# On Distributional Effects in Local Electricity Market Designs—Evidence from a German Case Study

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## Abstract

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## 1. Introduction

## 2. Background and Literature

## 3. Methodology

#### 3.1. The Prosumer’s Problem

#### 3.2. The Consumer’s Problem

#### 3.3. The Independent Power Producer’s Problem

#### 3.4. Local Balancing Mechanism

## 4. A Case Study in the German Regulatory Context

#### 4.1. The Benchmark of a Market Design

**① BAU Feed-in**resembles

**self-consumption in combination with a fixed feed-in tariff**—business as usual as of today [50]: A household consumes its self-generated electricity at costs equal to its marginal operational costs ${p}_{n}^{mc}$. In case of underproduction, electricity is procured from the grid at a static rate of ${p}^{G}={p}^{eex}+{p}^{dso}+{p}^{tso}+{p}^{eeg}+{p}^{t\&d}$, equalling the end-user price in Germany consisting of the wholesale electricity charge ${p}^{eex}$, distribution network tariffs ${p}^{dso}$, transmission network tariffs ${p}^{tso}$, a reallocation charge ${p}^{eeg}$ and taxes and duties ${p}^{t\&d}$. For details on this reallocation charge please refer to the Excursion Box in Section 4.2. Excess production is fed into the grid and remunerated at the rate ${p}_{n}^{fit}$ that is determined by the German regulatory authority (BNetzA) based on size and date of installation and paid as a subsidy. These specific rates for the assessed households can be determined based on the data from the Markstammdatenregister (MaStR) and the open-access platform Netztransparenz.de.

**② Local Sharing**with

**self-consumption and local sales**a household can hence additionally procure electricity from the local production at rate ${P}^{LBM}+{p}^{I}$ where ${p}^{I}={p}^{dso}+{p}^{t\&d}$. This local electricity stems from households’ excess generation that is fed into the local grid and remunerated at the same local rate ${P}^{LBM}$. This local rate is determined within the optimisation of the mixed complementarity model originating from the dual variable of Equation (16), as this equation clears the local trading balance. Second, residential energy storage facilitates a number of households to privately store their own generation: In the design

**③ Home Storage**with

**self-consumption and own storage**, a household can consume electricity from the own battery at a discharge rate ${p}_{n}^{D}$ equal to a levelised cost of storage ${p}_{n}^{sto}$ (see also Crespo Del Granado et al. [51] for a similar approach) instead of trading within the community. Excess production can, thus, be stored in the home storage if available and used, for example, for load shifting purposes. In Germany, there exist some business models that specifically sell combined PV and battery storage installations with the most popular being the sonnenCommunity. The home storage systems assumed in this paper have an installed capacity of 4 kWh or 6 kWh. For a specific description of their characteristics, please refer to Appendix B and Table A2 at the same place. The scenario

**④ Home Storage & Local Sharing**with

**self-consumption, own storage, and community sharing**combines ② with ③, allowing for local sharing and battery storage.

- the more features enabled within the community, the higher the monetary savings.
- prosumers profit most from owning both generation technologies and storage, and a pure consumer sees only a small decrease in costs.
- cheap rates in the local market can only be reached by avoiding grid fees, surcharges and/or levies, which is the main assumption for the local rate.
- the community’s self-sufficiency rate increases (see Figure 2) while the peak load remains rather constant.

#### 4.2. Integration Into the German Regulatory Framework

**⑤ Current Regulatory Framework**with

**self-consumption, own storage, community sharing, and current taxes and duties**, for which we introduce current German regulation to ④. Consumption from the local balancing mechanism is then charged at a varied ${p}^{I}={p}^{dso}+{p}^{tso}+{p}^{eeg}+{p}^{t\&d}$ as the German regulatory framework does not make exemptions from paying grid fees and surcharges once the electricity is passing the public grid. See the Excursion Box for details on the German regulatory framework. The results show that due to the higher costs, benefits of the local trade shrink significantly. In order to have any benefits for participating players in a ④ Home Storage & Local Sharing market, the taxes and duties structure would need to be adjusted as argued by Schäfer-Stradowsky and Bachmann [53] and Scheller et al. [36]. In their report, von Oppen et al. [54] show that trading among neighbours or within a community is highly uneconomic as well as not manageable for small prosumers due to a compact regulatory framework that would lead to high costs as well as a major amount of administrative work. We summarise the obligations and implications for prosumers in a local trading scheme in the German regulatory framework in Appendix C.

