EU Commission publishes proposal for reform of electricity market design - The changes and effects for storage

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Yesterday evening, the EU Commission adopted the long-awaited legislative proposal for Reform of electricity market design published. The focus there is on changes in the market design for renewable energy sources and for secure generation capacity, which aim to improve resilience to energy price shocks and competitiveness while ensuring the social compatibility of electricity. In addition, the EU Commission is also proposing to press ahead with investments in energy storage and demand-side response solutions (DSR) through a stronger focus on future-oriented, long-term protection instruments and creating a demand for flexibility services. The Commission is thus placing a whole new focus on energy storage and the use of consumption-side flexibility in Europe.

The role of storage systems for the future European energy system is clearly stated. For example, the EU Commission is reflecting on current challenges such as energy price peaks 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."

So what specific changes are being proposed for energy storage systems and how do they affect storage systems in Germany?

The EU Commission's proposal relates 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 systems lies in the new Articles 19c to 19f, which the Commission intends to incorporate into the Internal Electricity Market Regulation. Here is what these new articles say:

-Art. 19c - Assessment of flexibility needs: Every two years, for the first time by 01.01.2025 at the latest, the national regulatory authorities (in Germany, the Federal Network Agency) should submit a report in which the need for flexibility options to integrate renewables into the power grid is analyzed and precisely determined. In particular, the potential of storage and demand-side response (DSR) should be considered. The necessary data should be provided by transmission and distribution system operators.

-Art. 19d - National objectives for DSR and storage: Based on the assessment in accordance with Art.19c, the member states should determine an indicative, national target value for the expansion path of DSR and storage, which must be set consistently with national plans for climate protection and the expansion of renewable energies.

-Art. 19e & Art. 19f - Conveyor systems for flexibility: Member States that apply capacity mechanisms should design them in such a way as to ensure the involvement of non-fossil flexibility options such as storage and DSR. States that do not use capacity mechanisms are also required to create funding systems that consist of payments for the available capacity of non-fossil flexibility if they do not otherwise achieve the growth goals for flexibility.

By adding to these articles, the European Commission is sending a strong signal for the development of storage systems in Europe and acknowledges their role in the electricity market. It calls for binding national goals for the expansion of storage facilities and describes the possible tools to ensure that goals are actually achieved.

In this way, the proposal also strengthens the binding nature of the statements made in the German network development plan. In principle, Germany already has a statement from the Federal Network Agency on the amount of necessary expansion of storage and DSR, as required in the new Art. 19c. This is the approval of the scenario framework for the as yet unpublished Power 2037/2045 network development plan, which was issued by the Federal Network Agency in July last year. There, for 2037, an output of PV battery storage systems of 67.4 GW and an additional output of large battery storage systems of 23.7 - 24.2 GW was set in order to support the network expansion necessary to achieve the climate goals.

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 should not be written down figures. The forecasts should be followed by responsibilities and, in particular, measures to achieve goals. The 23.7 GW is therefore mandatory until 2037.

And this is exactly where we currently see a need for action, because with the current regulatory framework, we will not achieve the expansion goals in Germany. On the contrary, the Federal Network Agency in particular seems to be 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 objective? What specific measures are being considered? Two questions that have not yet been answered.

In order to avoid (too) late and expensive additional taxes as far as possible, the Federal Network Agency and legislators should in any case remove the existing hurdles that are currently slowing down storage expansion in Germany: For example, the construction subsidy is still massively restricting the development of storage capacities in Germany and must be eliminated immediately for storage.
At the same time, the transitional regulation to exempt battery storage systems from the grid charges will end in 2026. Without sequential regulation, the further expansion of battery storage systems in Germany would then come to a complete standstill. The issue is already urgent, as implementation times of storage projects are often in the range of over three years and are therefore no longer certain whether the network fee exemption will be maintained. As a first step, an extension of the time limit, for example by five years in the next amendment to the EnWG, would probably be sufficient to calm the situation and at the same time create time for long-term regulation and for clarifying the competencies between the Ministry of Economics and the Federal Network Agency.

Finally, local markets must be established quickly for flexibility so that storage systems can fully exploit their network-serving properties when integrating renewables ("benefits instead of adjustments") and secure their revenues. After all, it is not just the sheer amount of storage that matters, but also the correct positioning in the network. Redispatch on a cost basis, as is currently being operated, does not create any investment incentives to increase flexibility at the neuralgic network nodes and must be replaced by a market-based process, at least for storage. Such a procedure is already laid down throughout Europe in the Internal Electricity Market Regulation.

All of these points are absolutely in line with the EU Commission's proposal. Because it is clearly stated there that member states have a great deal of room for manoeuvre as to how they want to achieve the binding targets for storage expansion. It is also clearly regulated there that additional funding for storage facilities will be inevitable if the expansion goals are not achieved overall - be it because the existing hurdles have not been sufficiently reduced or because there is still no sufficient willingness to invest in storage even after the hurdles have been removed. Capacity markets and subsidies for storage can, but do not have to, be part of the solution as long as the overall expansion is successful.

The EU Commission's proposal therefore does not turn the existing regulations on their head with regard to storage, but it creates additional binding obligations when expanding storage facilities and thus also increases pressure at national level to quickly remove existing hurdles. Otherwise, it is already clear that upgrading to the targeted 67.4 GW of PV home storage systems and at least 23.7 GW of large battery storage systems by 2037 is 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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