The energy puzzle: what’s behind Germany’s energy crisis?

In December 2024, Germany’s energy market faced an unprecedented shock. “Anyone who wanted to buy a megawatt-hour for the next day on the Leipzig electricity exchange at 5 p.m. on Thursday (December 12th, 2024) had to pay 936 euros for it.” die Zeit reported. While rising energy prices have been a global concern in recent years—driven by the COVID-19 pandemic and geopolitical tensions in the Middle East—Germany’s situation stands out for its unique complexity. This article provides a high-level overview of the key factors at play, ultimately highlighting an unexpected centerpiece of the crisis: the role of renewable energy sources.

The German context

Over the past few years, Germany has grappled with a sharp rise in energy prices, driven by a complex interplay of global, European, and domestic factors. The roots of the crisis can be traced back to the aftermath of the COVID-19 pandemic, when global energy demand surged more quickly than supply could rebound, triggering significant price spikes. This situation was further exacerbated in 2022 with the onset of the Russia-Ukraine war.

Russian’s natural gas accounted for over 50% of Germany’s imports. When Russia cut gas supplies to Europe, the country was forced to turn to alternative sources such as liquefied natural gas (LNG), which came at a much higher cost.

Domestically, both households and energy-intensive industries have faced historically high electricity prices, partly due to taxes, grid fees, and surcharges like the EEG levy to support renewable energy development. As a matter of fact, Germany ranks third among the top economies with the highest energy prices, after the United States and China.

However, at the heart of the recent energy crisis lies Germany’s ambitious energy transition, or Energiewende. The country has been moving rapidly toward renewable energy while phasing out nuclear and coal power. Although this transition aims to ensure long-term sustainability, it has presented significant short-term challenges. These include the need for reliable backup energy sources and costly infrastructure investments, both of which have further contributed to the escalating energy prices.

Leaning on green power

The energy transition is at the center of our analysis. Since more than a decade Germany has been gradually increasing its renewable energy share. In 2022 it was at 46%, rising by 5% in a year. The Government’s goal is to reach 80% by 2030 and yet achieve a largely decarbonized power supply by 2035.

This transition became particularly relevant in December 2024, when the energy prices spiked. As the die Zeit explained, multiple reasons concurred to this peak: on one hand, the conflict in the Middle East had risen gas prices globally. On the other, the electricity production which decreased dramatically in the previous days along with Germans strong reliance on renewable sources.

As the energy demand was gradually increasing due to harsh winter days, wind and solar power production diminished by nearly 50%. The reason is known as “Dunkelflaute”; a period common in the winter months, in which wind and sun are scarce and therefore renewable energy production is limited. This is a frequent occurrence not only in Germany, but in the Netherlands, Austria, Norway and Denmark too.

During such periods, appeal to fossil energy sources seems to be the only solution possible to balance supply. Gas power plants, in particular, are being deployed since can be swiftly brought online to meet the demand. The adjustment of supply to demand, known as “dispatch,” has been further complicated by the rising gas price, which driven electricity prices higher.

Implications

Germany’s energy challenge proves how critical it is to keep on improving energy optimization and conservation strategies as a way to cope with existing grid’s vulnerability and skyrocketing prices.

Energy Management Systems (EMS) play a pivotal role in addressing these challenges by optimizing energy consumption and integrating renewable energy sources more effectively. EMS efficently monitor and improve energy usage across industrial plants while reducing unnecessary consumption. An EMS provides real-time data and insights that help companies identify energy inefficiencies and develop strategies to mitigate them. Additionally, EMS platforms often prevent energy losses through the use of predictive maintenance tools that detect potential equipment failures early.

By implementing an EMS, companies can achieve significant cost savings, enhance energy security, improve operational resilience, and contribute to environmental sustainability. The advantages of integrating an EMS with renewable energy sources are:

• Load balancing: An EMS can manage and balance energy loads by coordinating the use of renewable energy, energy storage systems, and grid electricity. Our platform E-BOOST, offers advanced features for optimal asset management, including peak load management to optimize energy consumption and production based on actual needs.
• Demand response: EMS can adjust energy consumption patterns in response to real-time data, shifting usage to times when renewable energy is abundant or electricity prices are lower. E-BOOST’s dashboard shows real time market prices and fluctuations, enabling companies to decide daily when to consume or produce more energy. This flexibility alleviates grid stress and minimizes energy costs for consumers.
• Energy storage integration: By managing energy storage systems, an EMS can store excess renewable energy during periods of high generation and deploy it when needed, ensuring a continuous and reliable energy supply.

While expanding renewable energy capacity is essential for a sustainable future, energy efficiency is equally crucial. EMS enhance the efficiency and reliability of energy consumption, mitigate the impacts of renewable energy intermittency, and contribute to energy conservation efforts. By adopting an EMS, industries can play a proactive role in stabilizing energy costs and promoting environmental sustainability.

Veil Energy’s role

At Veil Energy, we are leading the way when it comes to fostering energy efficiency. We strive to facilitate the energy transition by providing an innovative energy management software. E-BOOST provides real-time monitoring, predictive analytics and automation to ensure efficient energy consumption, improved grid stability and proactive maintenance. By engaging users and facilitating transparent data access, we help organisations reduce costs, increase sustainability and effectively achieve their energy goals.

Do not hesitate to contact us for a demo, energy audit or more information about our services!