- The regulatory framework makes it unattractive for prosumers to trade locally when their marginal costs are higher than the electricity spot price.
- Under the framework, local trade is only economically viable for prosumers with fully written-off installations.
- Once more installations are written-off this model can become competitive under the current regulation if we disregard the administrative burden.

**Excursion: Regulatory Framework in Germany**

- With the first version of the German Renewable Energy Sources Act (EEG) in 2000, Germany started a series of laws on prioritising green energy in the electricity mix. Together with the Energy Industry Act (EnWG), the basic legal framework for the German electricity market is formed. (There are about 90 other acts, directives and regulations on European and national level that affect Germany’s energy supply system [56].) While the EEG handles mostly rules on renewable energy sources and their integration into the system, the EnWG defines also the regulatory framework for the overall energy—including the electricity—sector.
- From a legal perspective, the prosumer is end-user (§ 3 Nr. 33 EEG) and auto-producer (§ 3 Nr. 19 EEG). As of today, regulation allows prosumers with a capacity of up to 100 kWp to feed their electricity into the network but exempts them from regulatory duties and rewards them at a rate determined by the Federal Network Agency (Bundesnetzagentur, BNetzA) based on the overall installed capacity. The rate is transferred into consumers’ electricity bills by adding a reallocation charge (EEG-Umlage) on top of each kWh consumed. Thus, end-users pay a surcharge which in turn is paid to prosumers and operators of renewable energy installations for each kWh they feed in.
- If prosumers intend to bypass the fixed feed-in tariff and instead trade with a chosen, presumably locally circumjacent partner instead, they will need to perform some or all retailing duties depending on the prosumer’s intention. The EnWG declares in principle every participant feeding electricity into the grid as an energy utility. Thus, parties making use of the grid by sending electricity through the network have to pay a grid fee and perform a set of bureaucratic duties. These duties comprise accounting, billing, reporting and metering tasks [54]. While grid fees are usually passed on to the customers’ bills, these duties stay on the producers’ list of tasks, and generally exceed the average prosumer’s personal capacity of work load as the processes are matched with energy utilities’ businesses [54].
- Aside from the fixed feed-in tariff, other existing business models are difficult to implement for prosumers with small capacities. On the one hand, responsibilities increase to a large extent once electricity is directly sold to another customer. On the other hand, the economic potential is fairly unattractive [36]. Appendix C elaborates on the details.
- It is noteworthy at this point that fixed feed-in rates phase out 20 years after installation and will—as of today—not be given to new installations once an aggregated capacity of 52 GW of installed solar power is reached in Germany, despite recent political discussions.

#### 4.3. New Market Design: Tech4all

**⑥ Tech4all**with

**self-consumption, own storage, community sharing, and an independent power producer**, pure consumers now have obtained a right for self-production, which they can consume at a price ${p}_{c}^{mc}={p}_{o}^{mc}+0.4\xb7{p}^{eeg}+{p}^{dso}+{p}^{tso}+{p}^{t\&d}+{p}^{h}$, taking into account a markup ${p}^{h}$ at 1 ct/kWh for the technology owner as well as fees for grid use and extended self-consumption from installations larger than 10 kWp. Additionally, we reduce the EEG surcharge on local trading to only 40% of its full value and now increase the price of consumption from storage discharge to ${p}_{n}^{D}={p}_{n}^{sto}+0.4\xb7{p}^{eeg}$. A fraction of 40% of the EEG surcharge is currently charged for residential technology and self-consumption from an installation larger than 10 kWp. Although local trading that is not remunerated by a feed-in tariff reduces the quantity that needs to be financed by this surcharge, the lower grid consumption also implies less inflows on the other side. To keep this mechanisms rather stable, we assume that all players continue on paying a share of the surcharge whenever the grid is used. The IPP sells its production either to its shareholders at ${p}_{o}^{O}={p}_{o}^{mc}+{p}^{h}$ or for the wholesale electricity price ${p}^{eex}$ to the local balancing mechanism.

