GERMANY Law and Practice Contributed by: Udo Olgemoeller, Nicolaus Ascherfeld, Johann von Pachelbel and Janina Müller, A&O Shearman
Incentive Regulation Reform (NEST Process) The BNetzA’s NEST process constitutes a reform of the incentive regulation framework for transmis- sion system operators, prompted by the 2021 ruling of the Court of Justice of the European Union. Final rules were adopted at the end of 2025 and will apply from the next regulatory period (2028/2029 onwards), materially affecting the regulatory cost base and rev- The federal government has announced continued grid expansion priorities, with an emphasis on high- capacity north–south corridors, more anticipatory network planning and the digitalisation of distribu- tion networks to enable active system management. These measures will materially affect connection time- lines and curtailment risk profiles for generators and large consumers. The Netzpaket reforms introduce the possibility of prioritised connections, capacity reser- vation mechanisms, flexible connection arrangements in constrained areas, and mandatory digital portals by 2028. Coal Phase-Out and Capacity Planning Policy communications have reiterated the target of completing the coal phase-out ideally by 2030, with the statutory long-stop date of 2038 remaining in force unless amended. Compensation and structural change measures for affected regions have been out- lined, influencing medium-term capacity planning and reserve procurement. Hydrogen Strategy and Power-to-X enue allowances of network operators. Grid Expansion and Network Planning The ongoing development of the hydrogen econo- my – including prospective power-to-X projects and electrolysers participating in the electricity market as flexible loads – is expected to prompt further legal refinements to grid access, tariff treatment and market participation rules. However, visible progress on the hydrogen core network and associated use cases has remained limited to date. Data Centres and Industrial Transformation The government’s data centre and industrial trans- formation strategies signal tighter energy efficiency requirements, potential locational guidance aligned with grid constraints, and expanded demand-
response participation – all of which have a bearing on load development forecasts, network reinforcement needs and system services procurement. EU-Level Reforms Reforms to the EU electricity market design and to REMIT will require German transposition and regula- tory adaptation, including enhancements to market abuse surveillance and the facilitation of long-term hedging instruments such as power purchase agree- ments and two-way contracts for difference. 1.8 Unique Aspects of the Power Industry Germany’s Energiewende (energy transition), including the strict phase-out of nuclear and coal-based power, is a globally recognised policy, emphasising decar- bonisation, renewables and citizen participation. The high share of municipal utilities is a notable feature. The market design is energy‑only, with sophisticated balancing and reserve products rather than a capacity market, supplemented by statutory grid and capacity reserves activated under well‑defined conditions to safeguard adequacy; however, this is going to change with the introduction of a capacity mechanism that particularly promotes gas-powered facilities to cover the volatility and black-out risks resulting from the high share of renewable energies.
2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market Structure
Germany operates an energy‑only wholesale mar- ket in which prices are set by competitive offers and bids among generators, suppliers and traders across day‑ahead and intraday exchanges and through bilat- eral contracts, with balancing energy prices deter- mined in dedicated balancing markets operated by the transmission system operators. While Germany does not operate a general capacity market, it main- tains statutory reserve mechanisms, including capac- ity reserves and grid stability reserves, procured com- petitively and deployed outside the market to address adequacy and system security contingencies defined in the EnWG and secondary legislation.
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