f97.beERIK SCHMIDT’S WORKSHOP
← All terms

Glossary · Energy industry & energy transition

Curtailment compensation

Curtailment compensation Curtailment Lost energy redispatch renewable energies compensation grid congestion grid fees

Curtailment compensation is financial compensation for economic losses when a grid operator reduces the feed-in from an available generating installation to safeguard the electricity grid. It is not payment for electricity actually delivered by that installation. In German law, the term used in connection with redispatch is appropriate financial compensation. Not every instance of technically possible electricity generation that did not take place therefore gives rise to a claim for payment.

It helps to distinguish three levels: Curtailment is the technical intervention. Curtailed energy describes the resulting loss of feed-in in kilowatt-hours or megawatt-hours. Compensation assesses the economic consequences in euros. These quantities are related but not interchangeable: a given amount of lost electricity does not in itself result in the same monetary amount for every installation.

The German redispatch system

The following legal context relates to Germany and was reviewed as at 11 November 2026. The main provisions are § 13a EnWG and, additionally for distribution grids, § 14 EnWG. They cover generating and storage installations with a rated capacity of at least 100 kilowatts, as well as smaller installations if a grid operator can remotely control them at any time. The class of installation and the specific legal basis for the intervention remain decisive for compensation.

Since 1 October 2021, renewable generating installations have been included in the expanded redispatch system. The former feed-in management regime is therefore important for historical measures, but it does not adequately describe the current procedure. Compensation is not limited to wind and solar installations: biomass installations, combined heat and power installations, conventional power plants and storage facilities can also be affected by ordered adjustments.

A simplified grid illustration helps explain this: a power line connects a region with substantial generation to a major consumption centre. If planned feed-in would overload the line, a reduction on the generation side combined with an increase on the other side can reduce the need for transmission. In this example, there is not necessarily a lack of demand across the electricity system as a whole. Rather, the electricity cannot reach where it is needed in the desired quantity.

How a power reduction becomes curtailed energy

What is curtailed is power, measured for example in megawatts. The lost energy is calculated from the power difference over the duration of the measure. The installed capacity of the installation is not automatically decisive. What matters is the feed-in that could have been expected under the actual conditions without the intervention. Independent constraints such as maintenance, technical unavailability or market-driven reductions must be taken into account.

A hypothetical calculation illustrates the difference: a wind farm could have fed in a steady 8 megawatts for half an hour. The grid operator limits it to 3 megawatts. The difference is 5 megawatts; multiplied by 0.5 hours, this gives 2.5 megawatt-hours of curtailed energy. That is equivalent to 2,500 kilowatt-hours. In this example, the remaining 1.5 megawatt-hours are actually fed in.

If only 4 megawatts had been available at the same wind farm because of weaker winds, limiting it to 3 megawatts for the same half-hour would result in only 0.5 megawatt-hours of curtailed energy. A calculation based on rated capacity would overestimate the loss. Likewise, a part of the installation that was already idle independently of the grid intervention must not be treated as though it could have generated without restriction.

For wind and solar, the feed-in that did not occur is by nature not a directly readable meter value. It must be reconstructed in a verifiable manner using suitable operational, weather or reference data. In practice, the assessment should therefore answer two separate questions: is the assumed quantity of energy plausible, and is its financial valuation correct? A correctly calculated euro amount is of no use if the underlying quantity of electricity is already wrong.

What is compensated financially

The underlying legal principle is that, taking balancing compensation into account, the operator should be economically neither better nor worse off than without the measure. For reductions in renewable generation and CHP electricity, lost revenue and additional expenses are taken into account, with avoided expenses deducted. For other installations, the components of compensation differ in some respects.

The shorthand formula “curtailed energy multiplied by remuneration” is therefore only an initial guide. It is necessary to examine which revenues are actually lost, which additional costs arise and which costs are avoided. Marketing contracts and compensation already received may also be relevant to settlement. A curtailed megawatt-hour cannot simply be treated both as fully lost sales revenue and as a delivery quantity that has already been replaced.

For a purely illustrative rough calculation, suppose the 2.5 megawatt-hours calculated above are valued at an assumed economic loss of 80 euros per megawatt-hour. This would initially give 200 euros. The 80 euros is not a statutory compensation rate. If settlement showed, for example, that 150 euros of the assumed loss had already been compensated elsewhere, an additional 200 euros could not be claimed unchanged for the same loss. The example explains how amounts are offset but does not replace a calculation of a specific claim.

