In order to meet the climate targets, it will be essential to defossilise the energy sector. However, it is not simply a case of meeting current electricity demand with renewable energy – the electrification of the industrial, heating and transport sectors will call for much larger quantities of electricity than are available today.

This combination of rising electricity demand and an increasingly renewablesbased supply poses new challenges for the electricity market. How can the electricity market design support the continued growth of renewable energy and ensure that the expansion targets are met? And how can sufficient reserve capacity be created to guarantee security of supply during shortages?

These are among the questions addressed by a working group of the Academies’ Project “Energy Systems of the Future” (ESYS). The group’s experts investigated how changes to the electricity market design can help Germany to integrate renewables into the market and developed a series of policy options to this end.

A number of challenging requirements will need to be met. A successful energy transition will call for flexible technologies to balance out the variable supply of wind and solar power and the provision of reserve capacity either through storage systems or through additional power plants that can be activated when necessary. The existing market mechanisms will need to be supported by effective and efficient investment incentives in these areas.

The experts emphasise that appropriate short-term financial support will be essential if Germany is to meet its 2030 targets for the expansion of renewable energy installations. In the longer term, however, they believe that it will be necessary to transition to a market system without government financial support for established renewable technologies. The experts argue that targeted reforms based on long-term models are required in order to maintain a continually functioning electricity market.