Electricity prices may lie, but the power grid does not.

Twenty-five years ago, an ordinary German family received an electricity bill. A new line had appeared on it: Renewable Energy Surcharge.

The amount isn't large. For an average family, it might just be the price of a few more cups of coffee each month, but it carries a morally relatable message: paying a little more helps the country burn less coal and build more wind turbines and solar panels, keeping the next generation away from nuclear power and coal smoke.

That family probably never imagined that more than 20 years later, those words would disappear from the bill, but the bill would not become lighter as a result.

Money can change its name, costs can change their category, and a line on a bill can be transferred by the treasury, but the physical constraints within the power grid will not disappear. Where the electricity originates, through which lines, and to which factories and households; who generates more and who uses less; who creates the imbalance and who ultimately bears the cost—all of these will come back to a certain bill, a certain price, and a certain system cost.

Electricity prices are sometimes subject to policy changes, but the power grid is not.

(Image caption ) The dense array of wind turbines along the North Sea coast in northern Germany symbolizes the large number of newly built renewable energy sources in the early stages of the energy transition. However, due to the mismatch between their geographical distribution and the existing power grid, they pose a potential risk of future transmission congestion.

An effective system

The early designs for Germany's energy transition did not seem absurd at the time.

In 1991, the Electricity Grid Connection Act required the grid to accept renewable energy. In 2000, the Renewable Energy Sources Act pushed this system towards fixed purchase prices and long-term guarantees. Wind and solar power are costly, and investors are most afraid of market volatility. Germany's answer is: as long as compliant power plants are built, the returns for many years to come are guaranteed by the system.

This arrangement shifts investment risk away from private capital and distributes it among all electricity users. It encourages banks to lend, encourages companies to build, and has quickly made Germany a global model for renewable energy development.

The problems also arise from this.

Subsidies turned power plant construction into a low-risk business, naturally attracting investors to the best wind and solar power locations. Northern Germany, bordering the North Sea and the Baltic Sea, boasts excellent wind resources, and wind farms quickly sprang up across the region. However, Germany's true power centers are in the south. Bavarian automobile factories and Baden-Württemberg's machinery manufacturing have long relied on nearby coal and nuclear power plants.

The new power source is in the north, while the old loads are in the south. The wind turbines are running, but the power lines are still from the old era.

Unified electricity pricing and invisible congestion

Germany has chosen a nationwide uniform electricity price.

This makes sense in a federal country that is particularly sensitive to the sense of community: if the north has cheap electricity due to abundant wind power, while the south has expensive electricity due to heavy industrial load, then electricity prices are no longer just market figures, but also become part of regional relations, industrial interests, and political sentiments.

Unlike the US PJM, which uses nodal pricing to reflect the true cost at each congested point, Germany maintains a seemingly fair national price.

The differences that have been smoothed out by price will not disappear; they will simply return in a different form.

That method is called reallocation. When there is too much wind power in the north and the transmission channels are too full, the power grid company will reduce the output in the north to compensate the power plants that are forced to reduce their output; at the same time, it will start thermal power or gas turbine units in the south to make up for the load gap.

In 2023, the cost of managing grid congestion in Germany was approximately €3.1 billion. This amount is not the renewable energy surcharge of yesteryear, but it is still a systemic cost resulting from the failure to address energy transition in a timely manner.

Politics can demand fairness on paper, but physics only recognizes line capacity.

A belated north-south artery

Germany later realized where the problem lay.

SuedLink thus became one of the most important power transmission projects in Germany's energy transition. This approximately 700-kilometer-long high-voltage direct current line was planned to transmit wind power from the north to southern industrial areas such as Bavaria and Baden-Württemberg. It originally carried a clear timeline: after Germany shut down its last batch of nuclear power units, the south needed a new, stable power source to fill the gap.

The project was not completed on time.

Residents along the route opposed the overhead high-voltage power lines, citing concerns about the landscape, land use, and health risks. The plan was forced to largely replace them with underground cables, increasing costs and extending the construction period; officials currently project completion around 2028.

Energy transition often sounds breezy in press releases: wind, solar, zero carbon, the future. But on the ground, it translates to a power line, a piece of land, and the objections of a group of residents. Without power lines, the wind from the north can hardly be converted into electricity in factories in the south; without land and social acceptance, even the most comprehensive plan will remain only on paper.

(Image caption ) At the construction site of the SuedLink high-voltage direct current transmission line project in Germany, this crucial artery connecting north winds to the south has been delayed due to factors such as the rerouting of underground cables and residents' opposition, highlighting the real challenges of physical infrastructure in the energy transition.

The system started crying out in pain.

As the proportion of wind and solar power increases, negative electricity prices have become more frequent in Germany.

Negative electricity prices may sound unusual, but they are actually quite honest. On a sunny, windy midday when demand is low, both wind and solar power are operating at full capacity. However, inter-regional power transmission capacity is insufficient, resulting in an oversupply of electricity that the market is unwilling to accept, causing prices to fall below zero.

