09/18/2013, Berlin

Recommendations for government action

BDEW presents newly elected German government with a solution for the further development of the en-ergy market

Introduce immediate direct marketing obligation for new plants in the scope of EEG reform / Energy market should be reorganised as a decentralised capacity market

The energy industry presents a solution for a sustainable energy market design. The ready-to-implement concept, which was crafted within the German Association of Energy and Water Industries (Bundesverband der Energie- und Wasserwirtschaft, BDEW), rests on two main pillars. Firstly, a fundamental reform of renewable energies must be undertaken. This reform builds on the existing market premium model but also further develops it whilst providing, at its core, for an obligation for new plants to market the electricity they generate directly. Secondly, a decentralised capacity market should be created by enabling guaranteed capacity certificates to be traded. Beyond that, a package of supporting measures is proposed in four other areas.

The solution was developed with the involvement and contribution of all company forms, sectors and stages in the value chain represented in the BDEW and unanimously agreed in a special meeting on 18 September. "Over the past months, many models were examined in the various BDEW committees. Small and medium-sized companies took part in the discus-sions, as did companies from the renewable energy sector", explained BDEW President, Ewald Woste.

The BDEW proposes a fundamental reform of the system of renewable energy subsidies to constitute the first pillar. "A successful realisation of the energy transition (Energiewende) in Germany, a role reversal between renewable energies and conventional power stations must be effected. Subsidy beneficiaries must become entrepreneurs," said Hildegard Müller, Chairwoman of the General Executive Management Board of the BDEW. The operators of new plants have to assume responsibility in the future both in the market as well as from a technical perspective. "Today, we simply expect renewables to produce electricity in an ecologically sound way. In future, they must do the same but reliably and cost-effectively. These are two new qualities, without which the renewable do not have future", continued Müller.

The BDEW would like to make a direct marketing obligation for electricity from renewable energy plants the very core of the reform of the German Renewable Energy Sources Act (EEG). The first step would be to intro-duce mandatory direct marketing in conjunction with a variable market premium. To support the direct marketing regime, BDEW proposes a shift from the current system whereby subsidies for renewable energies are granted for a fixed time period to one where subsidies are limited to a fixed volume. In the new system, there would no longer be any incentive to feed-in electricity at negative market prices; this increases subsidy efficiency.

The second step, as proposed by the BDEW, consists of a conversion to a fixed market premium. In the long-run, the premium would be determined in a competitive process, for example in the scope of an auction and on the basis of an expansion pathway for renewables, agreed between Federal and Land governments.

In addition, the industry envisages renewables increasingly assuming re-sponsibility for the technical operation of the electricity supply system. Op-erators should, for example, be obligated to equip their plants with compo-nents for power regulation and remote control. Finally, the reform model includes proposals for the synchronisation of the growth in renewables with the expansion of the network. This measure, like the direct marketing obligation, is a proposal for direct action and could be implemented by the new German government immediately.

The second pillar of the solution incorporates a new regulation of market conditions for conventional power plants. "As the profitability of the power plants decreases, industry analysis has shown that it is no longer self-evident that the key good, "guaranteed capacity" and thus security of sup-ply will be available. We want to ensure that conventional power stations will be able to market their reserve capacities in the future as an own product. We thus propose the rapid creation of the legislative basis for the introduction of a decentralised, competitively organised capacity market," explained Hildegard Müller.

On this market, guaranteed capacity from power stations would be traded in the form of so-called guaranteed capacity certificates. The partners in this market are, on the one side the electricity suppliers who will be able to offer their customers security of supply even as volatile renewable ener-gies form an ever greater share of energy generation. On the other side, conventional power stations and also storage facility operators, will offer virtual power stations and dispatchable renewable energy plants their ca-pacity which can be called upon when needed. "We do not want to have the capacity necessary for security of supply secured through subsidy but through an unbureaucratically organised and decentrally operating market place." said Müller.

Nevertheless, the necessary conditions for the transitional period must be set for the benefit of the further development of the energy market. Muel-ler: "For this reason, the government should, in the short term, introduce a strategic reserve with a regional component, as proposed by the BDEW and widely supported. The strategic reserve is urgently needed in any case, due to the current situation and the regulation through the Reserve Power Plant Ordinance. "Beyond that, we also need solid structures for the expansion of the necessary network infrastructure for the energy tran-sition." The BDEW also calls for a further development of the incentive regulation for the benefit of smart network expansion. In addition, a new regulation should be undertaken for network charges to afford a greater capacity focus and a limitation of avoided network charges to dispatchable generation capacities.

BDEW president Ewald Woste stressed that the last years for the entire energy industry have been characterised by a lack of focus. "The basic conditions for companies to be able to operate profitably are getting worse every month. The energy policy of the last few years has particularly had a market component. We expect the new Federal Government to take the expertise within the energy industry seriously and, on the basis of our pro-posals, to end the lack of focus in the energy policy debate.“


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