- Consumers are allowed to participate in the energy transition.
- Most participants can lower their costs compared to today’s framework.
- The quantity financed by the EEG surcharge is lowered due to a separate rate for local trading.
- Players always pay full grid charges when the grid is used.

## 5. Conclusions

## Author Contributions

## Funding

## Acknowledgments

## Conflicts of Interest

## Abbreviations

BMWi | German Federal Ministry of Economic Affairs and Energy |

BNetzA | German Federal Network Agency |

DER | Distributed Energy Resource |

EEG | German Renewable Energy Sources Act |

EnWG | German Energy Industry Act |

IPP | Independent Power Producer |

KKT | Karush–Kuhn–Tucker Condition |

LCOE | Levelised Cost of Energy |

LCOS | Levelised Costs of Storage |

LEM | Local Electricity Market |

LMP | Locational Marginal Pricing |

MaStR | Markstammdatenregister |

MCP | Mixed Complementarity Problem |

OPSD | Open Power System Data |

P2P | Peer-to-Peer |

## Appendix A. Karush-Kuhn-Tucker Conditions

#### Appendix A.1. The Prosumer’s Problem

#### Appendix A.2. The Consumer’s Problem

#### Appendix A.3. The Independent Power Producer’s Problem

#### Appendix A.4. Local Balancing Mechanism

## Appendix B. Data

Player | Annual Demand [kWh] | Annual Production [kWh] | Type | Installed Capacity [kWp] | Year of Installation | Feed-In Tariff [ct/kWh] | Marginal Prod. Cost [ct/kWh] | Storage Capacity [kWh] |
---|---|---|---|---|---|---|---|---|

