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Study on the “Optimization of the Power Market Design” published: Power generation and consumers need to become more flexible

On behalf of the German Federal Ministry for Economic Affairs and Energy (BMWi), Connect Energy Economics has analysed options to optimize the power market design as part of the “Lead Study Power Market”. The now published results show that an evolution of the market and regulatory design is needed in order to increase the flexibility of the power market and to achieve a secure and cost-efficient power supply.

In order to balance the variable feed-in of wind and solar power, both conventional power plants and consumers need to become more flexible. An increase in flexibility can strengthen security of supply in situations with low feed-in and facilitate the market integration of renewable electricity (RES-E) at the same time. The costs of power supply decrease, when competition leads to the use of the most cost-efficient source of flexibility. The elimination of market distortions is therefore a central task in the evolution of the power market design.

These are the results of the analysis conducted by Connect Energy Economics in the report “Optimization of the Power Market Design”. The report constitutes the first part of the “Lead Study Power Market” commissioned by BMWi. The study identifies current barriers to flexibility in the power market and regulatory design and derives options to optimize the existing framework. For example, the design of wholesale and balancing reserve markets should facilitate the participation of RES-E and flexible consumers. Furthermore, suppliers and consumers should face an unbiased price signal. This requires an adjustment of the current structure of surcharges and tariffs. As a further important element the study analyses complementary measures to safeguard security of supply in the context of the flexibility requirements of the power market.

“Numerous optimization measures can be realised in the short and medium term. They are independent from basic decisions on the long-term power market design and can therefore be regarded as no-regret measures”, explains Dr. Marco Nicolosi, Managing Director of Connect Energy Economics.

As of now, the study “Optimization of the Power Market Design” is available here.

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