The system is saying: At this moment, in this place, there is already too much electricity.

The problem is that not everyone can hear it.

If a power plant's revenue relies primarily on fixed subsidies and long-term guarantees, it becomes less sensitive to prices. When prices fall into negative territory, the market demands its closure; however, institutional guarantees may still encourage it to generate electricity. Germany later tightened regulations, requiring the elimination or restriction of subsidies during periods of negative electricity prices, but this step came relatively late.

Years of fixed-income guarantees have created a pool of existing assets. These assets rely on old contracts, old systems, and old profit models, and are not easily stopped by new prices.

What energy policy fears most is not making a mistake today, but rather that doing something right today will become a difficult-to-remove habit in the future.

A New Topic in China: Direct Green Electricity Connection

China is facing the same problem, but with different timing, institutional, and industrial backgrounds.

In 2025, China released its green electricity direct connection policy, recognizing a new power supply method at the national level for the first time: renewable energy does not need to be fully connected to the public grid and then distributed to unknown users by the grid; it can be directly supplied to specific enterprises through dedicated lines. In 2026, the policy was further expanded to multi-user scenarios, where a single dedicated line can serve multiple different legal entities.

This step reverses Germany's original approach of "building power sources first, then figuring out how to transmit them." Before the project is even approved, several questions need to be answered: Who will use this power? How much will they use? What happens if they don't use it all? How will backfeeding be limited? Can the self-consumption ratio be met?

This is both a system-based approach and an engineering-based approach.

This also addresses a very real need: export-oriented manufacturing companies need to prove they are genuinely using green electricity. EU battery regulations, carbon footprint disclosure, and battery passports are transforming green electricity from a corporate image issue into a market access issue. In the past, companies could purchase green certificates, conduct carbon accounting, and seek third-party verification, but the process was complex and easily affected by rule changes.

Green electricity direct connection makes it possible to verify, through engineering, where the electricity comes from, which line it enters, and which electricity-consuming unit it supplies. The value of pilot projects in coastal renewable energy cities like Yancheng and Yangjiang lies precisely in this: enterprises that connect to the network receive not only electricity price discounts, but also an energy compliance passport to enter the international market.

But compliance is not the energy transition itself.

If companies only connect their export production lines to green electricity direct connection while other production lines continue to use conventional electricity, the only change may be in the product label, not the overall energy structure. Once Europe changes its accounting methods in the future, shifting from production line-based emissions tracking to regional or national average emissions, the return logic for dedicated power lines, substation facilities, and energy storage projects invested in for specific compliance rules will also loosen.

The most solid value of direct green electricity connections should be based on the unchanging fact that local renewable energy is truly being absorbed, rather than on whether others recognize this changeable fact.

(Image caption ) The scene of large-scale wind and solar power bases adjacent to industrial parks in China reflects the engineering concept of "source-load matching" under the green electricity direct connection policy, which allows new energy to be directly supplied to specific enterprises through dedicated lines, serving as a passport for carbon compliance in the international market.

Who was left on the public power grid?

Those capable of direct green electricity connections are typically newly built large factories, data centers, and battery and materials companies. They consume large amounts of electricity, have strong negotiating power, and also have the capital to invest in dedicated power lines, energy storage, and supporting facilities.

If a large number of these high-quality users are withdrawn from the public power grid, what remains are residents, small and medium-sized enterprises, and existing users who lack the capacity to build their own systems. The public costs of transmission, distribution, reserve capacity, safe dispatch, and extreme weather protection will not decrease accordingly.

In Germany, residential and small-to-medium-sized users have long borne higher prices, while some industrial users enjoy price reductions. In China, for many years, industrial and commercial electricity prices have been higher than residential prices, with industrial and commercial users supporting lower residential electricity prices to some extent.

If China's largest industrial and commercial users, who are most capable of direct green electricity connections, gradually leave the public power grid, what will be taken away is not only the base for sharing fixed costs, but also the part with the greatest ability to pay cross-subsidies.

This is not enough to negate the value of direct green electricity connections, but it reminds us that it needs to be measured within the public finance structure of the entire power grid, rather than just looking at the revenue statement of a single project.

Negative electricity prices are also starting to be heard in China.

Almost simultaneously with the promotion of direct green electricity connections, China's electricity market also began to see zero electricity prices, low electricity prices, and negative electricity prices.

This indicates that the market is reflecting true supply and demand. The causes in China are more complex than in Germany: hydropower during the flood season in the southwest, heat-driven power generation in the "Three Norths" region, minimum safe output for thermal power, the boundary between inter-provincial trading and intra-provincial markets, and the rapid growth of distributed photovoltaic power. New energy sources are not simply encountering demand, but rather a massive and still highly rigid traditional power system.

