German Power Market Needs Redesign: Study

Germany will need significant amounts of additional firm power output by 2030 to offset the fluctuating feed-in of renewable energy, according to Cologne University’s Institute of Energy Economics (EWI). But there is not enough money coming to fill the gap, it says.

The institute published a study February 11, commissioned by gas group Zukunft Erdgas (ZE), pointing out that gas demand was rising but there was no incentive to build capacity to replace the coal and nuclear capacity that was being closed down over the coming years.

In 2019, gas produced 11% more electricity than the year before, reaching 15% of the total generation mix. Coal-fired electricity dropped by 25%, owing to a higher carbon price. According to calculations by the EWI, up to 45 GW of despatchable power will be required in 2030, but only around 7 GW of additional capacity is planned.

The price is set by supply and demand alone, and mechanisms need to be integrated into the market design to prevent a shortfall when the coal and nuclear plants go, the study says.

In addition to security of supply, power plants that provide controllable output also provide system-related services. These include the reactive power, a regional continuous frequency for stable power transmission, as well as the black start capability with which systems enable the network to be restarted after a blackout. These system services are also not remunerated.

EWI gas markets head Simon Schulte said it was “unclear whether the energy-only market can guarantee an economically efficient and socially acceptable supply security level in the future. That means whether the market alone can provide incentives for the expansion of controllable lines."

ZE board member Timm Kehler said that security of supply must have a value. "We now have to talk about the framework conditions for investments in new power plants so that the additional gas power plants required are on the grid by 2030. The measures that make the most sense so that the electricity market can ensure security of supply in good time, even during peak loads, must be clarified quickly.”