German smart market begins

On July 1, the market for lower power consumption rollout in Germany, with firms now being paid to reduce their consumption. Craig Morris provides an overview.

Skyline Bremen

Under certain conditions firms can now be paid for not using energy when supply gets tight. (Photo by Pascal, CC BY-SA 2.0)


At the beginning of the month, Germany’s grid operators began paying firms to reduce their power consumption when supply gets tight. It is the first implementation of a policy called for by the EEX power exchange and by such think tanks as Agora.

Essentially, firms that can switch off at least 50 megawatts of demand take part in an auction. Each firm thus decides how much money it would need to switch off equipment temporarily. Payment is only made if the firms actually reduce consumption to serve the grid’s needs.

There are two different markets: “immediate” and “fast.” The former means that firms are able to reduce consumption within a second; the latter, within 15 minutes. Industrial cooling systems are an obvious example of the former (both cool and heat are relatively easy to store), but companies often have batch processes and would be able to delay the starting of the next batch if given advance notice – such as 15 minutes. It has even been estimated that aluminum manufacturers – who alone make up one percent of power consumption in Germany – could shift production processes by up to four hours without further ado. (One wonders, however, whether the manufacturers themselves are pleased about the prospect.)

This fledgling market is still quite small, however, with only 247 megawatts of immediate switch-offs having been auctioned, compared to 332 megawatts of fast switch-offs. But as one researcher told German journalist Bernward Janzing, the purpose is partly just to get the market going so everyone gets a feel for what it is. “We do not desperately need companies to switch things off yet,” the researcher explains. Rather, the experience will be used in redesigning German energy policy after the fall elections.

Like other countries, Germany has long had “load shedding” (Lastabwurf); here, firms contractually agree to keep power consumption below a certain level – and they pay penalties if maximum power demand exceeds that level. But such contracts are designed primarily to ensure the reliability of a particular line, not react to changing price signals on power markets.

So the first step has been taken, but it was only a small one. Eventually, the policy could be expanded to include more firms and possibly even households, though German consumers have become complacent and do not like the idea of having to think about changing power prices when they switch on appliances. And Germany is by no means a leader in this area – countries like Spain, the Netherlands, Italy, and the US are much further along.

And of course, another step would be power storage based on price signals on the market. The first steps are already being taken in this direction as well, and that’s good news – slowly but surely, Germany is shifting from a focus on merely storing solar power from homeowner arrays to storing what the grid, and hence the Energiewende, needs.

Craig Morris (@PPchef) is the lead author of German Energy Transition. He directs Petite Planète and is writes every workday for Renewables International.

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Craig Morris

Craig Morris (@PPchef) is the lead author of Global Energy Transition. He is co-author of Energy Democracy, the first history of Germany’s Energiewende, and is currently Senior Fellow at the IASS.

5 Comments

  1. deedl says

    The importance of this can not be underestimated. After proving that large scale implementation of renewables is possibble, the debate shiftet towards intermittency and therefore supposedly needed storage. But this lies under the old paradigm of energy production has to follow demand. The large scale use of renewables will inverse this paradimg towards demand has to follow production.
    Every demand that is shifted to times of energy production (sunny or windy times) is less storage needed. This smart market is an organisational approach inside our economical system that reduces the need for storage by implementing mechanisms of demand adaptation.
    One day every household will run its electrical appliances depending on curretn energy production. The link will be the spot market price.

  2. Joanna says

    Does this DR “count” as a resource towards grid operators’ calculations of resource adequacy, or is it just an option that’s out there for them? Or is there nobody directly responsible for ensuring that there’s adequate capacity available, because deregulation assumes the market will sort things out on its own??

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