Electricity Market Design

Study Program
“New allocation of roles and business segments of established and new participants in the energy sector –
currently and within a future electricity market design”

Duration: May 2016 – November 2017

For the success of an energy transition not only technological preconditions, but also a societal transformation (also shown by institutional adaptation and innovation) is necessary.  Important drivers of a long-run transition of the energy system are sub-national entities (regions or municipalities), which, like in Germany, often follow more ambitious targets compared to national institutions and could function as lighthouses. The opportunities and challenges for the development of sub-national entities, but also established energy companies depend heavily on the national frame conditions especially on the current and future electricity market design. Therefore, it is crucial to discuss the role of established and new participants in the energy sector within the context of the specific and different national framework conditions (particularly the electricity market design and the corresponding legislation and regulation) in Japan and Germany.

Title ST3

In Germany, renewable energy is going to provide the majority of the energy supply: The 2010 energy concept of the German Federal Government set the targets for a share of renewable energy in gross energy final consumption of 30% in 2030, 45% in 2040, and 60% in 2050. For electricity, the 2050 target is even a share of 80%.

In Japan, currently there are vertically integrated regional monopolies in electricity supply. However, a stepwise liberalization is on its way. Additionally, under Prime Minister Shinzō Abe nuclear energy plays an important role. Plans also include an increase in the share of renewable energies.

Along with the increasing relevance of renewable energies, and among them a high share of fluctuating electricity generation, especially from wind and photovoltaics, the requirements for the energy market regulations and electricity market design can be different according to different political and geographical conditions in Germany and Japan. It should be analysed how these changes can influence the role of new and established participants in the energy sector.

Main tasks

  1. What is the status and the planned development of national framework conditions in both countries especially for the electricity market design influencing the role and business segments of established and new participants in the energy sector?
  2. Which technical and economic challenges for a new electricity market arrangements and designs are to be expected in the coming years and how to react on these challenges?
  3. What are existing societal non-technical challenges and legal framework conditions regarding a decentralized energy market for Japan and Germany, so that new actors receive fair participation opportunities and can develop their business models?
  4. Depending on the energy market design, which are the challenges, opportunities and risks that sub-national entities (states, prefectures, cities and other municipalities) face?
  5. How can the acceptance of and participation in measures of energy and resource efficiency (including concepts like Smart Cities) in the cities, as important development and implementation centres, be fostered.
  6. Financial contribution of the citizens is an important step toward the transformation of the energy system. Which citizen financing models are already available in both countries and how can they developed further?

Key findings

ST3-2 Bsp

  1. While Germany has longer and deeper experience in the restructuring of electricity markets, in the German case triggered by the liberalization of the EU’s electricity system, both countries face similar challenges for the electricity market design of the near future.

  2. These challenges concern a robust economic basis for the electricity system, which addresses the (1) coordination of a more decentralized system with significant shares of variable wind and PV generation and significant needs for flexibility options, (2) the payback of investments in a system, which is characterized by very low short-term marginal costs, (3) the need for an integration of the power, heat and transport sectors, and (4) the need for an appropriate regulatory framework to trigger the necessary grid adjustments.

  3. New business and consumer concepts, such as prosumers, municipal utilities, and energy cooperatives, provide opportunities.

Discussion Papers

“The costs of integrating variable renewables in a transforming power system”
Authors: S. Mocker, D. Pescia, P. Graichen (2018)

“Nuclear power in Europe is not competetive nor required” (PPT)
Authors: C. Kemfert, C. von Hirschausen, C. Lorenz, C. Gerbaulet, P. Oei, B. Wealer (2018)