Lars Stephan’s Post

The German electricity market design is going to see fundamental changes in the coming month and years. Here's what it will mean for energy storage in Germany. 11 days ago, the German government kicked off a consultation on the country's future electricity market design. It is based on a stakeholder process called "the Climate-Neutral Electricity System Platform" that was started in February of 2023. Why does Germany need an electricity market reform? ⚡ Implementation of EU Market Design Reform ⚡ Lack of investments in dispatchable capacity ⚡ Current produce-and-forget renewable support not future-proof ⚡ Lack of flexibility in the power system What are the change proposals? Area 1: Investment framework for renewables 4 options presented 1️⃣ Adding claw-back to the current system 2️⃣ Production depended CfD 3️⃣ Production independend CfD 4️⃣ 🥇 Capacity payments with a production-independent refinancing contribution -> The solution preferred by the government My storage take: Clear shift of past. Renewables would receive support based on kW and full market exposure on optimizing revenue from generated kWh is on the renewable developer -> This could drive lots of co-location as energy shifting becomes part of renewable asset business cases. Area 2: Investment framework for dispatchable capacity (aka. capacity mechanism) 4 options presented 1️⃣ Peak Price Hedging (aka. RAM in CAISO) 2️⃣ Decentral Capacity Market (aka. French model) 3️⃣ Central Capacity Market (aka. UK, Poland, Belgium) 4️⃣ 🥇 Hybrid Model between Central and Decentral market (first in the world) My storage take: Can the German do anything the easy way? No. For all four mechanism I can see good and bad; it really depends on how the mechanisms are designed in detail (aka. de-rating factors). Paper clearly warns of need to avoid bad CM market design for storage, hence I'm positive that this can become a great new incentive for storage. Area 3: Local Signals 3 options presented 1️⃣🥇 Time-based/regionally differentiated network charges 2️⃣🥇 Regional signals in funding programs 3️⃣🥇 Integration of loads into the redispatch -> all to be implemented My storage take: What did take us so long? No direct impact for storage, but stronger local price divergence will make things interesting for optimizers. Area 4: (demand-side) Flexibility 3 options presented 1️⃣🥇 Implement time-variable and innovative tariff models 2️⃣🥇 Grid fees supporting system flexibility 3️⃣🥇 Increase industrial flexibility via grid fees -> all to be implemented My storage take: The options are just areas of activity, but no proposals yet. The government will come up with a Flexibility Agenda, and I would expect that energy storage will take an important role in this upcoming agenda. So what's next? - The consultation is open until September 6th - Legislative proposals for CM introduction in October - Other activities likely to take longer any might be postponed until after the election?!