H1 | 9043 | 5301 | Wind | 2.00 | 2011 | 8.97 | 18.10 | 6 |

H2 | 7408 | 5174 | PV | 4.08 | 2019 | 11.11 | 9.08 | 4 |

H3 | 5401 | 4104 | PV | 3.24 | 2017 | 12.20 | 9.70 | 4 |

H4 | 7480 | 4816 | PV | 3.80 | 2006 | – | 0.13 | 4 |

H5 | 3592 | 3880 | PV | 3.06 | 2010 | 33.03 | 21.51 | 4 |

H6 | 3857 | 3106 | PV | 2.45 | 2015 | 12.47 | 11.50 | – |

H7 | 6516 | 2966 | PV | 2.34 | 2012 | 24.43 | 13.26 | – |

H8 | 5350 | 2890 | PV | 2.28 | 2011 | 28.74 | 19.21 | – |

H9 | 4386 | 3294 | PV | 2.60 | 2017 | 12.30 | 9.69 | – |

H10 | 2522 | 2409 | PV | 1.90 | 2012 | 24.43 | 13.25 | – |

H11 | 2288 | 2698 | PV | 2.13 | 2017 | 12.20 | 9.69 | – |

H12 | 1685 | 1521 | PV | 1.20 | 2004 | – | 0.12 | – |

H13 | 2708 | 0/208 | – | –/2.00 | – | – | –/25.77 | – |

H14 | 1073 | 0/104 | – | –/1.10 | – | – | –/25.77 | – |

IPP | 0 | 0/10,419 | PV | –/100.00 | – | – | –/5.40 | – |

Sum | 63,308 | 40,288/50,707 | – | 31.08/131.08 | – | – | – | 22 |

**Table A2.**Technical characteristics of battery storage devices (Source: sonnen GmbH and own estimations).

sonnenBatterie | ||
---|---|---|

eco 8.0/4 | eco 8.0/6 | |

usable battery capacity [kWh] | 4 | 6 |

max. efficiency battery | 98 % | |

max. efficiency inverter | 96 % | |

max. charge rate $\alpha $ [kW] | 2.5 | 3.0 |

max. discharge rate $\beta $ [kW] | 2.5 | 3.0 |

investment costs ${I}_{0}$ [EUR/kWh] | 400 | |

lifetime [years] | 20 | |

operating hours per year | 3300 | 4400 |

discharge price [ct/kWh] | 1.21 | 1.36 |

## Appendix C. Business Cases for Consumers and Prosumers

#### Appendix C.1. Electricity Consumption

**electricity supplier**. The costs of electricity offered by an electricity supplier consist of several cost components which add up to about 30 ct/kWh. Production, marketing and sales make up about 30% of the overall costs. All other costs arise when a kWh of electricity is fed into the grid, but they are directly transferred to the consumer. Prosumers will generally have a contract with an electricity supplier, but they will also make use of the model of

**self-consumption (Eigenversorgung)**. In general, it describes the self-consumption of self-produced electricity from the owned technology. It is defined in EEG § 3 Nr. 19.

Self-Consumption | Direct Supply | Direct Marketing | |
---|---|---|---|

Tax/Levy | § 5 (1) StromStG: tax payment for electricity from the public grid § 9 (1) StromStG: exemption for installations <2 MW used for self-consumption § 61 (1) EEG: payment of EEG levy § 61 a, b EEG: exemption or reduction to 40% of EEG levy possible | § 2 (3) StromStG: obligation to disclose as small utility § 4 StromStG: request at the main Customs Office § 5 StromStG: supplier is subject to taxation § 60 EEG: full payment of EEG levy No exemption from fiscal coverage/supply obligations | Prosumer becomes energy utility – obligations are similar to direct supply Direct marketing can only be realised with the help of a service provider: Taxes, levy, reporting and notification duties as well as responsibilities are similar to self-supply, i.e., registration obligations to network operators and authorities, maintenance and repair work/costs Additional contractual obligations between the prosumer and the service provider who assumes the responsibilities of the energy supplier (GTC and contractual services) |

Reporting and notification duties | § 6 EEG: registration of installation § 62b EEG: definition of production quantities § 71 EEG: reporting obligations to DSO: billing and tax exemption § 74a EEG: reporting obligations lapse from § 74a (1) S.3 for PV up to 7 kW and other installations to 1 kW § 76 EEG: reporting to BNetzA might be necessary | § 5 EnWG: Notification requirements towards BNetzA § 6 EEG: registration of installation § 74 EEG: reporting obligations to from § 61i, and annual statements § 75 EEG: Auditing § 76 EEG: Information to be provided to the Federal Network Agency § 4 (6) StromStG: reporting of tax exemptions to main customs office | |

Responsi- bilities | Energiesammelgesetz: formal requirements of DSOs for reporting are to be respected Prosumer has obligation to stay informed | Obligation for utilities to report quantities to main customs office; applies for self-consumed and direct supply § 4 StromNZV: designation of balancing group pursuant | |

Payment entitlements | § 19 EEG: entitled to claim 1. feed-in tariff/market premium from § 21 (1) and (2) EEG 2. surcharge from tenant electricity law § 21 (3) EEG | § 41 EnWG: Utilities need to conclude contracts for retail sale with customers (in conjunction with § 40, 42 EnWG) | Payment entitlements and obligations to service providers in accordance with contractual agreements |

#### Appendix C.2. Electricity Production

**Feed-in remuneration (Einspeisevergütung)**according to § 21 EEG is today’s most common way for a prosumer to receive compensation for delivered quantity. Excess generation is fed into the grid and rewarded at a fixed rate which is determined by the BNetzA and paid by the distribution grid operator. This fixed rate is split from the EEG surcharge that consumers pay with each kWh purchased from the grid. The level of feed-in tariffs is based on the year of the technology’s installation, decreasing over time as the number of renewable installations grows. The remuneration is guaranteed for the year of installation and the following 20 years (§ 25 EEG).

