© Adobe Stock / Boris Franz

Electricity market design

In the publication ‘Electricity market design of the future’, the Federal Ministry for Economic Affairs and Climate Action presents options for a secure, affordable and sustainable electricity system. These options are to facilitate the transition to an electricity supply that runs on 100% renewable energy.

Our electricity system is changing. We are moving away from electricity generation in centralised large-scale fossil fuel power plants to a system characterised by flexible and decentralised electricity generation primarily from wind and solar energy.

This change in how we generate electricity fundamentally alters the requirements of electricity market design and brings many new questions to the fore: how can we supplement the fluctuating generation of electricity we obtain from wind and photovoltaics efficiently, and what technologies can we use to do so? What sort of market structures need to be created to allow the technologies we need for our electricity supply to also be refinanced? What barriers must be removed for this to happen? What should be done if the generation centres change (wind from the north, photovoltaics in the south), but the expansion of the power grid does not progress at the same speed?

^{Wind and photovoltaics to become the main pillars of energy generation}

These and other questions about how the design of our electricity market can be shaped in the future have been discussed on the Climate-Neutral Electricity System Platform (PKNS), which has brought together involved parties from government, academia, business and civil society since 2023.

The stakeholders were largely in agreement about the basic principles of future electricity market design: wind and photovoltaics will be the main pillars of energy generation. Power plants (based on hydrogen or bioenergy), storage facilities and flexible demand utilised if wind and photovoltaics are ever temporarily unavailable or not sufficiently available. The expansion of renewable energy is to be ensured for the long term. At the same time, constraints must be eliminated, in particular to give different electricity consumers the opportunity to react more flexibly to electricity price signals. Furthermore, the varied usage of generators, storage and demand play across different local and regional areas plays an increasingly important role in balancing wind and photovoltaics, and in ensuring stable operation of the grid.

^{Four fields of action for a climate-neutral electricity system}

This does however mean that the resulting need to adapt the design of the electricity market must be made much more concrete and implemented. In the interest of facilitating these changes, the Federal Ministry for Economic Affairs and Climate Action has released the publication ‘Electricity market design of the future’. The publication is largely based on discussions that took place on the Climate-Neutral Electricity System Platform (PKNS), picking up on the options for action discussed there and further developing these in new directions. It serves to consolidate the discussion around concrete options for certain fields of action, and also issues concrete recommendations for others.

Options can be divided into four key fields of action, in line with how they were discussed by involved parties on the PKNS. They span the investment environment for renewable energies, controllable capacities, locational signals and demand-side flexibility.