Electricity market liberalization – the same mistake, thirty years later: Why Germany's battery boom is currently heading for disaster

Bureaucracy instead of electricity: How grid operators are blocking the storage market in Germany

Déjà vu of the energy transition: Germany is repeating a fatal mistake from the 1990s

The German battery storage market is experiencing an unprecedented boom – yet a significant portion of this capacity never reaches consumers. While project developers are investing billions in new facilities, their realization is increasingly thwarted by a fatal regulatory vacuum regarding grid connection. Instead of uniform rules and transparent processes, investors encounter the bureaucratic arbitrariness of local grid monopolists. The situation resembles a historical déjà vu: Back in 1998, the liberalization of the electricity market threatened to fail precisely because of this "negotiated grid access," until legislators intervened with strict regulations in 2005. Today, thirty years later, this mistake is being repeated in the storage market. Electricity customers are bearing the consequences: Because completed batteries are being kept off the grid, the costs for congestion management are soaring into the billions. If the energy transition is not to fail due to a lack of infrastructure, policymakers must learn from history and finally regulate grid access for storage systems consistently.

Germany is repeating a regulatory misstep – and the energy transition is paying the price

The shadow of 1998: A liberalization that wasn't one

In April 1998, the amended Energy Industry Act came into force in Germany, formally opening up the German electricity market. Millions of households and businesses were to be able to freely choose their electricity supplier. The promise was far-reaching, but the reality was sobering. Germany opted for a model that was not used in any other member state of the European Union: the so-called negotiated network access. Instead of uniform government regulations, market participants were to negotiate among themselves the conditions under which a new electricity supplier could use the networks of established operators.

The problem was obvious and structurally unsolvable: anyone who has to negotiate with a monopolist without rules, deadlines, or minimum standards inevitably negotiates from a position of weakness. New electricity traders had to reach individual agreements with each of the approximately 1,000 network operators in Germany at the time regarding transmission prices, billing procedures, and technical specifications. The so-called industry agreements – VV I of 1998, VV II of 1999, and VV II+ of 2001 – were intended to create voluntary industry standards, but ultimately failed because they lacked any enforcement mechanism. Network operators could delay inquiries, impose exorbitant price demands, or simply ignore them – legally, because there were no binding sanctions. Only a few particularly persistent new providers survived this tactic of attrition.

The turning point of 2005: How regulation creates markets

Seven years after formal liberalization, the legislature drew the necessary conclusions. On July 13, 2005, the Second Act to Reorganize Energy Law came into force, ending Germany's special approach of negotiated network access. With the amendment to the Energy Industry Act (EnWG), uniform, binding rules for network access were introduced nationwide, accompanied by four ordinances on network access and network charges. At the same time, the Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railways, as it exists today, received its energy market-specific responsibilities and thus the supervisory function over network regulation.

The effect was immediately noticeable. With clear processes, standardized deadlines, and the possibility of having violations prosecuted by an authority, genuine equal opportunities for new market participants were created for the first time. Switching suppliers became practically manageable, and competition emerged in reality, not just on paper. What the market couldn't achieve on its own in seven years, the legislature accomplished in just a few months: a functioning infrastructure for competition. This is the central and timeless lesson from the electricity market of the late 1990s – and it is being repeated in Germany in 2026 in a remarkably direct way.

Déjà vu in the storage market: Growth without a regulatory framework

The battery storage market in Germany is experiencing unprecedented growth. By the end of 2025, around 2.4 million stationary battery storage systems with a total capacity of over 25 gigawatt-hours were in operation nationwide – a fivefold increase compared to 2020. In the first quarter of 2026 alone, more than two additional gigawatt-hours were newly installed, increasing the total to around 28 gigawatt-hours. The market for large-scale storage systems in the megawatt range nearly doubled its capacity in 2025, from around 450 megawatts to 842 megawatts of installed capacity. And the project pipeline for 2026 comprises a further 3.4 gigawatts, although industry experts anticipate that actual implementation will fall short of these forecasts – not due to a lack of demand, technology, or insufficient capital, but rather because of a structural regulatory deficit in grid connection.

The parallel to the 1998 liberalization of the electricity market is not metaphorical; it is mechanistic: Even today, there is no binding, nationwide regulatory framework for connecting large-scale battery storage systems to the grid. Grid operators can formulate technical requirements, set deadlines, or even leave inquiries completely unanswered at their own discretion. Project developers face the same dilemma as the electricity traders of the turn of the millennium: They negotiate with monopolists without rules, without deadlines, and without effective avenues for appeal. Negotiated grid access, officially overcome in the electricity market since 2005, persists in the battery storage market of 2026 – with the same dysfunctional consequences.