Financial compensation and balancing compensation are different

Financial compensation concerns the economic position of the installation operator. Balancing compensation, by contrast, concerns the allocation of energy quantities within the balance group. An installation may already have sold electricity that it does not generate because of redispatch. In that case, the resulting quantity imbalance must be addressed in addition to the operator's individual loss of revenue. The two levels must not be conflated in explanations or settlement.

Special statutory rules have applied to distribution grids since the end of 2025: until 31 December 2031, targeted balancing compensation is provided by the distribution grid operator only in accordance with a determination by the Bundesnetzagentur. If it is not provided, § 14(1b) EnWG generally provides for appropriate reimbursement of expenses for balancing compensation carried out by other means; installations receiving the EEG feed-in tariff are exempt from this provision. On 7 May 2026, the Bundesnetzagentur decided on further development of balancing compensation.

When compensation does not arise automatically

A shutdown motivated by economic considerations is not the same as an ordered grid intervention. If feed-in is reduced because of unfavourable marketing conditions, that alone does not constitute a redispatch measure requiring compensation. Even when electricity prices are negative, it is therefore important to distinguish carefully: why was the installation shut down, what generation would have occurred without the intervention, and what revenue would actually have arisen?

Another important limit concerns flexible grid connection agreements under § 8a EEG. If maximum feed-in capacity is contractually limited, compliance with that limit is, according to the Bundesnetzagentur's classification, generally not an additional redispatch restriction on existing grid access. A claim for redispatch compensation does not arise solely because feed-in did not take place. If the grid operator reduces feed-in beyond that limit, however, a redispatch measure may be involved.

Political proposals for change must be distinguished from this. The grid connection package debated in parliament in 2026 contains a proposed redispatch reservation for certain new renewable energy installations. A draft law is not, however, an existing legal basis for a claim. Its proposed restrictions must not be applied indiscriminately to existing installations or ongoing settlements.

Cost allocation and economic incentives

Compensation shifts a grid risk from the individual installation operator to the party designated by law to bear the costs. Its regulatory treatment links it to grid charges. It is also only one part of system costs: a compensation payment to a curtailed operator must not be equated with the total cost of a redispatch measure or of grid congestion management. Settlement between grid operators generally follows the principle that the requesting party bears the costs.

From an economic perspective, cost allocation must be distinguished from solving the problem. A payment can protect an operator from a loss, but it does not eliminate the congestion. Conversely, the technical congestion does not disappear because an operator receives no payment. When assessing a reform, separate questions should therefore be asked about who bears the risk and which rule actually leads to less congestion or less costly countermeasures.

Potential perverse incentives can also be assessed in this way: if every economic loss were compensated regardless of location, connection agreement and the operator's own conduct, the incentive to adapt would be weaker. Conversely, if an operator had to bear unlimited responsibility for unpredictable grid constraints, this could make a project harder to finance. A workable arrangement must balance investment protection, individual responsibility and signals that reflect responsibility for costs.

Not every instance of avoided curtailment justifies unlimited expenditure. Suppose an additional grid reinforcement would accommodate only a few very short feed-in peaks: its additional benefit must then be compared with its investment and operating costs. The calculation may be different where restrictions are frequent and long-lasting. The useful question is therefore not “curtailment or no curtailment?” but “which combination uses energy and infrastructure most economically overall?”

Storage, flexibility and security of supply

A thought experiment shows why the location of storage matters: if the overloaded line lies between a wind farm and a city, a storage facility charging near the wind farm can reduce the transmission required. A storage facility in the city, by contrast, would also have to draw its charging electricity over that line. It therefore does not automatically solve the same congestion problem. In addition, a suitable storage facility must have spare charging capacity at the right moment.

The same geographical principle applies to demand-side flexibility. An additional consumer on the generation side of the hypothetical bottleneck can use electricity there that would otherwise have to be transmitted. The same increase in consumption on the other side can increase the need for transmission. Low exchange prices alone therefore do not determine which local operating pattern relieves the grid.

A compensation amount alone also provides no clear conclusion about security of supply. Prevented feed-in at one location during a particular hour does not mean either that sufficient electricity is available everywhere or that reserve capacity is unnecessary at other times. An objective assessment must consider location, timing, available capacity and transmission options together.

Curtailment compensation is therefore primarily a question of valuation and allocation. Anyone assessing it should examine four quantities separately: the feed-in possible without intervention, the quantity of energy actually lost, the remaining economic loss and the applicable compensation rule. Only this separation makes clear what is being paid for and which technical challenge remains despite the payment.

Sources

Related glossary entries

Edited by eCMS on 11.11.2026 06:19

© 2026 Erik Schmidt. All rights reserved. Quotations with a link to the source are welcome.