage situation is currently very rare, but may occur more often.

    A cross-border challenge in security of supply arises only during days with very cold weather and very little wind in both countries at the same time. An analysis of historical weather data suggests that after 2023 this might occur about six days in ten years.

  3. 3

    The unilateral introduction of a capacity mechanism in France benefits French power generators and German consumers – but the redistributive effects are likely to be small.

    Different market designs between Germany and France will generate some redistributive effects, but they are limited by the level of interconnections between the two countries (currently 3 GW) and joint market coupling with other European countries.

  4. 4

    The French decentralized capacity mechanism and the proposal developed by the German energy associations BDEW/VKU, though globally based on the same principles, differ in important respects.

    The French proposal, while effectively decentralized by nature, relies significantly on regulated components, with a centra lrole going to the TSO. Similar design elements are currently missing in the BDEW/VKU model, leaving the question open as to who would actually supervise, control and sanction this scheme in Germany.

  5. 5

    Cross-border participation in capacity mechanisms raises fundamental technical and regulatory questions.

    These questions include monitoring and control issues as well as rules for delivering capacities in foreign markets without interfering with market coupling. Addressing these questions requires political and technical cooperation on both sides of the border, especially when it comes to situations of joint scarcity.

  1. 1

    Wind and solar PV drive power system development.

    As part of Europe’s renewable energy expansion plans, the PLEF countries will strive to draw 32 to 34 percent of their electricity from wind and solar by 2030. The weather dependency of these technologies impacts power systems, making increased system flexibility crucial.

  2. 2

    Regional European power system integration mitigates flexibility needs from increasing shares of wind and solar.

    Different weather patterns across Europe will decorrelate single power generation peaks, yielding geographical smoothing effects. Wind and solar output is generally much less volatile at an aggregated level and extremely high and low values disappear. For example, in France the maximum hourly ramp resulting from wind fluctuation in 2030 is 21 percent of installed wind capacity, while the Europe-wide maximum is only at 10 percent of installed capacity.

  3. 3

    Cross-border exchange minimises surplus renewables generation.

    When no trading options exist, hours with high domestic wind and solar generation require that generation from renewables be stored or curtailed in part. With market integration, decorrelated production peaks across countries enable exports to regions where the load is not covered. By contrast, a hypothetical national autarchy case has storage or curtailment requirements that are ten times as high.

  4. 4

    Conventional power plants need to be flexible partners of wind and solar output.

    A more flexible power system is required for the transition to a low-carbon system. Challenging situations are manifold, comprising the ability to react over shorter and longer periods. To handle these challenges, the structure of the conventional power plant park and the way power plants operate will need to change. Renewables, conventional generation, grids, the demand side and storage technologies must all become more responsive to provide flexibility.

  1. 1

    The European power system will be based on wind power, solar PV and flexibility.

    The existing climate targets for 2030 imply a renewables share of some 50 percent in the electricity mix, with wind and PV contributing some 30 percent. The reason is simple: they are by far the cheapest zero-carbon power technologies. Thus, continuous investments in these technologies are required for a cost-efficient transition; so are continuous efforts to make the power system more flexible at the supply and demand side.

  2. 2

    Making the Energy-Only Market more flexible and repairing the EU Emissions Trading Scheme are prerequisites for a successful power market design.

    A more flexible energy-only market and a stable carbon price will however not be enough to manage the required transition to a power system with high shares of wind and solar PV. Additional instruments are needed.

  3. 3

    A pragmatic market design approach consists of five elements: Energy-only market, emissions trading, smart retirement measures, stable revenues for renewables, and measures to safeguard system adequacy.

    Together, they form the Power Market Pentagon; all of them are required for a functioning market design. Their interplay ensures that despite legacy investments in high-carbon an inflexible technologies, fundamental uncertainties about market dynamics, and CO2 prices well below the social cost of carbon, the transition to a reliable, decarbonised power system occurs cost-efficiently.

  4. 4

    The Power Market Pentagon is a holistic approach to the power system transformation. When designing the different elements, policy makers need to consider repercussions with the other dimensions of the power system.

    For example, introducing capacity remunerations without actively retiring high-carbon, inflexible power plants will restrain meeting CO2 reduction targets. Or, reforming the ETS could trigger a fuel switch from coal to gas, but cannot replace the need for revenue stabilisation for renewables.

From study : The Power Market Pentagon
  1. 1

    Tendering procedures for renewable energy need to be carefully designed.

    The introduction of competitivebidding for a specific renewable-energy technology in a given country needs to be preceded by a thorough analysis of the conditions for successful tendering, including market structure and competition. Specific project characteristics of the various renewable-energy technologies must be considered appropriately in the auction design.

  2. 2

    Pilot tenders should be used to enable maximum learning.

    Prior to adoption of tendering schemes, multiple design options should be tested in which the prequalification criteria, auction methods, payment options, lotsizes, and locational aspects are varied. Learning and gaining experience is of utmost importance, as poor auction design can increase overall costs or endanger deployment targets.

  3. 3

    The most challenging technology for auctions is onshore wind.

    Experiences made with auctions for certain technologies (e.g. solar PV) cannot be readily applied to other types of renewable energy. Onshore wind is particularly difficult due to the complexity of project development, including extended project time frames (often over two years), the involvement of multiple permitting authorities and the need for local acceptance.

  4. 4

    Inclusion of a variety of actors is a precondition for competition and efficient auction outcomes.

    The auction should be designed to facilitate a sufficiently large number of participating actors, as this will minimise strategic behaviour and ensure a level playing field for all actors, thus enabling healthy competition. As renewable deployment often hinges critically on local acceptance, enabling the participation of smaller, decentralised actorsin auctions is important.

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