Technical bottlenecks: Where finished storage systems await acceptance

Connecting a large battery storage system to the grid is not a simple plug-and-play process. It begins with identifying a suitable grid connection point, meaning the physically and technically appropriate point of entry into the electricity grid. This initial step alone can take months because grid operators are not legally obligated to respond to applications within defined timeframes. This is followed by the development of a metering concept, the coordination of protection and control systems, grid feedback tests, and finally, the actual commissioning. Each of these steps is, in principle, the responsibility of the grid operator, who, however, has no economic incentive to expedite the process.

The result is a series of paradoxical situations that are now becoming increasingly common across Germany: Completed, multi-million-euro large-scale battery storage systems stand on their foundations, are technically ready for operation – yet cannot supply electricity because the grid operator's approval for operation is still pending. Within the industry, delays are measured not in weeks, but in quarters. Investors and project developers report inquiries that go unanswered, requirements that far exceed what is technically necessary for grid operation, and regionally inconsistent regulations: What works flawlessly for one distribution network operator fails due to bureaucratic opacity in the neighboring one. This is hardly what one would call economic efficiency.

The macroeconomic dimension of regulatory failure

The damage is not abstract. It can be measured in real figures. In 2024, the total costs of grid congestion management in Germany amounted to approximately €2.78 billion. In 2025, these costs reached approximately €3.1 billion. These sums, which are ultimately passed on to all electricity customers in the form of grid fees, arise primarily because the electricity grid lacks sufficient flexibility resources to balance supply and demand. Wind farms are curtailed, conventional power plants are ramped up to counter-current demand, and cross-border countertrading incurs further costs – all because battery storage systems, which could buffer these grid congestion cost-effectively, are either not connected to the grid or have no incentive to operate in a grid-friendly manner.

However, the systemic inefficiencies run deeper. Battery storage systems are technically capable of reducing peak loads, compensating for frequency fluctuations, and resolving local bottlenecks. They could replace some of the expensive fossil fuel-based balancing power, reduce the need for new grid expansion, and act as a flexible interface between fluctuating renewable energy feed-in and constant consumption. This potential remains untapped as long as market access depends on the goodwill of individual grid operators. The German Federal Ministry for Economic Affairs and Energy anticipates that installed storage capacity will need to increase to around 100 gigawatt-hours by 2030 to keep the energy transition on track. The gap between this target and current reality is caused by regulatory failure, not by technical limitations.

The regulatory thicket of 2026: Many laws, no system

It would be unfair to claim that legislators have not addressed the problem. By 2026, the regulatory landscape for battery storage is denser than ever before – but by no means more coherent. The amendment to the Energy Industry Act (EnWG) of November 2025 explicitly recognizes large-scale storage facilities as privileged infrastructure for the first time, promising accelerated permitting processes and the digitalization of grid connection procedures. However, the Geothermal Energy Acceleration Act, passed at the same time, immediately restricts this privilege: Building planning exemptions now only apply to storage facilities within a 200-meter radius of substations or in the immediate vicinity of large generation plants. The left hand takes back what the right hand gave.

Regarding grid connections, the German Building Code (Baugesetzbuch) will at least provide planning certainty for permitting procedures in rural areas from 2026 onwards, with battery storage systems with a storage capacity of one megawatt-hour or more now explicitly receiving preferential treatment. In parallel, the four German transmission system operators – 50Hertz, Amprion, TenneT Germany, and TransnetBW – replaced the previous first-come, first-served principle for allocating grid connection capacities in the high-voltage grid with a so-called maturity assessment procedure on April 1, 2026. This procedure will evaluate projects based on criteria such as land acquisition, permitting status, technical concept, economic viability, and grid and system benefits. A flat fee of €50,000 will be charged for each application; if a connection offer is accepted, an additional deposit of €1,500 per megawatt must be paid.

The maturity assessment procedure is an improvement over a completely unregulated state, but it doesn't solve the fundamental problem: it only applies to the high-voltage grid of the four transmission system operators. The far more numerous distribution system operators at the medium and low voltage levels remain unaffected by any comparable, binding procedure. For a large-scale battery project that is to be connected not to the high-voltage grid but to a regional distribution network, the old rules of negotiated grid access still apply. The coexistence of exceptions, transitional periods, parallel legal acts, and a lack of transitional mechanisms creates a regulatory vacuum that regularly presents even experienced project planners with insurmountable planning challenges.

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AgNes and the question of remuneration: Incentives without a foundation

While the structural issue of grid connection remains unresolved, the Federal Network Agency is addressing a fundamental reform of the grid fee system within the framework of the AgNes (General Grid Fee System for Electricity) determination procedure. The focus is on the planned abolition of the blanket 20-year grid fee exemption for storage facilities, which has so far applied according to Section 118 Paragraph 6 of the Energy Industry Act (EnWG). This will be replaced by a differentiated system of financing and incentive components: grid fees with a financing function ensure participation in grid costs, while dynamic energy prices with an incentive function are intended to reward system-serving behavior by storage facilities – i.e., charging during grid overcapacity and feeding power into the grid during bottleneck situations.

