Procuring Flexibility to Support Germany's Renewables : Policy Options

To continue balancing supply and demand for power is a growing challenge on Germany’s path to producing 80% of its electricity from renewable resources by 2050. Large-scale investment into a range of technologies will be required to provide the flexibility necessary for balancing. This paper introduces a simple analytical framework to evaluate the German legislator’s numerous efforts to address this challenge. It then proceeds to make three proposals as to how flexibility can be sourced more cheaply. Priority should be given to measures that enable existing power markets to generate stronger rewards for flexibility. We thus call for financial incentives for variable electricity tariffs to elicit more consumer response and for investment subsidies instead of feed-in tariffs for more demand-oriented renewable power generation. If additional explicit incentives for flexibility are necessary, the paper makes some suggestions on implementing a unitary market for flexibility