Market report 2022/23

After the start of the war on Ukraine at the end of February 2022, gas prices increased significantly. Electricity prices followed the rising price trend in gas prices, due to the special role of gas-fired power plants in electricity generation and the Merit Order. Gas-fired power plants influence the price determination in electricity markets via the Merit Order where they are, in general, the most expensive production technology which determines the price. The unexpected unavailability of nuclear power plants (and hydro power plants) in Europe has further aggravated the situation. All in all, the root cause for the high electricity price was the high gas price. However, the unavailability of nuclear power plants in France has caused an additional scarcity.

The increase in market prices (especially fuel and CO2 prices) is the main reason and driving force for the increase in redispatch costs. Nevertheless, there have also been other factors that have led to an increase in redispatch volume and therefore also in redispatch costs, like e.g. the increased import needs of France as well as formal changes affecting the handling and settlement of the German redispatch processes accompanied by the introduction of “Redispatch 2.0”.

An estimation of redispatch costs for 2025 heavily depends on the further development of market prices. Based on current future prices, the estimated redispatch costs would be in a range between the costs in 2021 and 2022.

Main challenges are the approval processes and resources to implement the grid expansion. Amprion welcomes the legal changes and sees their important contribution to accelerating grid expansion. The legal changes are already being used in the first grid projects with the aim of accelerating the implementation of the projects.

The potential risks from market uncertainties are already included in the risk management for the implementation of the grid projects.

The German government is currently developing a system development strategy in a participatory process involving representatives of the energy sector, industry, civil society, and politics. The aim is to define a cross-sectoral vision and a robust strategy for the transformation of the energy system that will serve as the basis for infrastructure development plans.

Batteries are already participating actively in FCR. Moreover, their share is increasing in aFRR, due to technical, cost and market price level developments. Some wind turbines are already prequalified in Germany for provision of negative balancing energy. In addition, German TSOs consider introducing shorter balancing capacity products. Among other reasons, this should allow Balancing Service Providers to better address uncertainties of fluctuating renewables.

An overview of prequalified volumes per primary energy source and reserve product in Germany can be found here on  regelleistung.net (in German). Please bear in mind that the prequalified volume does not represent the mix of technologies actively participating in the balancing markets.