The Federal Network Agency justifies this reorganization with requirements of European law: A blanket exemption of storage facilities is not tenable under European law and is not conducive to energy policy. From the agency's perspective, incentives for behavior can only be created if network charges are generally levied. Industry associations, especially the German Energy Storage Association (BVES) and the German Association of New Energy Industries (bne), vehemently disagree. They demand strict protection for investments based on the previous legal framework and warn against a retroactive obligation to pay charges that could apply from September 2, 2021. For ongoing projects, such a regulation would amount to a partial expropriation of their calculated profitability. The investment uncertainty created by this regulatory pendulum further hinders new investments, in addition to the existing barriers to grid connection.

Network connectivity as a blind spot: The missed potential

A particularly serious oversight concerns the grid-supportive operation of battery storage systems. The distinction is fundamental, both technically and economically: A storage system that operates purely arbitrage-driven – charging cheaply and discharging expensively, solely based on wholesale electricity prices – can potentially have a procyclical effect on grid congestion. A storage system operated in a grid-supportive manner, on the other hand, charges specifically when the local grid is overloaded and feeds in power when bottlenecks occur. This reduces the need for redispatch, relieves the strain on infrastructure, and lowers grid expansion costs.

This systemic added value is currently neither adequately compensated nor systematically enforced. The Federal Network Agency recognizes the problem: Dynamic grid fees are intended to incentivize the system-serving behavior of storage facilities in the transmission grid and at the high-voltage level starting in 2029. However, this too is an incentive instrument, not a tool for market participation. Before storage facilities can operate in a grid-serving manner, they must first be connected to the grid – under fair, uniform, and transparent conditions. As long as grid access itself remains unregulated, any discussion about incentive structures and fee systems is built on sand. It's like debating parliamentary rules of procedure before it's even clear who will be granted access.

The institutional learning process: What succeeded in 2005 – and what is lacking today

In 2005, the conditions for a successful regulatory reform of electricity grid access were remarkably clear: there was political will within the Ministry of Economic Affairs, European pressure through the 2003 EU Acceleration Directives, and a newly established authority with an explicit regulatory mandate. The Federal Network Agency was not only entrusted with oversight but also given the power to actively set standards, review grid fees, and penalize violations. The result was a paradigm shift: negotiated grid access became regulated grid access, and a market sham became a genuine market.

What's missing in 2026 is the consistent application of this blueprint to the storage market. The institutional prerequisites are in place in principle. The Federal Network Agency has the expertise and the tools. The Ministry for Economic Affairs and Energy bears the political responsibility. EU regulations, in particular the Renewable Energy Directive (RED III) and the new Electricity Market Directive, provide the normative framework for integrating storage systems. What's lacking is the political will to implement this framework in a binding and comprehensive manner. Instead, a piecemeal approach prevails: preferential treatment in building regulations here, procedural changes for transmission system operators there, and debates about fees elsewhere. A coherent, system-oriented regulatory framework for the regulated grid access of battery storage systems – analogous to the 2005 amendment to the Energy Industry Act – is still missing.

Regulated framework conditions as a growth catalyst

The underlying economic logic behind the call for more regulation is counterintuitive, but empirically proven: It is not less regulation that creates markets, but rather well-designed regulation. The post-2005 electricity market is the German-specific case study. Internationally, there are others: In Great Britain, the so-called Contracts for Difference regime enabled rapid growth in the storage market because clear rules created planning certainty and thus a willingness to invest. In the USA, Federal Energy Regulatory Commission Order 841 of 2018 explicitly regulated the participation of storage facilities in wholesale markets, thereby mobilizing considerable capital.

Regulated grid access for battery storage systems in Germany would essentially mean three things: first, uniform, nationwide binding process standards for grid connections – with defined deadlines, standardized technical requirements, and a manageable complaints procedure; second, clear, comprehensible criteria for grid-neutral and grid-supportive operating modes of storage systems; and third, a remuneration mechanism for actual system-supportive services, which incentivizes storage operators not only to optimize arbitrage profits but also to actively contribute to grid stability. All of this is technically feasible and institutionally implementable. What's lacking is the framework, not the substance.

