Chapter 7 - From Niche to Mainstream: The Evolution of Renewable Energy in the German Electricity Market

Abstract

This chapter examines the effect of a growing share of electricity from renewable resources in the context of the current competitive electricity market on two dimensions. First, in operational terms, renewables affect the supply–demand balance and should therefore react to market signals to the extent possible. Second, the large-scale integration of intermittent renewables exacerbates the “missing-money problem” in generation investment and the efficiency of an energy-only market. The integration of renewables both in terms of support schemes and market design including the debate on introducing a capacity mechanism in Germany are discussed. The chapter suggests moving beyond the current debate about feed-in tariffs—with no market integration—to a quota system—with full market integration. The need for introducing a capacity mechanism to address generation adequacy in a world where the role of conventional generators shifts toward providing reserves instead of significant amounts of energy is also examined.