- Study by Frontier Economics and GE Gas Power evaluates current power market design and associated risks against climate target and energy security objectives
- Findings focus on need of rapid investments in decarbonized gas turbines as backup capacity to complement growing shares of renewables on a path to net zero
- Recommendations include the need to increase transparency and liquidity in the current market design and implementation of remuneration for system adequacy
Berlin, Germany – Frontier and GE Gas Power today released a study “Achieving generation adequacy within the German power market” in which the risks to ensuring generation adequacy are assessed. The paper evaluates the medium- and long-term needs for controllable thermal backup power plant capacity, analyses the factors that currently hamper investment decisions and provides recommendations for the development of a power market design for system adequacy.
Germany’s goal of climate neutrality by 2045 presents significant challenges to the energy system of the future. The accelerated electrification of sectors such as mobility, heat and industry will drastically increase the need for electricity. The increasing demand in combination with a growing share of variable electricity generation puts high pressure on the power system adequacy in Germany, while the current highly uncertain market environment hinders investments in the development of sufficient climate-neutral backup power plant capacities. Germany’s plans to phasing out nuclear in April 2023 and coal between 2030 and 2038 require a massive ramp up of dispatchable gas capacities that can run on hydrogen.
These capacities, however, are necessary for a secure electricity supply in a future climate-neutral electricity system. When coal power plants phase out, clean, thermal power plants will remain indispensable in a decarbonised power system to ensure generation adequacy. The estimates for thermal capacity additions needed by 2030 vary between 14 GW and 42 GW, while only 3.6 GW of gaseous-fuelled power plants projects (planned or under construction) were reported in 2021. Through hydrogen, these capacities may deliver immediate emissions reductions while cementing the trajectory to net-zero emissions.
Getting the capacities into the market on time is a challenge, which can only be ensured within a suitable power market design, the authors underline. To reduce uncertainty and facilitate investments in new generation capacity requires political leadership to provide adjustments and clarity on the market design. Set clear participation rules in the future European and German power market; maintain the marginal cost price, determine the remuneration elements for flexible generation technologies and ancillary services while ensure the availability of infrastructure and fuels is essential.
“The future market design has to provide the price signals to incentivise the investments for flexible and decarbonised capacities in time. For this, we urgently need a power market design which is fit for purpose and allows market participants to take investment decisions in due course. Without sufficient new dispatchable capacities, coal power plants will need to run longer, jeopardizing Germany’s decarbonization targets. GE is ready to support the transformation of the German electricity system and with our study we want to contribute to the development of the German power market design.” says Martin O’Neill, Vice President Strategy, GE Gas Power.
“We quickly need new infrastructures for a successful energy turnaround in Germany. This means new renewable energy sources but also new networks for electricity and green gases as well as new clean backup power plants. These plants will be important pillars backing up our energy system in times with low wind and low PV infeed. Batteries, pumped hydro storages, flexible demand and pooling of electric mobility can help bridging hours of low wind/PV infeed – but we also have to prepare for periods of low renewable energy sources availability which can last days or even weeks. Backup power plants are capital intense, long-lasting investments for which a reliable market framework and remuneration rules (beyond the level we have today) are required. Leaner and faster approval procedures, clear certification rules for green fuels as well as plannable access to network infrastructure to procure their fuels are also urgently needed,” says Dr. Christoph Gatzen, Director Frontier Economics.
The current energy crisis has induced a number of debates regarding the future power market design in Europe and Germany. Lean and streamlined regulation required to ensure that the availability of all needed infrastructures in electricity and hydrogen generation, and transmission are synchronised. Approval and permitting procedures must be clear and fast. Furthermore, it should be established as a long-term measure to support adequate investment planning therefore guarantee generation capacity additions.
