Q&A: How will Germany support the expansion of renewables in future?

Developments which would dampen this so-called cannibalisation effect during renewable power generation peaks and ensure more stable market prices, such as increased means to consume electricity flexibly, and higher storage capacity, as well as the increase in electricity demand through the rise in electric cars and heat pumps for example, are policy developments which investors in future renewable capacities have no direct control over.

“While we expect market revenues to likely sustain the build-out of renewable energy systems in the coming years, precise forecasts are difficult,” Fabian Huneke, expert in the transition to a climate-neutral electricity system with think tank Agora Energiewende, told Clean Energy Wire. “To ensure projects are financed, planning certainty is important.”

In future, Germany should promote the “market-efficient” use of renewable installations and allocate new capacity “in a way that benefits the system”, according to a policy proposal paper from economy ministry (BMWK). This means that they are able to generate electricity at times when it is particularly valuable, which can be achieved with solar panels directed towards the morning or evening sun, wind turbines equipped with blades specialised for low wind speeds, or adding storage systems, for example.

Many renewable projects are reliant on subsidies and often do not react to price signals to reduce production when there is oversupply. These technologies, however, are slowly reaching a stage where they are ready to be integrated into the electricity markets fully, based on remuneration from market revenues only, without subsidies.

“We should keep the bigger picture in mind: renewable energies are key for climate neutrality in 2045. Looking forward, they require a safety net. Expensive support payments are a thing of the past,” Huneke explained. “This means we need a dynamic system, which on the one hand maximises market-driven expansion, but on the other hand is backed up by an investment framework to ensure stability in critical phases and security for long-term planning.”

Following a power market reform earlier this year, the European Union requires that, from 1 January 2027, new state-backed support mechanisms to promote wind, solar, geothermal, hydro and nuclear power need to include a repayment clause to avoid possible over-funding.

At times when expensive fossil power plants make it into the wholesale electricity market, they set the price for all producers (following the merit order principle). This means operators with low running costs (i.e. renewables) can make huge unexpected revenues, also referred to as “windfall profits“.

A clawback clause would set a ceiling on the amount of money new renewable installations can make if they receive state support, and any profits beyond this ceiling have to be returned to the state. New contracts following Germany’s Renewable Energy Act (EEG) support model, which include only a guaranteed feed-in tariff but have no cap, will no longer be allowed.

The EU made this a requirement in the wake of the energy crisis sparked by Russia’s war against Ukraine.

To promote the market integration of renewable energies, the new EU rules also state that direct support payments should not have a negative effect on electricity markets (day ahead, intra-day, balancing and ancillary power markets). Member states, therefore, need to implement additional regulations to reduce the effects that guaranteed support payments (that operators receive for the green electricity they feed into the grid) could have on renewable power plants’ decisions to generate electricity or not.

Renewable energy covered over half of Germany’s gross electricity consumption in 2023. The same year, installed renewable power capacity increased by about 17 gigawatts (GW) to a total of 166 GW. All the while, the number of hours with negative power prices is also on the rise at times of oversupply due to favourable conditions for wind and solar. When this happens, power plant operators pay consumers to use electricity, instead of getting paid to produce it. Between January and October 2024, Germany saw over 430 hours with negative wholesale electricity prices.