More than half

They are now in the majority – at least, if we look at the electricity system. In 2024, renewable energies covered almost 60 per cent of our electricity demand. There has been rapid growth in the last 10 years: in 2014, their share was only around 26 per cent. So where do they go from here? The aim is for renewables to meet 80 per cent of Germany’s electricity demand by 2030. Is this feasible and realistic? And, not least: what must a power system in which renewables play the lead role look like?

The future is electric. Housing, driving, the economy – in a climate-neutral energy system, very little will work without electricity from renewable sources. “If heat pumps and electric cars become the norm, electricity demand will increase considerably. In industry, too, the plan is for more and more processes to switch to electricity. This means that we will need more and more renewable energies to replace fossil fuels such as coal and oil,” says David Ritter, a Senior Researcher at the Oeko-Institut. “Power generation from wind and solar will lead the way, as they are currently the most cost-effective options.”

Flexibility offers security

But if there are no longer any coal-fired power plants that can be ramped up or down as required and renewables – which are less easy to control – take over instead, what will this mean for our electricity system? “On the face of it, it may seem a bit risky to rely on solar and wind. After all, when it’s overcast and there’s no wind, they can’t supply us with power. The only flexibility that they offer is that their output can be reduced,” says David Ritter, who is based in the Oeko-Institut’s Energy and Climate Division. “So we need to ensure flexibility in other ways so that the balance between generation and consumption is maintained at all times. And if we look at the options here, it no longer seems so risky.” Batteries, for one, are a key entry point. “They already work very well and are now available at affordable prices,” says David Ritter. “Currently, however, the incentives and therefore their performance are focused too much on individual optimisation and not enough on electricity system needs.”

Smart management of electricity consumption is also important. “This includes postponing electricity usage – for example, by charging e-vehicles overnight when overall demand for electricity and therefore the price are lower than in the evening.” In order to set this in motion, variable electricity tariffs are needed, says David Ritter, with prices varying over the course of the day. “All suppliers should now have these in their portfolio. However, there is still a major lack of transparency around precisely how this works, and this creates a lot of uncertainty for consumers.” To support the transition to a power system with even higher renewables shares, gas-fired power plants will also be required, he says, in order to balance out consumption peaks. In the long term, these plants can then run on hydrogen from renewable sources. “However, hydrogen should only be used if other power generation technology options have been exhausted, due to the very high costs and major energy losses associated with its production.”

A new design

Another important step, from David Ritter’s perspective, is to rethink the existing design of the electricity market and establish new frameworks so that supply and demand are aligned as efficiently as possible and investment in production and flexibility options is guaranteed. “Renewable energies have become the most affordable power generation technology. The task now is to ensure a reliable and stable power supply, which means establishing controllable capacities such as storage facilities and load management, with active steering of energy consumption.” And another important point: renewable energies should manage without government subsidies for the most part and be financed mainly via the electricity market. “A key issue here is whether the merit order will still work in a renewable electricity system.” The merit order is the pricing mechanism in the German electricity market. It determines the order in which power plants feed their electricity into the grid – the supplier with the lowest marginal costs is added first, with other power plants following until electricity demand is met. The price is then determined according to the last power plant to be brought online and hence by the most expensive form of generation.

The Oeko-Institut’s study on “Future-proof electricity market design for Germany” shows that the existing market design and the merit order concept also work for renewable energies, but the design can be improved. “A key point is how flexibilities can be incentivised to support the system. For example, flexibility options in households are currently used solely to optimise their own consumption – which mainly means photovoltaic battery systems, charging stations for electric vehicles and heat pumps. But that is too short-sighted,” says David Ritter. The flexibilities should be aligned with the needs of the electricity market and power grids, he says: “This can work with dynamic electricity tariffs so that when there is a plentiful supply of renewables-generated electricity, low prices are passed on to final consumers. It can also work with time-variable grid charges that are based on network load.”

The project team also discussed options for ensuring adequate funding for renewable energies in future. “Contracts for Difference – abbreviated to CfDs – could be a key mechanism here. They guarantee a fixed price for generated electricity. If the generator receives less than this fixed price in the market, the consumer pays the difference; if the generator receives more, the surplus goes to the consumer.”

Distributing costs fairly

In a project for the German Environment Agency (UBA), which will run until 2026, the Oeko-Institut and the Stiftung Umweltenergierecht (Foundation for Environmental Energy Law) are exploring what can be done to accelerate the expansion of renewable energies, particularly photovoltaics and onshore wind. “We are identifying obstacles standing in the way of expansion and proposing suitable measures. One question, for example, is how to boost ground-mounted photovoltaic systems and how the permit-granting framework for these systems and wind energy plants can be further developed. We are also looking at ways to speed up the designation of sites for wind energy.” 

Within the project framework, a paper entitled “Distribution of the Grid Costs of the Energy Transition” looks at how these costs can be shared more equitably. “The starting point is a decision by the Federal Network Agency  to redistribute the additional costs associated with the connection of renewable energies to the electricity grid. There are, currently, regional differences in electricity grid charges. Someone living in an area where a high proportion of renewables is fed into the grid pays higher grid charges. This unfair burdening of electricity consumers by region is not sustainable or compatible with an increasing renewables share. We therefore analysed three options for further developing the grid fee structure.“ Grid charges for feed-in are one possible starting point. “This reduces the charges but does not address regional inequalities,” says David Ritter. He is also critical of transformation-linked grid charges, which ease the burden on regions with a high proportion of renewable energies. “The underlying procedure would likely be too complex.” The researchers therefore conclude that uniform national grid charges are required. 

Barriers to wind

On behalf of Elektrizitätswerke Schönau, a municipal electric utility, experts from the Oeko-Institut also looked in detail at the expansion of wind energy in Baden-Württemberg and how it can be accelerated. “In Baden-Württemberg, the photovoltaics share is growing, but wind energy expansion has stalled for the last five years. We investigated the reasons for this and explored ways of overcoming barriers.” The project team carried out a data and literature analysis and surveyed wind energy project developers. “We found that the main factors behind the slowdown are lengthy site identification and permit-granting processes, high rents and rising costs.” The researchers therefore recommend, first and foremost, reviewing whether designated sites can genuinely be used for wind energy. In some cases, for example, owners do not wish to rent out the sites, or the commercial operation of a wind energy plant there is simply impossible. “These sites must, of course, then be replaced by other sites that are suitable.” It is also important, says David Ritter, to overhaul the auction process for sites in Baden-Württemberg’s state-owned forest to simplify procedures for regional and community projects. “The aim is to give projects that have a convincing strategy a chance, not only those that promise the highest rent.” Furthermore, from the project team’s perspective, there needs to be better cooperation between the relevant authorities and project developers, which also requires better trained staff. 

Although renewables are now in the majority, numerous obstacles standing in their way still have to be removed. “But this will pay off because nowhere is decarbonisation as straightforward as it is in the electricity sector.” What’s important, then, is not only maintaining the current momentum but driving it forward. “Electrification needs to pick up more pace in the demand sectors, namely industry, transport and heating. With the right frameworks in place, renewables are certainly up to the challenge now and in future.”

---

David Ritter was already focusing on renewable energies while studying at the University of Karlsruhe – and still does so today at the Oeko-Institut, which he joined in 2012. In the Energy and Climate Division, he works on expansion strategies and financing options for renewables in the electricity sector. A graduate in Electrical Engineering and Information Technology, he also analyses decentralised flexibility options, among other topics.