The German government has today published a draft new electricity market law, with stakeholders invited to comment by the end of September. The draft law guarantees competitive price formation without regulatory intervention and provides stronger commercial incentives for market participants to balance generation and consumption. Aimed at enhancing security of supply, the law would restructure the current design of electricity markets, which currently remunerates energy actually produced but does not guarantee separate payments for capacity. The draft law builds on the government’s Green and White Papers, which in turn draw on two studies prepared by Frontier (Europe).

The draft law also supports Germany’s target to reduce CO2 emissions from the power sector by an additional 22 million tonnes per annum by 2020, by introducing a ‘capacity and climate reserve’. To implement this, the law proposes that 2.7 Gigawatts of high-carbon lignite plants are forced to enter an already-planned strategic reserve before closing down entirely. This would mean the government can avoid introducing a carbon levy on existing coal-fired power plants, in line with the recommendation in a Frontier study for IG BCE and BDI. The European Commission is currently reviewing the compatibility of the law with its recent Guidelines on State Aid in the Energy Sector.

Frontier (Europe) regularly advises private companies, public institutions and regulators on the design of European electricity markets and on issues related to climate change.

For more information, please contact Miriam Rau at m.rau@frontier-economics.com or call +49 221 337 131 00.