The early 2000s were a period of reassessment in the tech industry. Despite the dot-com bubble bursting, the internet was rapidly becoming a staple in daily life, with broadband access spreading and social media platforms emerging. In this era, the energy industry also set the wheels in motion for the transition to clean energy by providing bold subsidies to promote renewable energy and green the grid. The Renewable Energy Act, the EEG* was born, and the Energiewende ushered in.
It was an exciting time - policymakers were convinced they had cracked the code to an efficient, sustainable energy future. However, as the years rolled on, those well-intentioned policies started slowly showing their cracks, turning into barriers rather than stepping stones in the energy transition.
Take the German §19(2) StromNEV regulation, for example, which was supposed to incentivize stable energy use by industrial giants to support base load power plants and relieve strain on the grid. Today, it can encourage some companies to ramp up consumption just to snag hefty grid fee discounts. The same story repeats with other subsidies - exemptions for energy storage or feed-in tariffs that once sparked solar growth are making it harder to align with today’s needs.
While such policies helped kickstart the shift to renewables, they now risk stalling progress by locking in outdated behaviors. Powered by decentralized renewables, the energy system is only getting more dynamic, and Germany’s rules need a severe makeover. Let’s look into what went wrong and how other countries can free themselves from the shackles of the past with flexibility.
Industrial grid fee discounts with §19(2) StromNEV
First, let’s talk about §19(2) StromNEV - a policy that’s been around for years, offering big industrial players a sweet deal on grid fees. The idea was simple: if your factory keeps its energy use steady enough, you get a discount, up to 90% off. But here’s where this system goes a bit astray, which adds up to nearly €1 billion in annual subsidies spread across roughly 600 industrial consumers. These companies must clock in more than 7,000 hours of base load to qualify and consume over 10 GWh a year (approximately the power consumption of 2,000 households). That’s led some businesses to consume more energy than they need to secure the discount. It’s like rewarding someone for finishing that 2kg Big Texan steak to get it for (almost) free.
The policy made sense when the grid was built around large, consistent power stations. However, with renewables like wind and solar energy taking the stage, the energy supply has become anything but steady. The grid needs flexibility now, not constant demand, and encouraging companies to keep churning through electricity around the clock is becoming a problem.
The regulator, Bundesnetzagentur, has started to recognize the mismatch. Plans are in the works to replace the outdated system with incentives for more flexible energy use, rewarding companies that can adapt their consumption to match fluctuating supply. The challenge is to make these changes while leaving businesses in the lurch.
Grid fee exemptions for energy storage
The issues with industrial grid fee discounts aren’t the only examples of policies that no longer fit. Another case in point is the grid fee exemption for energy storage. Introduced initially to encourage the adoption of battery energy storage systems (BESS), the exemption allows storage facilities commissioned before August 2029 to avoid grid fees for charging and discharging. The idea was to boost storage, crucial in balancing intermittent renewable energy sources.
However, as energy storage becomes a mainstream grid component, this blanket exemption is starting to look like a blunt instrument. While it helps get more storage online, it doesn’t necessarily ensure these systems operate in a way that maximizes grid efficiency. Although market price signals encourage storage to charge when supply is high, and prices are low and to discharge during high-demand, high-price periods, this isn’t always perfectly aligned with grid needs. For instance, short-term price signals may fail to capture moments of renewable oversupply or critical grid strain.
Adjusting grid fee structures - such as lowering fees for consumption during periods of high PV generation and increasing them during morning and evening peaks - could drive storage systems to support grid stability more effectively. Similarly, higher fees for feeding energy back into the grid during surplus periods might encourage self-consumption or strategic energy shifting. Fine-tuning the rules to include incentives for critical grid services and better-aligning market prices with grid conditions could transform storage from a price-responsive asset into a grid-optimizing tool.
With the exemption set to expire in 2029, the Bundesnetzagentur must redefine how storage assets fit into the grid fee structure. The goal is to move beyond simple fee waivers and introduce dynamic pricing that encourages storage to support a flexible and truly resilient grid.
Feed-in tariffs and solar PV overproduction
The challenge of adapting energy policies also expands beyond consumers. Germany’s experience with feed-in tariffs for solar PV adds another layer to the story. Introduced to accelerate solar adoption, these tariffs guaranteed payments to solar producers for every kilowatt-hour they fed into the grid, regardless of market conditions. It worked - Germany now boasts around 90 GW of solar capacity. But the policy’s success has come with a catch: solar production has surged even during times of low demand, leading to frequent negative electricity prices.
Today, nearly 20% of solar power is generated during these negative price periods, when it would be more beneficial for the grid if production were reduced. In 2024, for instance, the market value of unmanaged solar power was around €42/MWh, whereas if producers had responded to negative prices, it could have risen to €57/MWh - a 35% increase. Yet, the feed-in tariffs don’t incentivize producers to adjust their output based on market signals, resulting in a saturated grid and economic inefficiencies.
Germany is now planning to phase out these tariffs to encourage solar producers to adopt market-responsive behavior. The goal is to shift from a system that blindly rewards any generation to one that encourages smarter, demand-driven production, better aligned with the needs of a renewable-heavy energy grid.
Getting it right once and for all
Germany is currently grappling with the unintended consequences of its energy policies. It could be worthwhile to look to other countries that offer lessons on how to foster a more adaptive and flexible energy system:
🇬🇧 The UK, for instance, has moved beyond fixed subsidies and embraced dynamic grid solutions, such as local capacity markets and real-time pricing schemes. Programs like Piclo’s capacity auctions incentivize consumers to adjust their demand based on local grid conditions, paying for flexibility that helps balance supply and demand in specific regions.
🇺🇸 In the U.S., time-of-use pricing and demand response programs have also made flexibility a key asset. Utilities can reward consumers for shifting their energy use away from peak times or reducing consumption when renewable generation is low. These measures ensure that energy is consumed when it’s most abundant and cheapest, aligning consumer behavior with the fluctuating availability of wind and solar power. The result is a system dynamically adapting to changing conditions rather than being locked into outdated use patterns.
🇫🇷 France has taken a slightly different approach, integrating flexibility into its capacity market by requiring energy providers to secure enough capacity to meet their customers’ peak demand while rewarding those offering demand reduction services. The country has also explored “interruptible load” programs for industrial consumers, where companies agree to reduce consumption during grid emergencies in exchange for lower energy costs.
🇦🇺 Australia also established initiatives like the “demand response mechanism” in their National Electricity Market. Here, consumers are financially incentivized to lower their electricity use during peak times or when the grid is under stress, improving overall reliability. Additionally, the country has promoted VPPs to aggregate rooftop solar, battery storage, and smart appliances and have them provide grid services, collaborating as a large power plant.
The common thread across these international examples is the clear focus on flexibility as a core principle, with policies designed to respond to real-time grid conditions rather than static, outdated consumption patterns. Germany learning from these experiences would mean moving away from blanket subsidies and rigid incentives to adopt policies that dynamically adjust based on market signals. If Germany wants to build a resilient grid capable of handling the variability of increased reliance on renewables, it must also make this important shift.
*EEG - Erneuerbare Energien Gesetz (Renewable Energy Act)