§51 EEG: effects of early implementation of the 1-hour rule

What would be the effects on power prices, frequency of extreme prices, and capture rates if the 1-hour rule under the German EEG-law regarding the suspension of market premium payments was brought forward by one or two years? The base price would increase minimally as well as the market value for solar and wind, and the capture price would decrease minimally. However, significant changes can be observed in the number of negative prices. 

Why do we have the 1-hour rule in the German EEG-law?

The frequency of hours with negative prices in the summer half-year of 2024 has also made an impression on the German federal government and caused concern (see Figure 1). In response, the Federal Ministry for Economic Affairs and Climate Protection (Bundesministerium für Wirtschaft und Klimaschutz (BMWK)) aimed to initiate an amendment to the Renewable Energy Sources Act (EEG).

One aspect of this amendment was intended to be the suspension of the payment of the market premium for every single hour with negative prices, specifically for all installations with a rated capacity of more than 400 kW that are commissioned starting from the year 2025. In the EEG, this so-called „1-hour” rule was initially set for the year 2027, while a gradual reduction from the 4-hour rule to the 2-hour rule applied in the interim period (2023 to 2026). This rule means that the entitlement to the market premium expires if a corresponding number of hours with negative prices occur in direct succession in the Day-Ahead Auction for the German market area. According to the EU Commission, the 1-hour rule must be implemented by 2027 at the latest.  

To reduce the frequency of hours with negative prices in the Day-Ahead Auction, the possibility of bringing forward the 1-hour rule was under discussion. Whether and when this amendment to the EEG can come into effect after the dissolution of the coalition remains unclear at present (early December). 

What can be examined, however, is the impact that bringing forward the 1-hour rule would have on the electricity market. For this, Montel Analytics has calculated two sensitivities of the reference scenarios – here the ”Central Scenario”1 from the Q4 update 2024 from our power price scenarios: 

1. The 1-hour rule comes into effect on January 1, 2025 (here: “2025 sensitivity”) 

2. The 1-hour rule comes into effect on January 1, 2026 (here: “2026 sensitivity”) 

For the simulation, the fundamental market model Power2Sim was used. The 1-hour rule is only applied to the added capacities. The annual expansion follows the federal government’s legal targets and is evenly distributed across the months in the model. 

The 1-hour rule's impact on the behaviour of market players 

The following examines the impact of these two sensitivities on the prices of the Day-Ahead auction in the German market area (contracts for full hours). 

With the introduction of the 1-hour rule for installations with a rated capacity of at least 400 kW, it is to be expected that the bidding strategy of the respective aggregators of these installations will change based on market rationality. A suitable bidding strategy would be to bid 0 EUR per MWh to position as much as possible in the front within the merit order on the Day-Ahead market but not to sell at negative prices. This way, the seller of the subsidised installation avoids selling at negative prices and paying the corresponding price, without receiving a market premium as compensation. 

The 1-hour rule's impact on the market 

Negative and zero prices 

The number of negative prices falls significantly with the 1-hour rule being brought forward. In the reference scenario, the number of negative price hours approaches zero by the end of the decade.

In the 2025 sensitivity, the number of negative price hours decreases by more than 35 percent compared to the reference scenario in the delivery year 2025. In the delivery year 2026, the reduction is around 85 percent.

In the 2026 sensitivity, the number of negative price hours decreases by about three-quarters in the delivery year 2026 compared to the reference scenario (see Table 1). 

In contrast, the number of hours with a price of zero EUR per MWh increases when the 1-hour rule is brought forward compared to the reference scenario in both sensitivities. In the case of the 2025 sensitivity, the number increases by about 22 percent in the delivery year 2025 and by around 55 percent in the delivery year 2026. In the case of the 2026 sensitivity, there is also an increase of just under 50 percent for the delivery year 2026 (see Table 2). 

Table 1: Changes in the number of hours with negative prices compared to the reference scenario [Data source: Montel Analytics] 

Table 2: Changes in the number of hours with zero prices compared to the reference scenario [Data source: Montel Analytics] 

In the following years, the Central Scenario shows that the number of hours with negative prices is insignificantly small, which is carried over in the sensitivities. In contrast, the number of hours with zero prices increases continuously. Compared to the modelled results for 2025, the frequency of zero prices triples by 2030, and from there, it doubles again by 2040. This implies that fluctuating renewable energies, which have near-zero marginal costs, will be price-setting in a large portion of the hours throughout the year. 

Baseload prices 

The baseload prices are hardly affected by the 1-hour rule being brought forward. As many negative prices are replaced with zero prices, the average price for the entire year increases. The 2025 sensitivity results in an increase of the annual baseload price by 0.1 percent in the delivery year 2025, while the 2026 sensitivity leads to an increase of 0.6 percent in the delivery year 2026 (see Figure 2). 

In the monthly analysis, the range of the fluctuation is somewhat larger: in the period up to 2027, we observe an increase of up to 0.72 EUR/MWh (October 2026) in the 2025 sensitivity compared to the reference scenario, while the 2026 sensitivity shows an increase of up to 5 EUR/MWh in December 2026. However, this is due to special effects and is an exception in view of the other months. The overlap of specific types of days and weather patterns is the cause.  A noticeable pattern of monthly values, i.e. a form of seasonality, cannot be identified. 

Bringing forward the 1-hour rule can therefore be concluded to have no significant impact on the costs for sourcing electricity for a baseload profile. 

Capture Prices 

In addition to the cost of electricity, it is also important to examine the revenue potential of RE systems. However, even here, bringing forward the 1-hour rule only shows a minor effect:

• The market value for solar increases by 0.2 percent and 0.3 percent in the years 2025 and 2026, in the 2025 sensitivity.

• The market value for onshore wind increases by 0.6 percent and 0.7 percent, respectively.

The market value is calculated as the volume-weighted average value of all hours of the year (including negative prices). For the capture prices of solar and onshore wind the opposite is true. The capture price determines the average revenue of a plant at non-negative prices, i.e. zero and positive. As shown, the number of hours with zero prices increases, which reduces the average revenue. For the 2025 sensitivity, the reduction in the delivery years 2025 and 2026 is 0.1 and 0.2 percent for solar respectively, and 0.1 percent and 0.4 percent for onshore wind (see Figures 3 and 4).  

While the capture price, as a benchmark for the average revenue, decreases, the sales volume, i.e., the amount of electricity that can be sold, increases. In the 2025 sensitivity, this value increases by 3.3 percent and 4.7 percent for solar in the years 2025 and 2026, respectively. For onshore wind, the corresponding increases are 3.6 percent and 7.6 percent. This is because the number of hours with negative prices decreases during periods when solar and wind plants can feed electricity into the grid. The increase in the sales volume for the unsubsidised plants significantly outweighs the loss in the capture rate.  

In summary, advancing the 1-hour rule under the German EEG-law would minimally impact average electricity prices and market values but significantly reduce negative price events. This change aligns with government efforts to stabilise the market and address concerns over increasing negative prices in recent years.