The document discusses Germany's ambitious targets for reducing greenhouse gas emissions and increasing renewable energy and energy efficiency by 2050. It notes that achieving these targets will require significant shares of electricity to come from renewable sources like wind and solar. This presents challenges for integrating renewables into the electricity system and market. Policies to address this include reforming electricity markets and the renewable energy support system to better integrate renewables. Infrastructure must also be upgraded through new transmission and distribution networks. Experience shows that unbundling electricity utilities and establishing independent system operators and regulators helps enable major infrastructure investments and planning.

1. The Future Perspective of the
Electricity Market –
Unbundling and Market Integration:
A German Perspective
International Symposium
“Towards YR2030 and Beyond”
Japan Renewable Energy Foundation (JREF)
Dr. Felix Chr. Matthes
Tokyo, 6 September 2012

2. The German context: Energiewende
Ambitious and long term targets
GHG Renewable Energies Energy efficiency Nuclear
emissions Gross final Power Primary Space Final Power power
consump- generation energy heating Energy consump-
tion tion
2011 -41%
2015 -47%
2917 -54%
2019 -60%
2020 -40% 18% 35% -20% -20% -10% -10%
2021 -80%
2022 -100%
2030 -55% 30% 50%
2040 -70% 45% 65%
-80 to
2050 60% 80% -50% -80% -40% -25%
-95%
Base
1990 2008 2008 2005 2008 2010
year
Source: BReg (2010/2011)

3. Significant share of renewables
It’s reality
Transparency data
for power generation
Day ahead prognosis
6 September 2012
•A sunny, low-wind day
•Renewables share
at noon ~ 40%
Source: EEX Transparency Platform

4. Power generation from renewables
Challenges & policy approaches
600
Main Challenges
Take-off, technology, cost cuttings System & market integration Storage System services
European Integration
500
Main policies
Financial support scheme (FiT) Market design (conventional & renewables & storage)
Obligation for network connection Enabling framework for massive infrastructure roll-out (T & D & S)
Priority network access European convergence
400
National targets
TWh
300 Historical data Binding target (EU)
Geothermal
Waste (biogenic)
200
Landfill gas
Biomass
Photovoltaics
100 Wind - offshore
Wind - onshore
Hydro
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Source: BReg (2012), Öko-Institut (2012)

5. Medium- and long-term challenges
for system & market integration (1)
• The recent German support scheme (Feed-in Tariff) was the key
policy for the take-off phase
 Fixed and long-term feed-in tariffs, based on costs
 Obligation for connection to the (existing) network
 Priority access to the network and the market
• The next phase will require a broader policy approach
 Today’s liberalized (EU) electricity (energy only) market creates
neither a solid basis for integration of renewables nor a sufficient
economic framework for the necessary conventional investments
• Price formation based on short-term marginal costs
(~0 for wind & solar)
• No long-term contracts
• No capacity markets/payments
 Market integration of renewables requires a reform of todays
power markets and a (stepwise) reform of the support scheme

6. Medium- and long-term challenges
for system & market integration (2)
• The next phase will require a broader policy approach (ctnd)
 Significant shares of renewables require new approaches to
infrastructure design, operations & development
• Massive upgrading of transmission and distribution networks
is necessary (= significant investments)
• Unbiased network operators
 In planning processes
 With regard to the necessary (long-term) investments
 Within network operations (access, system services etc.)
• Independent regulators with a clear mandate
 Creating an enabling framework
 Avoiding abuse of market power from infrastructure
monopolies
• This presentation is about infrastructure integration only.
However, market integration is another challenging issue

7. Recent phase of infrastructure integration
benefited from EU market liberalization
• EU market liberalization
 First package (1996): opening national markets
• Networks: legal, functional and accounting unbundling for
TSOs and DSOs (>100,000 customers)
 Second package (2003): further opening of national markets,
regulation of cross-border trades
• Networks: legal, functional and accounting unbundling of
TSOs and DSOs (>100,000 customers)
 Third package (2009): development of regional/European
markets, institutions for European co-operation, European
guidelines and network codes
• Transmission Networks: ownership unbundling for TSOs or
Independent System/Transmission Operator (ISO/ITO)
• Distribution networks: legal, functional and accounting
unbundling for DSOs (>100,000 customers)
• High-standard medium-term network planning

8. Rapidly changing structures in the
German electricity supply system
• Starting point
 Four major vertically integrated utilities (generation,
transmission, distribution, sales): RWE, E.ON, Vattenfall, EnBW
 Regional & municipal vertically integrated utilities
• Recent status
 Four major unbundled utilities
• Separate entities for generation and sales
• Unbundled transmission system
 Full ownership unbundling: 50 Hertz (formerly Vattenfall),
TenneT (formerly E.ON)
 Partly ownership unbundling: Amprion (formerly RWE
which still owns 25%)
 No ownership unbundling: Transnet BW (formerly EnBW
which still owns 100%)
 Regional & municipal utilities, the larger ones legally unbundled

9. Experiences from unbundling
The German case
• The German government and significant parts of the German
electricity industry opposed all mandatory unbundling
provisions when the respective EU legislative proposals were
discussed
• Ironically, German utilities often went beyond the minimum
requirements for unbundling, after these has been approved
• What has changed since further steps of unbundling were
implemented?
 Much more unbiased activities, network companies are a more
accepted and reliable partner for policy
 Significantly more investments in network infrastructure
 Network companies became a key player on medium- and long-
term infrastructure planning with broad and intensive
consultations of assumptions, methodologies and results
• However, this results from the structure of the network
companies as well as a (new) effective regulatory body

10. Infrastructure planning in Germany
The recent Network Development Plan
Source: NEP 2012 as of August 2012, www.netzentwicklungsplan.de

11. Power system structures
Lessons learned
• An ambitious and comprehensive support scheme for
renewables (financing, network connection, dispatch) as
primary instrument is key for the take-off phase
• Beyond the take-off phase broader approaches are essential
 More complex financing for renewables is essential to optimize
investments and operations
 Creating market structures which are more appropriate
 Creating an infrastructure industry (transmission and distribution)
• which is supportive for infrastructure upgrades and roll-out
• which has an self-interest in infrastructure investments and
the ability for implementation of these investments
• Far-reaching (ownership) unbundling has been effective
 Creating an effective regulatory body
• Effective oversight on infrastructure monopolies
• Effective planning for major infrastructure upgrades & roll-out

12. Thank you
very much
Dr. Felix Chr. Matthes
Energy & Climate Division
Büro Berlin
Schicklerstraße 5-7
D-10179 Berlin
f.matthes@oeko.de
www.oeko.de