Efficiently integrating solar power into the power system

The strong expansion of photovoltaics makes previously neglected construction sites of the energy transition clearer. The aim is to leverage flexibility potential in the electricity system – to make generation and consumption more market-oriented via price signals.

19.08.2024 – More solar plants are being built in Germany than the expansion paths envisage. This is good, but in sunny midday hours it is also a problem for the electricity system. Price incentives must be set in order to motivate consumers and producers to behave flexibly. This is one of the challenges that the German Institute for Economic Research (DIW Berlin) addresses in more detail in the current Traffic Light Monitor Energy Transition.

Because solar power generation is strongly concentrated in the midday hours of sunny days, there are temporary bottlenecks in the power grids, especially at the distribution grid level, where most plants feed into the grid. But another effect is occurring more and more often: very low or even negative electricity prices. This is due to the fact that the electricity fed into the grid is offered on the wholesale market and the oversupply is causing prices to plummet. Because EEG-subsidized plants still receive the respective feed-in tariff, the energy transition will become more expensive overall.

This development shows that flexibility in the electricity system has not kept pace with the expansion of renewable energies, especially PV, according to the DIW analysis. Existing flexibilities are not always used optimally.

Use existing flexibilities

For example, many PV systems have recently been installed in buildings in combination with battery storage systems. These allow households or businesses to increase the proportion of their self-used PV electricity and thus realize high self-consumption advantages. However, there are hardly any incentives to use these storage systems as grid- or market-oriented as possible, as neither the feed-in tariff nor usually the household electricity tariffs give corresponding signals: tariffs and prices are the same for every kilowatt hour, regardless of the current market price.

In the case of building PV, the focus in the future should therefore be on tapping into flexibility potential through PV battery storage systems as well as electric vehicles and heat pumps. A necessary prerequisite is the accelerated installation of smart meters. This would enable dynamic electricity tariffs for prosumers based on the hourly wholesale price. Self-consumption would then take place in a more market-oriented way. Further incentives could be provided by feed-in tariffs based on the wholesale price. A simpler first step in this direction could be time-variable feed-in tariffs, which are lower in the midday hours than in the evening.

Key data on photovoltaic expansion

Currently, almost 91 gigawatts of photovoltaic capacity are installed, with 88 targeted for the whole of 2024. The main driver for this is a strong expansion of smaller PV systems on buildings that are attractive due to self-consumption advantages. Self-consumption advantages are that self-generated electricity from the roof is cheaper than purchasing electricity from the grid, which incurs taxes and fees. In addition, every kilowatt hour fed into the grid is remunerated with a fixed remuneration rate.

However, there is still room for improvement in the expansion of ground-mounted systems to push ahead with expansion beyond the currently planned growth path. For years, the share of PV systems on open spaces has been around 30 percent of the total installed capacity. The declared goal of the federal government is to allow the further expansion of photovoltaics to take place half on ground-mounted and rooftop systems. One reason for this is likely to be that ground-mounted systems are much cheaper to build than rooftop systems. However, half of the share has not yet been achieved in any year, and even in the current year 2024, only 35 percent of the expansion was realized on ground-mounted systems by mid-July.

One of the authors' recommendations is to further increase the tender quantities in the ground-mounted segment. This could also reduce the overall expansion costs due to the price advantages described.

The number of balcony power plants that have recently had a strong media presence has increased very sharply in the past two years, with a current total stock of around 600,000 systems; however, due to the small module sizes, all balcony systems account for only 0.5 percent of the total PV output in Germany. Regionally, the installed PV capacity is very unevenly distributed among the federal states. Bavaria is a pioneer with a quarter of the installed capacity in Germany. PV output is lowest in the three city states.

Low module prices, strong import dependence

A major reason for the recent strong growth is the decline in prices for solar modules. In addition to technological advances and economies of scale in production, the current low prices can also be explained by severe overcapacities. The large production capacities are mainly located in China – the authors also address the strong dependence on imports.

They see an option for hedging against possible bottlenecks in the purchase of solar modules from China in the build-up of a module reserve. To this end, modules could be purchased and stored on the world market, which, for example, correspond to the planned expansion of one to two years. "However, a further increase in expansion is also possible as long as the world market is literally flooded with modules," explains DIW economist Wolf-Peter Schill. "Because every panel already installed today reduces the need for later imports." Pf