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Recent developments and future trends in Germany’s electricity market : an assessment of recent market developments on electricity prices and market stakeholders

Farag, Dominique; Groen, Leeor
Master thesis
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http://hdl.handle.net/11250/2403430
Date
2016
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  • Master Thesis [3258]
Abstract
As Europe’s largest economy and as one of the most industrially and technologically advanced

countries in the world, Germany has long been at the forefront of managing and implementing

change in the electricity sector. With the nation’s plans to phase-out nuclear energy by 2022

following the Fukushima Daichii Nuclear Disaster in conjunction with its own ambitious

Energiewende goals of transitioning towards renewable energy, the market has been put under

considerable pressure. Further supported by the rise of Smart Grid, increased decentralized

generation and the interconnection with other European markets, key market participants are

being considerably affected by the scale of change.

To understand the implications of these recent trends, the authors examine the development of

wholesale and retail electricity prices over an eight years period since 2006. They further assess

the impacts on electricity generators and German households as the key market stakeholders

who are affected by the diverging wholesale and retail electricity prices. As a result of the

developments, the authors believe the role of municipalities and cities to be an increasingly

integral part of an effective electricity market in achieving the nation’s goals.

The authors find that as a result of market intervention, the market mechanism upon which

generators have traditionally relied faces considerable pressure. As a direct result, Germany’s

four largest electricity producers are under substantial financial pressure and have had to

drastically redefine their businesses. Moreover, despite the low wholesale price of electricity,

German households are paying amongst the highest prices for electricity in Europe. This is

mainly attributed to the Renewable Energy Surcharge (EEG Umlage), which has increased by

500% since 2006 and in 2015 accounted for more of the household electricity price than the

procurement of electricity itself.

In summary, the authors conclude the paper with an assessment on how the recent market

developments will continue to affect the German electricity supply, demand and prices in the

future.

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