Document No. 136 promotes the full entry of new energy vehicles into the market, with the aim of gradually bringing new energy vehicles into line with real prices. However, whether prices can play a role depends on the design of the protection mechanism.

If the contract for difference (CFD) price and contracted electricity volume remain too closely tied to actual power generation, power producers may still choose to generate electricity even during periods of negative electricity prices. This is because the more they generate, the closer they are to securing their revenue, and the weaker the price signal will be due to the subsidy logic. Only if the CFD can decouple compensation from actual power generation can prices effectively remove generating units from periods when they shouldn't be generating.

This seemingly simple arithmetic problem will determine whether China will repeat Germany's old problem of its existing assets being insensitive to price fluctuations.

At the same time, China is also strengthening green certificates and the responsibility for renewable energy consumption, gradually shifting the benefits of new energy from fixed electricity prices to the separation of electricity value and environmental value. This is more flexible than long-term fixed subsidies, but certificates can prove environmental attributes but cannot change the power grid trend; they can help companies complete carbon accounting but cannot replace energy storage, demand response, and inter-regional power transmission.

Two sides of intelligent load

Data centers, AI training, and inference services are creating new electricity demands.

These loads are more concentrated than residential electricity consumption, more predictable than ordinary commercial electricity consumption, and have a greater capacity to sign long-term contracts, connect to green electricity, build energy storage, and even promote the integration of power generation, grid, load, and storage. This will amplify the value of direct green electricity connections, but it will also amplify its risks.

If large data centers can be directly connected to renewable energy bases, it can indeed help with local energy consumption and provide proof of low-carbon electricity for computing power. However, once a large number of high-quality AI loads are disconnected from the public power grid, the issue of cost sharing will become more acute.

Virtual power plants, demand response, and new energy storage are all on the right track, but the German experience suggests that technology is never everything. Germany has had mature virtual power plant operators for a long time, yet it still faces negative electricity prices and rising reschedule costs. The reason is not whether the technology is advanced, but whether the entities that should be mobilized have the incentive to be mobilized.

If the revenue of existing power plants is protected by old contracts and is not sensitive to prices, it is difficult to shut down virtual power plants at the wrong time, no matter how smart they are.

Energy systems are ultimately composed not of equipment, but of incentives. AI can make scheduling smarter, but it cannot hold institutions accountable.

(Image caption ) China's data center's green electricity direct connection model integrating wind, solar and energy storage not only provides low-carbon electricity for AI computing power, but also highlights the new issue of cost sharing after high-quality loads are disconnected from the public grid, reminding us that the system design needs to take into account the overall grid balance.

Germany hasn't lost, and China hasn't won yet.

Putting Germany and China together could easily lead to a straightforward story of victory and defeat. That approach is too simplistic.

Germany's high costs drove down global wind and solar costs, bringing renewable energy from the margins to the mainstream and leaving behind a complete institutional model. Its problem is that many of the early, rational choices have become entrenched two decades later: fixed subsidies, uniform electricity prices, north-to-south wind transmission, grid lag, and existing assets being insensitive to price fluctuations.

China did not receive the perfect answer in advance either.

Direct green electricity connections can address source-load matching in advance, but may bring new issues to the cost sharing of the public power grid; mechanism-based electricity pricing can buffer the impact of new energy entering the market, but may weaken the negative electricity price signal; green certificates and virtual power plants can improve efficiency, but cannot replace the boundaries of responsibility and cost sharing.

The energy transition is not a moral narrative. It's a very long balance sheet.

Twenty-five years ago, that line of surcharges on a German electricity bill seemed like a clear cost. It was only later that people discovered the truly expensive parts were in the transmission lines, in redistribution, in negative electricity prices, in the gas crisis, in the lack of timely flexibility, and in the real differences that a country delayed exposing in order to maintain price parity.

The problems China faces today will also appear in the self-consumption ratio of green electricity direct-connection projects, in the power contracts of data centers, in the negative electricity prices on a certain afternoon during the Spring Festival, in the cross-subsidies between residential and industrial and commercial users, and in the redistribution after the national unified electricity market is truly established in the future.

The most dangerous thing about an energy system is a superficial stability: no price fluctuations, no unusual bills, and everyone assumes the system is healthy. Only when power lines become congested, gas prices rise, negative electricity prices arrive, subsidies can't be withdrawn, and prime loads leave the public grid, do people realize that the truths that weren't revealed by prices all those years had actually been accumulating elsewhere.

Electricity prices may lie, but the power grid does not.

Germany's account is not yet settled, and China's answer has only just begun.

Disclaimer:

This article is for energy policy and electricity market research and commentary only, and does not constitute investment, legal, transaction, or project decision-making advice. The information in this article comes from publicly available information and the author's professional judgment; relevant policies and data may change over time. Readers should verify and consult with professional institutions before making any business, investment, or compliance decisions.