Reform of the European electricity market – THEMA hosts expert discussion

Five panellists—representing industry, think tanks and government—discussed what is needed to realise a fully renewable electricity system at a panel discussion hosted by THEMA and EWE: 1. Incentivising rapid, large-scale investment 2. Ensuring flexibility 3. Coordinating planning across countries and technologies, and 4. Securing energy supplies

Panel discussions can, at times, be a dull affair, with panellists reiterating their oft-heard talking points without any discussion taking place. Sometimes, however, the stars (or panellists) align just right and a two-hour discussion flies by in no time at all. This is what happened on THEMA and EWE´s recent panel discussion, on October 13th. Overall, the discussion underscored the need for rapid, deep changes to our electricity system.

The five panellists – including representatives from government, business and think tanks – debated the most urgent reforms needed to achieve a fully renewable electricity market in Germany and the EU. The panellists were:

  • Volker Oschmann, Director of Electricity at the German Federal Ministry for Economic Affairs and Climate Action
  • Vera Brenzel, Director of Political Affairs and Communication at TenneT,
  • Torsten Maus, CEO of EWE NETZ GmbH, (distribution system operator in northern Germany)
  • Simon Müller, Director, Agora Energiewende Germany,
  • Georg Zachmann, Senior Fellow at Bruegel

They were joined by an audience of invited energy experts at EWE’s offices, adjacent to Berlin’s iconic Brandenburger Tor, to discuss the pressing reforms needed to German and European electricity markets. THEMA’s entire staff was also in attendance, being in Berlin for a corporate strategy event.

While, outside the windows, the festival of lights painted colourful visions of the future on the Brandenburger Tor, inside, the ongoing invasion of Ukraine and the subsequent energy crisis cast a shadow over proceedings. Despite this, the discussion produced a detailed assessment of the necessary features of the response.

Also driven by questions from the audience, the panel identified and discussed a plethora of small and large challenges. For instance, the current permitting regime is grounded in the idea that the status quo is a worthy fallback position, a premise that is no longer true. At the same time, we don’t just need a lot of new transport, storage and generation infrastructure, we also need this new infrastructure to be appropriately located and resilient to cyber and physical attacks. Meanwhile, Europe is slowly drifting apart in terms of subsidy schemes and price protection measures, threatening to undermine the common energy market and thereby severely endangering security of supply. Rather, better means of coordination and cooperation are needed to succeed in tackling the challenges ahead.

The panellists agreed on four principles that ought to form the cornerstones of efforts to solve the current and prevent future energy crises:

  1. Build as much as possible, as quickly as possible: The status quo is no longer a viable situation. We need to incentivise investments into the grid, renewable power generation and all sorts of flexibility options.
  2. Build flexibility: Flexibility deserves particular emphasis, despite forming part of the infrastructure needs above. The German Ministry for Economic Affairs estimates that 60 GW of flexible hydrogen-fueled power plants will be needed in Germany alone. Grid capacity will need to be expanded in addition and, as part of this, grid operators ought to be given some influence over demand and generation levels in their grids. EWE explained that activating just 5% of the grid’s demand flexibility in their distribution grid would effectively double the grid´s ability to integrate intermittent renewable generation. Stronger focus on local price signals would be a good way to reward and incentivise flexibility, including across national borders.
  3. Integrate planning: The challenges we face cross national borders, energy carriers and infrastructures. Therefore, the solutions being developed need to be thought about across all of these dimensions. In practical terms: (i) thinking about grid plans and price caps only at the national level will increase costs and emissions; (ii) hydrogen and electricity must be thought about together—hydrogen pipelines might be more efficient in transporting energy from north to south Germany; (iii) grid reinforcement decisions need to be linked to decisions on RES development. All too often in Germany, grid reinforcement only occurs long after congestion has become critical. The system should seek to prevent congestion in the first place rather than depending on it for investment incentives.
  4. Energy security: Russia is at the forefront of everybody´s mind when it comes to energy security. Since the start of Russia´s invasion of Ukraine, German imports of solar panels from China have increased sharply. However, relying on Chinese turbines and solar panels is creating another source of supply risk. As the head of the German security agency BND recently put it: “Russia is the storm, China is climate change.” The EU should build on its well-developed climate plans to promote its industrial energy policy (cf. the US Inflation Reduction Act.), thereby ensuring that those elements critical to energy security can be supplied from within the EU. Several of the panellists also underscored the need for the power infrastructure to be guarded against cyber-attacks.

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