**direct marketing (Direktvermarktung)**(§ 21 EEG). The owner of the distributed resource passes the right to sell his production on the electricity exchange to an aggregator. The quantity sold at the exchange is rewarded with the exchange market price plus a market premium from the EEG surcharge for all electricity that has been sold (§ 20 (1) No. 1). Legal definition of direct marketing is given in § 3 No. 16 and describes sales to a third party using the grid.

**direct supply (Direktlieferung)**(§ 3 No. 16 and § 21b (4) EEG 2017). This model differs from direct marketing as the main grid cannot be used and spatial context has to be given. This spatial context is legally defined as a 4.5 km radius around the place of generation. The rate at which electricity is sold depends on the bid and is no longer supported by the market premium. In addition to the bid, the EEG surcharge and value added tax (19%) have to be added to the consumption price. In a context of a community with a public grid, this model is not feasible in the current regulatory framework.

**direct consumption (Mieterstrom)**. This model assumes that self-consumption involves not only the installation’s owner but also tenants within a residential building with, for example, rooftop PV. The owner is then allowed to sell the generated electricity within the building. The Mieterstromgesetz came into force to define all legal characteristics.

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Sets | |

$a\in \mathcal{A}$ | player a in community $\mathcal{A}$ |

$c\in \mathcal{C}\subseteq \mathcal{A}$ | consumer c in community $\mathcal{A}$ |

$n\in \mathcal{N}\subseteq \mathcal{A}$ | prosumer n in community $\mathcal{A}$ |

$o\in \mathcal{O}\subseteq \mathcal{A}$ | independent producer o in community $\mathcal{A}$ |

$N\cap C,C\cap O,O\cap N=\mathsf{\xd8}$ | |

$t\in \mathcal{T}$ | hour t in time horizon $\mathcal{T}$ |

Scalars | |

${p}^{dso}$ | distribution grid tariff per kWh |

${p}^{eeg}$ | EEG reallocation charge per kWh |

${p}^{eex}$ | wholesale electricity charge per kWh |

${p}^{G}$ | grid consumption tariff per kWh |

${p}^{h}$ | handling fee per kWh |

${p}^{I}$ | local balancing mechanism consumption tariff per kWh |

${p}^{t\&d}$ | taxes and duties per kWh |

${p}^{tso}$ | transmission grid tariff per kWh |

$\eta $ | battery round trip efficiency |

Parameters | |

$de{m}_{a,t}$ | demand of player a in time step t |

${p}_{a}^{D}$ | discharge penalty per kWh for player a |

${p}_{a}^{fit}$ | feed-in tariff per kWh for player a |

${p}_{a}^{mc}$ | marginal cost per kWh for player a |

${p}_{a}^{O}$ | price per kWh of electricity sold from player o to shareholder a |

${p}_{a}^{sto}$ | marginal discharge costs per kWh for player a |

$re{s}_{a,t}$ | renewable energy production of player a in time step t |

${\overline{s}}_{a}$ | upper bound of storage level in battery for player a |

${\underline{s}}_{a}$ | lower bound of storage level in battery for player a |

${s}_{a}^{init}$ | initial storage level in battery for player a |

${\alpha}_{a}$/${\beta}_{a}$ | maximum charge/discharge rate of battery for player a |

Primal Variables | |

${F}_{a,t}\in {\mathbb{R}}^{+}$ | feed into the grid for player a in time step t |

${G}_{a,t}\in {\mathbb{R}}^{+}$ | consumption of energy from the grid for player a in time step t |

${I}_{a,t}\in {\mathbb{R}}^{+}$ | consumption from local balancing mechanism for player a in time step t |

${R}_{a,t}\in {\mathbb{R}}^{+}$ | consumption of renewable energy for player a in time step t |

${S}_{a,t}\in {\mathbb{R}}^{+}$ | battery storage level for player a in time step t |

${S}_{a,t}^{C}\in {\mathbb{R}}^{+}$ | battery storage charging for player a in time step t |

${S}_{a,t}^{D}\in {\mathbb{R}}^{+}$ | battery storage discharging for player a in time step t |

