To avoid future electricity price increases, the German government is looking to reverse the liberalization of its electricity market and move towards a more interventionist approach by creating fixed-price capacity markets.
In the late 1990s, Germany underwent an unprecedented liberalization of its energy markets at the behest of Brussels, with utilities switching to a business model of selling kilowatt-hours in a competitive market.
This has done wonders for the German market, albeit the country’s the large size meant that this had EU-wide implications.
In other words, liberalized markets allowed Germany to export electricity equivalent to Belgium’s annual consumption now and when German electricity prices dropped by 49% between 2010 and 2016 and then stabilized, the whole of Europe benefited.
But this era of liberal markets is coming to an end.
“Germany is moving towards deliberalization of the market in many areas,” explains Christoph Maurer, an expert on the country’s electricity market and managing director of the consulting company Consentec.
What began as a compromise in February to support new gas-fired power plants has become a hotly debated issue in Berlin.
Look for safe investments
In August, Germany’s Ministry of Economics presented a “paper options” about the future of the country’s electricity market, proposing a mix of liberal and centralized elements of electricity markets, as is the case in other parts of Europe.
Among its proposals, the paper suggests creating a new “capacity market” that would pay generators a fixed fee based on size, as opposed to the current liberal market that rewards them for the power they sell.
Such a capacity-based market would provide “long-term investment security through centralized auctions with long contractual terms,” according to the German government.
“Most recently since the very high price peaks … it has become clear, in my view, that the expansion of larger power plants will not be ensured by the free electricity market alone,” says Ingrid Nestle, a Green MP speaking on behalf of the party on energy issues.
By combining a central capacity market with local markets, the government hopes to preserve the efficiency of a more liberal market – at the cost of added complexity.
However, the proposal for a capacity market is still being contested in Berlin.
Utilities association BDEW and natural gas industry group Zukunft Gas have expressed partial support, preferring a simpler capacity market to the proposed mixed model, while renewable energy lobby groups fear any disruption to their business model .
“We warn against carrying out risky experiments in this sensitive phase of the energy transition,” said Simone Peter, president of the renewables association BEE.
The stakeholder consultation period ended on 6 September, and participants in the government’s electricity market discussion forum will discuss the results on 26 September.
European energy union
Despite large electricity flows into and out of Germany, Euractiv understands that neighboring countries have not yet been consulted on Germany’s plans to move away from the current liberal model.
Ministry of Economy “It is planning various dates for its options document for a design of the electricity market going forward, including a meeting with affected neighboring countries – ‘electricity neighbours’ – and the European Commission,” a spokesperson told Euractiv.
Luxembourg, where electricity flows freely to and from Germany, welcomed Berlin’s cross-border alignment initiatives, telling Euractiv that it would allow “a detailed assessment and discussion of the cross-border implications” before any final decisions are made.
Germany will not be the first European country to turn to less liberal capacity markets.
“I think Germany is in good company in Europe. Various countries already have capacity mechanisms,” Nestle said, adding that Belgium, France and the UK have all opted for some form of capacity mechanism. already.
But Maurer believes Berlin’s return could have a knock-on effect.
“I do not rule out the possibility that we will now see a clear trend towards even more capacity mechanisms in Europe in the next few years,” the energy expert added.
[Edited by Donagh Cagney/Daniel Eck]
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