A new study by Connect Energy Economics commissioned by bne, the German Chamber of Commerce and Industry (DIHK), EEX, and VEA shows that these financial injections do not meet European standards. Supply security can be achieved more effectively and efficiently by strengthening the market using a safeguarding requirement instead of state planning.

The study analyses the capacity subsidy mechanisms planned by the German government and their compatibility with European standards from regulatory and economic perspectives. The findings indicate that centrally planned capacity mechanisms interfere deeply with the market, pose significant economic, regulatory, and environmental risks, and are counter to regulatory principles. Information asymmetries between the state and investors create a high risk of misaligned incentives. This leads to increased costs, weakens innovation incentives, reinforces long-term path dependencies, and burdens businesses and private households. Additionally, a capacity levy slows electrification, conflicting with climate and energy policy objectives.

The study also highlights deficiencies in the European standards for capacity mechanisms. Key metrics show extreme discrepancies between countries and technologies in reality. For example, the costs of new gas turbines in Germany are sometimes estimated at half the prices observed in real auctions in other European countries. At the same time, innovative and potentially cheaper technological alternatives, such as in the field of flexibility, are excluded or discriminated against, leading to expected avoidable cost increases.

"The study shows that the assumptions justifying capacity subsidies are shaky. Proving technological neutrality and competitive fairness, based on such flawed assumptions—reminiscent more of wishful thinking—is impossible. It is highly doubtful whether power plant subsidies can be lawfully introduced at all. One thing is clear already: This certainly has nothing to do with a market economy," says Robert Busch, Managing Director of bne.

An effective alternative to state-funded subsidies, according to the study, is a safeguarding requirement. It can ensure supply security through market mechanisms, cost efficiency, and technological neutrality by strategically developing the market design and introducing a legally missing necessity for securing delivery commitments—akin to car liability insurance. Electricity suppliers would then be required to secure their sales figures through forward markets or their own generation for the long term, taking responsibility for the associated risks.

"To date, supply and demand in the electricity market have always met, and we see no risk of electricity shortages. A safeguarding requirement initiates a positive chain reaction: It strengthens the electricity market, dampens price spikes, and leads to lower electricity prices," comments Peter Reitz, CEO of the European Energy Exchange (EEX).

"State technology steering exacerbates price risks due to geopolitical events, hampers innovations in the electricity market, and makes operational climate neutrality more difficult. This ultimately results in further cost increases for businesses and worsens Germany's competitive disadvantages," says Dr. Sebastian Bolay, Head of Energy, Environment, Industry at the German Chamber of Commerce and Industry (Industrie- und Handelskammer).

"For electrification and for businesses' competitiveness, low electricity prices are essential. However, a state-organized capacity market inevitably leads to higher electricity prices due to the capacity levy. The current crisis also shows that focusing on gas for electricity production—as envisioned in the power plant strategy—is suitable for unnecessarily raising electricity and gas prices for the entire industry. Technological diversity, on the other hand, strengthens supply security and price stability," comments Eva Schreiner, Head of the VEA Federal Association of Energy Consumers' Berlin Office.

Private households are also heavily burdened by capacity levies. Hence, the Consumer Protection Association supports the study's findings and comments as follows: "Consumers already pay Europe's highest electricity prices. An additional electricity price levy would further burden them and render the switch to electric-based technologies less attractive. Instead of central capacity specifications, incentives are needed to flexibly use electromobility, heat pumps, and storage. This way, private households can also contribute to supply security," says Ramona Pop, Executive Board Member of the Consumer Protection Association.

In conclusion, study author Dr. Marco Nicolosi from Connect Energy Economics summarizes: "Instead of forcing capacity provision, supply security could be effectively and efficiently ensured through a safeguarding requirement: Electricity suppliers secure their contractual electricity deliveries to customers. This creates cause-based incentives to organize supply security with technological and innovation openness, and thus efficiently."

The study by Connect Energy Economics builds on previous studies by the participating organizations on supply security and was commissioned by bne, DIHK, EEX, and VEA.

The study is available for download at the following link:https://www.connect-ee.com/ (only available in German)