Between pipeline and implementation gap: The lost gigawatts

The gap between what is possible and what is actually realized is not an abstract concept. At the end of 2025, the project pipeline for large-scale battery storage in Germany comprised a total of 9.5 gigawatts, of which 5.6 gigawatts were slated to be connected to the grid by the end of 2026 and 2027. Market analysts' more realistic assessment assumes that a significant portion of these projects will not be completed on time due to grid connection delays. Every gigawatt of battery storage capacity that does not go into operation as planned represents an investment volume of roughly 500 million to one billion euros that remains unused, and a corresponding loss of flexibility for the electricity system.

The Federal Network Agency itself has pointed out that an uncontrolled expansion of grid connections for battery storage to up to 500 gigawatts would overload the grid and cause costs to skyrocket. This statement is technically sound, but should not be interpreted as an argument against regulation, but rather as an argument for smart regulation. Not every connection makes sense, not every capacity is beneficial to the system – but precisely for this reason, transparent criteria are needed for prioritization and decision-making, not informal decisions by individual grid operators based on their own discretion. The maturity assessment procedure for transmission system operators is a step in the right direction – but it only addresses one end of the value chain and leaves the distribution network untouched.

Reform options: What regulated network access would actually have to mean

A regulated grid access system for battery storage systems, one that takes the lessons learned from 1998 to 2005 seriously, would essentially have to address five dimensions. First, binding application deadlines are needed: grid operators must be obligated to respond to grid connection applications within defined timeframes, communicate capacity bottlenecks transparently, and justify rejections with verifiable technical reasons. Second, nationally standardized minimum technical standards are required for the connection and operation of battery storage systems. These standards safeguard the legitimate interest of grid operators in grid stability without permitting any additional special requirements. Third, process costs must be distributed fairly – construction cost subsidies must not burden project developers to such an extent that investments become uneconomical, as the German Battery Energy Society (BVES) rightly criticizes.

Fourth, a clear set of rules for grid-friendly operating practices is long overdue. Storage facilities that demonstrably operate in a grid-friendly manner should not only be rewarded with dynamic grid fees, but also receive preferential grid access. This creates incentives for economically desirable behavior and avoids the erratic arbitrage storage systems criticized by the Federal Network Agency. Fifth, an independent regulatory authority with genuine sanctioning powers is needed – and here the Federal Network Agency already has an obligation to use its existing instruments more consistently. The parallel to 2005 is clear here as well: only when the regulatory authority actually had the powers and used them did the behavior of the grid operators change.

Political responsibility in a time of upheaval

The political dimension of this issue should not be underestimated. Germany is undergoing a period of accelerated structural change in its energy supply. The share of renewable energies in electricity generation is continuously increasing, the volatility of feed-in is growing, and the need for controllable flexibility is increasing proportionally. Battery storage is not a supplementary technology in this context, but rather a system infrastructure that is increasingly taking over the function previously performed by fossil fuel peak-load power plants. Policymakers have emphasized the need to better synchronize the expansion of renewable energies with grid expansion, both spatially and temporally. Battery storage is a more cost-effective and faster-to-implement instrument than grid expansion – but only if it can actually be integrated into the grid.

The political paradox lies in the fact that, on the one hand, legislators are setting ambitious climate protection targets and renewable energy expansion goals, while on the other hand, they are leaving the regulatory framework for the necessary system infrastructure incomplete. This is no coincidence, but rather the result of a complex web of interests: Established grid operators benefit from the status quo and have little incentive to restrict their room for maneuver through binding rules. New players, on the other hand—project developers, investors, technology companies—are numerous and well-capitalized, but less politically consolidated than the traditional energy sector. Legislators are thus faced with the classic regulatory challenge: They must create a market that market participants cannot, or do not want to, create on their own.

The time horizon is decisive: regulation now or billions in costs later

The timing of this decision is critical. Every year without regulated grid access for battery storage is a year in which grid congestion management costs billions, in which investments are either not made or flow abroad, and in which the gap between the expansion target and reality widens. The German government has set the goal of increasing installed battery storage capacity to around 100 gigawatt-hours by 2030. At the current rate of expansion and with the existing regulatory framework, this goal is hardly achievable. The pipeline is there, the capital is there, the technology is there – what's missing is the regulatory key that unlocks the door.

History teaches us that the 2005 amendment to the Energy Industry Act (EnWG) took months, not years, to have an effect. Uniform rules, enforceable standards, and a competent regulatory authority can transform markets quickly. What Germany needs for the battery boom of 2026 is not more patience, but more determination. The Federal Ministry for Economic Affairs and Energy and the Federal Network Agency jointly possess the legal instruments to bring about this transformation. The question is neither technical nor institutional. It is political.

Thirty years after the first attempt to liberalize the German electricity market, and twenty years after the success of the regulatory solution, Germany is once again at a crossroads. The battery boom is real, the demand is urgent, and the blueprint for the solution lies in the Federal Archives. It would be an extraordinary failure to have to learn the same lesson twice.