WIND + SUN = ELECTRICITY: Trends and developments in the electricity sector

The current political landscape in the context of the electricity sector is characterized by a high level of dynamism. Draft laws and strategies are being developed and regulatory framework conditions are being adapted to ensure an accelerated expansion of renewable energies and a functioning electricity system. The German target in the context of the electricity sector is no less than 80% of gross electricity consumption in 2030 to come from renewable energies.  The following newsletter (Dec. 23 - Jan. 24) is intended to provide a brief overview of the news in the context of the electricity sector with a focus on photovoltaics (PV) and wind in Germany and will be updated in each issue of E-News.

 
At the turn of the year, the Fraunhofer Institute for Solar Energy Systems ISE published an overview of energy sources in public net electricity generation for 2023 based on data from the energy-charts.info platform (see Figure 1). According to their analysis, renewable energies have reached a new high with a share of almost 60% (approx. 260 TWh) of net public electricity generation.  Wind energy plays a significant role with a share of 32% (approx. 140 TWh) of net public electricity generation. In contrast, electricity production from hard coal and lignite has fallen sharply. While PV expansion exceeded the political expansion target last year with over 14 GW, wind energy expansion fell short of expansion plans.

Figure 1: Public net electricity generation in Germany by energy source

Own representation based on pie charts for electricity generation | Energy Charts and data from bar charts for electricity generation | Energy Charts (as at: 01.02.2024). | Note: The chart does not show the import balance.

There was a significant decline in day-ahead exchange electricity prices between 2022 and 2023 (see Figure 2). In 2023, the average day-ahead exchange electricity price was € 95.18/MWh, which corresponds to a reduction of 60 % compared to 2022 (2022: € 235.45/MWh). In January 2024, the average day-ahead exchange electricity price was € 76.57/MWh.

This regulation has been tightened to the extent that no market premium will be paid for three consecutive hours with negative spot market prices.  In addition, a maximum bid volume of 20 MW applies again for subsequent tenders as part of the Federal Network Agency tender for solar installations in the first segment. This was raised to 100 MW for 2023.  On December 14, 2023, the Federal Network Agency also announced the maximum values for PV and wind in 2024. These amount to 7.35 ct/kWh for onshore wind energy tenders, 7.37 ct/kWh for solar installations in the first segment (ground-mounted) and 10.50 ct/kWh for solar installations in the second segment (rooftop). Without this new determination by the Federal Network Agency, the lower maximum values stipulated in the EEG would have applied again. The Federal Network Agency justifies its decision with the higher installation and operating costs of the systems, including the higher interest costs in the context of system financing.

On January 31, the Federal Network Agency also published the results of the tender for solar installations in the first segment from December 1, 2023. The tender was significantly oversubscribed: A total bid volume of 5,485,335 kW was submitted for a tendered volume of 1,611,087 kW. The average, volume-weighted award value was 5.17 ct/kWh and therefore significantly lower than the previous two tenders (March 23: 7.03 ct/kWh; July 23: 6.47 ct/kWh).

Further changes in the context of the EEG are also planned in the so-called „Solar Package I”, which was adopted by the German government in August 2023 and is intended to help accelerate the expansion of PV. A fraction of the draft bill was already adopted by the Bundestag in December last year. The other aspects of the draft bill are now to be discussed by the Bundestag in 2024.

In the context of the solar package and the strengthening of the domestic PV industry, the proposal to introduce resilience bonuses and/or tenders is also being discussed in public (cf. e.g. statement by the German Solar Industry Association or statement by the German Association of Energy and Water Industries). According to Handelsblatt, European PV producers once again approached the German government in January and called for the establishment of these.  As recently as mid-January, PV manufacturer Meyer Burger, for example, announced that it was planning to discontinue module production in Germany due to distortions on the European market (caused, among other things, by the high increase in production overcapacity in China) and wanted to focus on US production. However, the final decision on the closure is still pending and depends on the extent to which measures are taken by politicians to create fair competition.  In an interview with the ZDF morning show at the end of January, Federal Minister Robert Habeck emphasized that he was committed to maintaining European production and also addressed the additional tendering segment.
 
The European production of climate-friendly technologies (including PV and wind energy) is also an issue at EU level as part of the Net-Zero Industry Act (NZIA). The NZIA was introduced by the European Commission in March 2023 and aims to expand the EU production of technologies that are important in the context of decarbonization and to strengthen their resilience and competitiveness.  Since both the European Parliament and the European Council adopted their positions in this context at the end of last year, negotiations between the two parties are now underway. 

In the context of the provisional agreement reached by the Council and Parliament on the reform of the electricity market design in mid-December 2023, further progress has been made at European level. The fundamental objectives of the reform are to reduce the dependence of electricity prices on fluctuating fossil fuel prices, to protect electricity consumers from excessively high prices, to accelerate the expansion of renewable energy and to improve consumer protection. One focus of the reform is, among other things, the promotion of new renewable energy plants through so-called bilateral Contracts for Difference (CfD) or equivalent support mechanisms. The provisional agreement reached still has to be formally adopted by the Council and Parliament in a next step.

In addition, the Federal Ministry for Economic Affairs and Energy (BMWK) published an electricity storage strategy in December last year. This sets out both the current regulatory framework and areas for action to promote the market ramp-up of storage systems and their system integration. The further procedure in the context of the strategy provides for consultation with the industry. Corresponding comments could be submitted until mid-January 2024. 

The BMWK has also published the „System Stability Roadmap”, which sets out a „[...] roadmap for achieving secure and robust system operation with 100 percent renewable energy [...]” against the backdrop of the fundamental shift towards a climate-neutral electricity system. The roadmap was adopted by the German government on December 6, 2023.

In December 2023, the Federal Network Agency presented a key issues paper in light of the varying distribution grid costs and grid fees incurred across Germany in the context of the increasing expansion of renewable energies. The key issues paper proposes to relieve grid operators with very high costs due to the expansion of renewable energies by distributing the additional costs across Germany. According to the Federal Network Agency, the regulation is to be issued in the third quarter of 2024 in the context of the distribution of additional costs. It will therefore not be applied until the beginning of 2025 at the earliest. Comments could be submitted until the end of January.

The above news clearly illustrates the political dynamics in the electricity sector. It remains to be seen how the strategies and proposed legislation, e.g. in the context of the solar package, will continue to develop and to what extent this will change the regulatory framework for future renewable energy projects. An update on developments in the electricity sector will follow in the next issue of E-News.