German grid reform could cost tens of billions in higher wind power subsidies

The German government is actively trying to address a situation in which the country’s transmission and distribution grids are lagging behind the pace of renewable energy development. One possible solution could be a proposed reform of the system for connecting renewable energy sources, which is intended to reduce strain on the grid. According to the German Environment Agency, changing the rules would come at a cost: limiting priority access to the grid would reduce competition and therefore lead to higher feed-in tariffs and subsidies for wind farms.

Germany has long faced a situation in which renewable energy sources put strain on the grid when weather conditions are especially favorable. The cost of stabilizing the German grid through so-called redispatch therefore runs into billions of euros each year. A planned grid reform being prepared by the federal government could help address this situation. The changes could limit renewable energy sources’ priority access to the German grid, which has so far been one of the pillars of renewable energy development.

The proposed changes would apply to areas where the risk of overloading the electricity grid is greatest. Specifically, they would cover parts of the grid where more than three percent of potential renewable generation was curtailed in the previous year. In these areas, developers would be granted a grid connection only if they waived their right to future compensation for curtailment due to insufficient grid capacity for up to ten years.

The German Environment Agency warns, however, that changing the rules for redispatch could also have negative effects. According to the agency, stricter rules would deter many developers of new projects, resulting in less competition in the country’s auctions. The agency says that fewer projects bidding would therefore lead to higher auction prices for wind farm operators and, in turn, higher payments to support renewable energy. According to Clean Energy Wire, the agency estimates that the volume of subsidies paid could increase by as much as 40 billion euros.