Screenshot: © Deutscher Bundestag

A new chapter in the energy transition

Three major steps taken: Renewable Energy Sources Act, Electricity Market Act, and Digitisation of the Energy Transition all approved by both houses of the German parliament.

Germany has adopted major legislation which will open up a new chapter in the country’s energy transition. Together, the three pieces of legislation mark a major step in Germany’s efforts to prepare its energy system for the age of renewables. What exactly is to change under the new laws?

On Friday, 8 July 2016, the German Bundestag and the Bundesrat (the parliamentary chamber in which the 16 German states are represented) both approved three major pieces of legislation on energy.

• the 2017 revision of the Renewable Energy Sources Act,
• the Electricity Market Act, and
• the Act on the Digitisation of the Energy Transition.

Federal Minister Sigmar Gabriel said: “The decisions taken by the German Bundestag and the Bundesrat today bring to a conclusion what we set out to do ever since the beginning of this parliament. We have now put in place all of the essentials of the framework we need in order for the next phase of the energy transition to be able to start.”

The three pieces of legislation that have been enacted will ensure that the transition of our energy supply can proceed in a foreseeable and cost-efficient way that leads to long-term success. Policy-makers have succeeded in bringing together the various strands of the energy transition and making Germany’s energy system shipshape for the future. Renewable energy, the electricity market, energy efficiency, the grids and digitisation used to be treated as separate elements, but have now been turned into a consistent overall framework for the energy transition. Here’s a brief summary.

2017 version of the Renewable Energy Sources Act: Introducing market-based auctions of renewables funding

The 2017 version of the Renewable Energy Sources Act is absolutely key to ensuring energy security and affordable energy prices into the future. Its focus is firmly on expanding renewables capacity, but in a cost-efficient and planned manner. The new Renewable Energy Sources Act marks the beginning of a new stage of the energy transition – one that will be based on new rules: rather than being fixed by the government, future rates of renewables funding will be determined by the market by means of dedicated auction schemes. “The Renewable Energy Sources Act was about promoting technologies that were at the time considered to be niche technologies”, Minister Gabriel explained right before the vote in parliament. “Today, renewables are the mainstay of our electricity market.” The minister went on to explain that the electricity market now needs to be equipped to be able to deal with renewables, and that renewables need to be made fit for the market. As of now, they must face competition on the market.

The auctions will ensure that the expansion of renewables can proceed in a manner that is cost-efficient, steady, and controlled. Furthermore, the legislation is to ensure that the high level of market-player diversity that has characterised the energy transition will be upheld. The law gives the first-ever definition of a “citizens’ energy company” and provides for these to participate in the auctions on simplified terms. Auctions will be held for funding for onshore and offshore wind energy, pv energy and biomass. Small-scale installations will be exempt, meaning that operators will continue to receive funding based on fixed rates.

Ensuring that capacity expansion is in sync with the rate of grid expansion

The 2017 version of the Renewable Energy Sources Act will ensure that the pace at which renewables’ capacity is added corresponds better to the pace at which the grids are developed. The goal, after all, is to generate clean electricity, but also to make sure that it reaches consumers. In recent years, the grids have increasingly struggled to keep up with the speed at which Germany’s renewables capacity has been developed. This is causing some trouble, as the following example shows: when grid congestion prevents wind power from being taken from the north of Germany to the country’s south, where most of our electricity is consumed, electricity consumers have to pay twice: the operator of the wind farm will be paid damages for having to reduce their installations’ output, and a power station in the south of Germany will be paid to generate more electricity locally.

The only way to sort out this problem is to slow down the pace at which wind power capacity is being developed, so as to allow for the grids to catch up. When addressing the Bundestag right before the vote, Minister Gabriel made this very clear. As of 2017, a new ordinance will designate areas in Germany within which the pace at which wind power capacity is being developed will be limited to a maximum of 58 per cent of the average capacity added over the last three years. It goes without saying that this does not change the fact that both the Federation and the Länder (states) concerned must do their utmost to speed up the development of the grids in Germany.

Electricity market 2.0: it’s all about flexibility

The new Electricity Market Act is also key to ensuring that we can continue to rely on a secure supply of affordable electricity in Germany – even and especially when wind and solar power dominate the market.

