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A study published today by Connect Energy Economics on the design of a hedging obligation in the electricity market shows how the goal of a secure, affordable and climate-neutral electricity supply can be achieved in a market economy and in line with climate targets. The study was commissioned by the Association of Energy Market Innovators (BNE), the Foundation for Family Businesses, the German Chamber of Industry and Commerce (DIHK), the European Energy Exchange (EEX), the German Association of Energy Purchasers (VEA) and the German Electro and Digital Industry Association (ZVEI) in addition to further organisations.
The study provides a proposal on how the ‘technology-open and market-based capacity mechanism’ discussed during the coalition negotiations could facilitate the further development of the electricity market. The basic idea is the introduction of a hedging obligation, i.e. an obligation for electricity suppliers to hedge their supply obligations. This would encourage investment in the controllable capacity that is actually required and thus enable the rapid, market-based and cost-effective management of security of supply. This means that an additional expensive electricity price levy for private consumers and companies to finance an additional capacity market, as currently discussed, would not be necessary.
The study describes the exact structure of such a hedging obligation, including what would be covered and who would be obliged to provide cover. Further points explore when and for how long the obligation would apply; how the hedging obligation could be fulfilled; and how fulfilment and thus security of supply could be guaranteed.
As concluded, the advantages of such a hedging obligation include market-based and realistic demand forecast and technology-open competition, eventually leading to lower costs. The obligation could be fulfilled via the futures market; own generation or through demand flexibility, amongst others, which would lead to a high degree of competition and innovation.
A hedging obligation would build on already existing regulations and market processes for risk management on the energy market. In fact, the latest reform of the European internal electricity market directive already includes a ‘hedging obligation’. This means that the hedging obligation could be designed in a relatively simple manner and would not require long-term and uncertain approval process through the EU Commission, under state aid law.
“The study shows that the security of supply obligation is the most efficient way to achieve security of supply - market-based, open to technology and without expensive detours via planned capacity markets,” says Robert Busch, Managing Director of the German Association of the New Energy Economy.
“This is not about the question of whether we need security of supply in the energy sector. The answer to this question is a clear yes. The only question is how we manage it. With state intervention and a planned economy - or a market economy, with competition, innovation, price pressure, lower costs for consumers and without subsidies,” adds Sven Höppner, Chairman of the Energy Policy Commission of the Foundation for Family Businesses.
Achim Dercks, Deputy Managing Director of the DIHK, says: “Electricity prices are already far too high today. Further price increases would be additional poison for economic development. At the same time, security of supply is of crucial importance for companies. The hedging obligation would make both possible, as it ensures security of supply as favourably as possible through market-based technological competition.”
Peter Reitz, CEO of European Energy Exchange (EEX), comments: “The study shows that the transformation of the energy system can be achieved with new, innovative approaches instead of old concepts of centralised power plant tenders. The hedging obligation is based on a strong electricity market and the energy industry expertise of the market players, which takes into account both the dynamics of the energy transition and the competitiveness of Germany as a business location.”
“For our energy-intensive SMEs, security of supply is of paramount importance. However, this also applies to energy prices. That is why we support a hedging obligation that can ensure the further development of the electricity market in a market-based and technology-open manner,” says Christian Otto, Managing Director of the German Association of Energy Purchasers (VEA e.V.).
Wolfgang Weber, Chairman of the ZVEI association (Electrification and Climate), adds: “The activation of storage and demand flexibility is a key building block for the energy system of the future. This allows renewable energies to be integrated and system and supply security to be increased. The model of a hedging obligation developed here strengthens the existing market mechanisms and thus creates a technology-open and cost-efficient solution space for these and other forms of controllable capacities.”
Study author Marco Nicolosi, Managing Director of Connect Energy Economics, concludes: “The effective safeguarding obligation secures the electricity supply cost-effectively through a market-based exploration process that is open to technology and innovation. This avoids detailed state planning, which leads to path dependencies and considerable regulatory and cost risks by subsidising established technologies.”
The study was commissioned by BNE, the Foundation for Family Businesses, DIHK, EEX, VEA and ZVEI, in addition to further organisations, and compiled by Connect Energy Economics. It was published with the original title of ‘Die Ausgestaltung der Absicherungspflicht’ is available for download in German language below.
Initiators of the study
About BNE
The Bundesverband Neue Energiewirtschaft (BNE) has stood for market, competition and innovation in the energy industry since 2002. The association represents companies that are active at all competitive stages of the energy industry value chain and develop pioneering business models for electricity, heat and mobility. www.bne-online.de
DIE FAMILIENUNTERNEHMER
As the political lobby for more than 180,000 family businesses, DIE FAMILIENUNTERNEHMER (Family Businesses) adheres to the values of freedom, ownership, competition, and responsibility. German family businesses employ approximately eight million people across all sectors and generate annual revenues of €1.7 trillion. The association was founded in 1949 and currently has approximately 6,500 members. All members under the age of 40 form DIE YOUNG ENTREPRENEURS (Young Entrepreneurs).
About DIHK
The DIHK represents commercial and industrial enterprises and those belonging to the service sector vis-à-vis politicians, administrators and the public. It represents the general interest of the commercial sector at federal and European level – for example for less bureaucracy, free trade or a fast internet. The goal: good framework conditions for successful business. The DIHK aggregates the interests of businesses across all sectors and branches of the economy in a democratic and deliberative manner. These interests are conveyed to it by the 79 local Chambers of Commerce and Industry across Germany. The spectrum of opinions on the various economic policy issues is as diverse as the business landscape in Germany. DIHK – German Chamber of Commerce and Industry
About EEX
The European Energy Exchange (EEX) is a leading energy exchange that develops secure, liquid and sustainable commodity markets worldwide - together with its customers. EEX is part of the EEX Group, a group of companies specialising in international commodity markets. It offers trading in contracts for power, natural gas and emission allowances as well as freight and agricultural products. In addition, EEX provides registry services and organises auctions for Guarantees of Origin on behalf of the French government. https://www.eex.com/de/
About VEA
The German Association of Energy Consumers (VEA) represents the energy industry and energy policy interests of its more than 5,000 member companies from energy-intensive SMEs – and has done so for more than 75 years. As an energy expert for SMEs, we handle all aspects of energy consulting for our customers every day with over 140 dedicated employees. For the coming years, we have set ourselves the goal of significantly expanding both the quantity and quality of our consulting services. We are convinced that our expertise will help many other companies in Germany, a manufacturing location, on their path to climate neutrality.
About ZVEI
The ZVEI represents the common interests of the electrical and digital industries and their associated service providers in Germany and internationally. The sector is one of the most innovative economic sectors in Germany. The association has more than 1,100 member companies. At the end of 2024, the sector employed around 890,000 people in Germany. Sales in 2024 amounted to €220 billion. www.zvei.org
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| Studie: Die Ausgestaltung der Absicherungspflicht (German only) | pdf (2 MB) |
