Electricity market design for 100 % renewable energy in Germany – Challenges and solutions

Abstract

The transition to a renewable energy system poses several challenges for electricity market design. This paper examines the structural changes required to accommodate a fully renewable-based electricity system in Germany, emphasising the integration of renewable energy sources, dispatchable power plants, and flexibility options regarding dispatch, investment, and localisation. We provide a broad overview of prospective measures to support such an energy system. We identify nine main challenges and seventeen solutions, conduct a strengths and weaknesses analysis for the solutions, identify the relevance of the challenges, and how well they can be addressed by the solutions. Renewable investment is analysed in greater depth since a steady increase of RES installations is central to the transformation, and as the share of renewables grows, additional challenges arise. Uncertainty surrounding future electricity prices remain significant, with current investments already reflecting an almost complete renewable system. Two pending regulatory decisions in particular contribute to these uncertainties: Bidding zone allocation and subsidies for hydrogen prices. The paper concludes that while current approaches tackle several market design challenges, further research is needed to enhance investment in renewables, flexibility options, and dispatchable resources.