Ministerial Draft for Electricity Market Reform Bill: Electricity Market 2.0, Capacity Reserve, Climate Reserve & More

Various newspapers have started to published initial information on a ministerial draft for the new Electricity Market Act (Strommarktgesetz). The draft contains many elements from the the White Paper presented at the beginning of July and the government agreement of early July. It rejects proposals to introduce a capacity market, and instead relies on the concept of an “electricity market 2.0”, with additional capacity, climate and grid reserve mechanisms to secure generation adequacy.

1. No Capacity Market

A reserve capacity market alongside the electricity market to maintain the security of supply reportedly shall not be set up, as previous statements by the ministry and Minister Sigmar Gabriel (SPD) had already indicated. Instead, the Act for the Further Develompment of the Electricity Market (Gesetz zur Weiterentwicklung des Strommarktes – Strommarktgesetz) will built on the existing electricity market, with some modifications, therefore calling it “electricity market 2.0” (“Strommarkt 2.0”).

A capacity market would have helped in particular operators with conventional power plants like the major utilities E.ON, RWE, Vattenfall and EnBW as well as several municipal utilities. As their plants can predictably deliver power, they would have received payment alongside their electricity revenues in a capacity market to ensure that energy was delivered whenever needed if other sources like renewable power plants were unable to satisfy demand. These payments would have been a welcome source of income for conventional power plant operators that suffer from falling energy prices at the energy exchanges and do not receive state support like renewable power plant operators do in Germany under the Renewable Energy Sources Act (EEG). The EEG foresees a staggered increase of renewable energy up to 2050 (cf. Section 1 para. 2 EEG 2014).

2. Capacity and Climate Reserves

To ensure security of supply the government wants to establish a capacity reserve mechanism outside of the electricity markets containing different elements:

  • The reserve mechanism shall consist of a capacity reserve and a climate reserve, built from a so-called capacity segment and a climate segment.
  • The capacity segment shall come from all types of generation units, regardless of power source.

The climate segment shall consist of lignite fired power plants with a capacity of 2.7 GW, for 4 years. If a review in 2018 shows that the government’s goal to save an additional 12.5 million tonnes of CO2 by 2020 cannot be reached with the above, the operators of lignite-fired power plants have to submit a joint proposal to the government outlining how they intend to save an additional amount of 1.5 million tonnes of CO2 annually as of 2018. If a joint proposal will not be submitted in time, the Federal Ministry for Economic Affairs and Energy shall have the right to include more installed capacity in the the climate segment.

3. Grid Capacity Reserve Extended

In addition to the capacity and climate reserves, the current provisions for grid reserve shall be extended beyond 2017, with revised cost compensation rules. The grid reserve shall also be outside of the electricity market and shall include plants that have been earmarked for closure by the network operators, but have been classified as system relevant.

4. Further Information

The draft Electricity Market Act is quite comprehensive and contains many more and presumably most important changes to the current German electricity market regime. As ministerial drafts are typically not officially published and as the draft is not yet widely available, it will take some more time until further details of the proposal will be known and discussed more widely.

Source: Zeit Online/dpa

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