Yesterday evening, the EU Commission published the long-awaited legislative proposal for the reform of the electricity market design was published. The focus there is on changes to the market design for renewable energy sources and for secured generation capacity, which aim to improve resilience to energy price shocks and competitiveness while ensuring the social acceptability of electricity. Alongside this, the EU Commission also proposes to drive investment in energy storage and demand-side response (DSR) solutions through a greater focus on forward-looking, long-term hedging instruments and demand creation for flexibility services. In doing so, the Commission is putting a whole new focus on energy storage and the use of consumption-side flexibility in Europe.
The role of storage for the future European energy system is clearly stated. The EU Commission reflects current challenges such as energy price spikes and extreme price fluctuations on the electricity markets as follows:
"The recent price volatility has also highlighted the lack of flexibility in the electricity grid, with prices set too often by gas and with a general lack of low carbon flexible supply, demand response and energy storage. As more wind and solar power enter the system, storage in particular will be needed to balance the variable supply with variable demand."
The EU Commission's proposal refers to and supplements the existing EU Internal Electricity Market Regulation 2019/943 and the Internal Electricity Market Directive 2019/944. The core of the proposed changes for storage facilities lies in the new Articles 19c to 19f that the Commission intends to include in the Internal Electricity Market Regulation. Here's what these new articles say:
-Art. 19c - Assessment of flexibility needs: Every two years, for the first time no later than 01.01.2025, the national regulatory authorities (in Germany the Federal Network Agency) are to submit a report analyzing and precisely determining the need for flexibility options to integrate renewables into the power grid. In particular, the potential of storage and demand-side response (DSR) is to be considered. The necessary data is to be provided by the transmission and distribution grid operators.
-Art. 19d - National targets for DSR and storage: Based on the assessment under Art.19c, Member States shall determine an indicative national target for the expansion path of DSR and storage to be set consistently with national climate change mitigation and renewable energy expansion plans.
-Art. 19e & Art. 19f - Support schemes for flexibility: Member States that apply capacity mechanisms shall design them in a way that ensures participation of non-fossil flexibility options such as storage and DSR. States that do not use capacity mechanisms are also required to establish support schemes consisting of payments for the available capacity of non-fossil flexibility if they do not otherwise meet the flexibility growth targets.
By adding these articles, the European Commission sends a strong signal for the development of storage in Europe and recognizes the role it plays in the electricity market. It calls for binding national targets for the development of storage and describes the possible tools to ensure that the targets are actually met.
The proposal also strengthens the binding nature of the statements made in the German network development plan. This is because a statement by the Federal Network Agency on the level of the necessary expansion of storage facilities and DSR, as required by the new Art. 19c, already exists in principle in Germany. This is the approval of the scenario framework for the not yet published network development plan for electricity 2037/2045, which the Federal Network Agency issued in July of last year. There, a capacity of PV battery storage of 67.4 GW and, in addition, a capacity of large-scale battery storage of 23.7 - 24.2 GW was specified for 2037 to flank the grid expansion necessary to achieve the climate targets.
Under European law, this expansion of storage facilities must now also be validated. The EU makes it clear that information such as the forecast of storage expansion in the network development plan must not be just numbers written on paper. The forecasts should be followed by responsibilities and, above all, measures to achieve the targets. This means that the 23.7 GW by 2037 are binding.
And this is precisely where we currently see a need for action, because we will not achieve the expansion targets in Germany with the current regulatory framework. On the contrary, the Federal Network Agency in particular seems to be only gradually becoming aware that storage facilities can and must make a decisive contribution to a climate-neutral energy system. The EU Commission is putting its finger in the wound here: What strategy is the state pursuing to achieve the target? What concrete measures are envisaged? These are two questions that have not yet been answered.
In order to avoid (excessively) late and costly adjustments, the Federal Network Agency and the legislator should remove the existing hurdles that are currently slowing down the expansion of storage in Germany as quickly as possible: For example, the construction cost subsidy is still massively restricting the development of storage capacities in Germany and should be abolished immediately for storage facilities.
At the same time, the transitional regulation on the exemption from grid fees for battery storage systems will end in 2026. Without a follow-up regulation, the further expansion of battery storage in Germany would then come to a complete standstill. The issue is already urgent now, because storage projects often take more than three years to implement, which means that there is already no certainty that the exemption from grid charges will be maintained. As a first step, an extension of the time limit, e.g. by five years, in the next amendment to the EnWG would probably be sufficient to bring some calm to the situation and at the same time create time for a long-term regulation and for clarifying the competencies between the Ministry of Economics and the Federal Network Agency.
Finally, local markets for flexibility must be established quickly so that storage facilities can fully exploit their grid-serving properties in the integration of renewables ("use instead of shutdown") and secure their revenues. Ultimately, it is not only the sheer quantity of storage that matters, but also its correct positioning in the grid. Redispatch on a cost basis, as it is currently operated, does not create any investment incentives to increase flexibility at the neuralgic network nodes and must be replaced by a market-based procedure, at least for storage facilities. Such a procedure is already laid down throughout Europe in the Electricity Market Regulation.
All these points are absolutely in line with the EU Commission's proposal. This is because it clearly states that member states have a great deal of leeway as to how they want to achieve the binding targets for the expansion of storage facilities. It also clearly states that additional subsidies for storage facilities will be unavoidable if the overall expansion targets are not met - either because the existing hurdles have not been sufficiently removed or because there is still insufficient willingness to invest in storage facilities even after the hurdles have been removed. Capacity markets and subsidies for storage can, but need not, be part of the solution as long as overall expansion is successful.
The EU Commission's proposal does not turn the existing regulations on their head with regard to storage, but it does create additional binding force for the expansion of storage and thus also increases the pressure at the national level to quickly remove existing hurdles. Otherwise, it is already clear that an expansion to the targeted 67.4 GW of PV home storage and at least 23.7 GW of large-scale battery storage by 2037 will be a major challenge. It is to be hoped that the ideas of the EU Commission will now meet with political approval and will soon be translated into binding European law.
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