${X}_{a,t}\in {\mathbb{R}}^{+}$ | sale of renewable energy to local balancing mechanism for player a in time step t |

Dual Variables | |

${P}_{t}^{LBM}\in \mathbb{R}$ | price of electricity in the local balancing mechanism in time step t |

${P}_{a,t}^{N}\in \mathbb{R}$ | price of electricity for player a in time step t |

${P}_{a,t}^{S}\in \mathbb{R}$ | price of electricity in the storage for player a in time step t |

${\lambda}_{a,t}^{res}\in {\mathbb{R}}^{+}$ | price of curtailment for each player a in time step t |

${\lambda}_{a,t}^{\underline{s}}\in {\mathbb{R}}^{+}$ | price of storage lower bound for each player a in time step t |

${\lambda}_{a,t}^{\overline{s}}\in {\mathbb{R}}^{+}$ | price of storage upper bound for each player a in time step t |

${\lambda}_{a,t}^{\alpha}\in {\mathbb{R}}^{+}$ | price of storage charging for each player a in time step t |

${\lambda}_{a,t}^{\beta}\in {\mathbb{R}}^{+}$ | price of storage discharging for each player a in time step t |

[ct/kWh] | [%] | |
---|---|---|

wholesale electricity charge (${p}^{eex}$) | 6.44 | 22.4 |

distribution network charge (${p}^{dso}$) | 3.48 | 12.1 |

transmission network charge (${p}^{tso}$) | 3.44 | 12.0 |

EEG reallocation charge (${p}^{eeg}$) | 6.52 | 22.7 |

other taxes & duties (${p}^{t\&d}$) | 8.85 | 30.8 |

total kilowatt-hour rate | 28.73 | 100.0 |

Set-Up | Consumption from Grid ${\mathit{p}}^{\mathit{G}}$ | Consumption from LBM ${\mathit{p}}^{\mathit{I}}$ | Consumption from Storage ${\mathit{p}}^{\mathit{D}}$ | Feed-in into Grid | Feed-in into LBM |
---|---|---|---|---|---|

① BAU Feed-in | ${p}^{eex}+{p}^{dso}+{p}^{tso}+{p}^{eeg}+{p}^{t\&d}$ | — | — | ${p}_{n}^{fit}$ | — |

② Local Sharing | id. | ${p}^{dso}+{p}^{t\&d}$ | — | — | ${P}^{LBM}$ |

③ Home Storage | id. | — | ${p}_{n}^{sto}$ | — | — |

④ Home Storage & Local Sharing | id. | ${p}^{dso}+{p}^{t\&d}$ | ${p}_{n}^{sto}$ | — | ${P}^{LBM}$ |

⑤ Current Regulatory Framework for ④ | id. | ${p}^{dso}+{p}^{t\&d}+{p}^{tso}+{p}^{eeg}$ | ${p}_{n}^{sto}$ | — | ${P}^{LBM}$ |

⑥ Tech4all | id. | ${p}^{dso}+{p}^{t\&d}+{p}^{tso}+0.4\xb7{p}^{eeg}$ | ${p}_{n}^{sto}+0.4\xb7{p}^{eeg}$ | — | ${P}^{LBM}$ |

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## Share and Cite

**MDPI and ACS Style**

Lüth, A.; Weibezahn, J.; Zepter, J.M. On Distributional Effects in Local Electricity Market Designs—Evidence from a German Case Study. *Energies* **2020**, *13*, 1993.
https://doi.org/10.3390/en13081993

**AMA Style**

Lüth A, Weibezahn J, Zepter JM. On Distributional Effects in Local Electricity Market Designs—Evidence from a German Case Study. *Energies*. 2020; 13(8):1993.
https://doi.org/10.3390/en13081993

**Chicago/Turabian Style**

Lüth, Alexandra, Jens Weibezahn, and Jan Martin Zepter. 2020. "On Distributional Effects in Local Electricity Market Designs—Evidence from a German Case Study" *Energies* 13, no. 8: 1993.
https://doi.org/10.3390/en13081993