At present, renewables account for roughly a third of our electricity supply. This figure is to rise to 45 per cent by 2025. The more we rely on wind and solar power, which of course, depend on the weather, the greater the fluctuations in the amounts fed into the grid. The Electricity Market Act seeks to make the power market ready to cope with growing shares of renewables. It also encourages competition between supply-side flexibility, demand-side flexibility and storage. The new legislation introduces the most important reform of the electricity market since it was deregulated in the 1990s. Our improved electricity market 2.0 will ensure that Germany can continue to rely on a cost-effective and reliable supply of electricity, even when the share of wind and solar energy keeps rising.

Our future energy system will be designed around flexibility. It won’t be up to the demand side alone to determine how much electricity will be available – the opposite will also be true.

Let’s take the following example: At present, it doesn’t matter when you put a load of washing on – you will be charged the same amount for the electricity you use. Future electricity prices, however, will vary depending on the amount of electricity that is available at the time you’re using it. This means that it will be cheaper for consumers to use electricity when there is a lot of it in the grid. This could be at night, for instance. In this case, the lower electricity price would work as an incentive to consumers to do their laundry at night. Flexible tariffs will make it possible for end users to be rewarded financially for using electricity when there is plenty of it.

Energy security at all times

The Electricity Market Act also seeks to ensure that electricity dealers do their bit to ensure energy security. It provides incentives for them to try hard to keep the amount of power they buy and sell in balance. This is important for grid stability. The way the grid works is that you can only take as much power out as is being fed in at this time – and vice versa.

The Electricity Market Act also strengthens the European electricity market. After all, the energy transition will only be successful if we adopt a European angle on it. This is why Germany is in close dialogue with its neighbouring countries about how to best develop a Single European Electricity Market.

On top of all this, we are also creating a new capacity reserve which is to provide back-up power at times of extreme scarcity. The reserve is strictly separate from the ordinary electricity market and works merely as a safety net for unforeseeable situations.

The less lignite we use, the better for the climate

The Electricity Market Act will also help us attain our climate targets. It stipulates that 13% of our lignite capacity is to be put on reserve and later to be decommissioned for good. This will help us reach our climate targets for the power sector up to 2020.

Digitisation: introducing the secure smart network – which is to be gradually rolled out as of 2017

The third piece of legislation to be enacted is to take energy transition into the digital age. Smart grids, smart meters and smart homes are innovative ingredients of a digital infrastructure that will successfully create networks bringing together generators of electricity and large-scale consumers – more than 1.5 million participants. The Act centres on the introduction of smart meters.

Starting with the largest consumers, working our way down to small-scale consumers

Beginning in 2017, large-scale consumers and generators of electricity will be fitted with smart metering systems. As of 2020, these systems will be rolled out to private households using more than 6,000 kWh of electricity per year. To put things in perspective: this is well above the average German household’s annual consumption of 3,500 kWh.

Consumers will benefit from having their power consumption visualised and will find it easier to make some changes in the way they use energy. Smart meters also eliminate the need for someone to come round to read your meter. Furthermore, equipment whose power consumption can be controlled and timed, such as night storage heating systems and electric vehicles, can be charged at times when there is a great deal of electricity available. Flexible electricity tariffs are another option. This would mean that, depending on the individual tariff, you could be charged different amounts for a kWh of electricity, depending on when you use it.

Just like with regular electricity meters, the cost for having the device fitted and the operational cost will be borne by consumers/operators of generation facilities. Having a smart meter fitted will, however, only be binding in cases where the devices generate a return. Strict price caps apply, which will prevent consumers from having to pay too much for their device. The exact limit that applies depends on how much the meter is expected to generate in savings.

Strict data privacy rules will apply

The use of smart meters depends on more data being transferred. This is why strict safeguards apply to ensure that consumer data is kept secure and private. We don’t want hackers to stand a chance. This is why Germany has outlawed all systems that don’t comply with the strict rules that apply in Germany – which are also the toughest in the whole of Europe.

The 2017 version of the Renewable Energy Sources Act will enter into force on 1 January, the Electricity Market Act and the Act on the Digitisation of the Energy Transition will enter into force this summer.