The German Federal Ministry of Economics (BMWi) today published a study by Frontier Economics and engineering consultancy BET on the implications of introducing a dynamic renewable energy levy in Germany.

In Germany, renewable promotion is currently paid for by electricity consumers through a per kWh surcharge on electricity taken from the grid – the ‘EEG levy’. In order to incentivise additional demand-side flexibility and improve security of supply, a dynamic surcharge has been proposed by, among others, the German policy think tank Agora Engergiewende. This would see the EEG linked to the wholesale power price, resulting in a higher levy if wholesale power price is high, and vice versa.

In the study for the BMWi, Frontier and BET find that the proposed dynamic EEG levy would significantly increase market risk for affected stakeholders and substantially distort the market for flexibility services. The authors instead recommend an alternative approach that only targets hours when wholesale electricity prices are low. In these periods, the current static EEG levy creates a distortion, encouraging auto-generators to operate for own consumption and discouraging sector coupling applications such as power-to-heat. A lower EEG levy in these hours would incentivise purchasing electricity from the grid, and help to integrate high shares of renewables into the generation mix.

Frontier regularly advises public and private sector organisations across Europe and globally on policy development, market design and security of supply issues in the energy sector.

For more information, please contact Miriam Rau at m.rau@frontier-economics.com or call +49 221 337 131 00.