Special Report pursuant to Sec. 62 of the Law on the Energy Industry, Bonn, 6 October 2015

  • Monopolies Commission sees significant risks in the concept of an „Electricity Market 2.0", which can have repercussions on market prices and the capacity level.
  • Monopolies Commission recommends various measures to reduce the necessity of grid extension.

The German Monopolies Commission (Monopolkommission) has submitted its Special Report under Sec. 62 of the Law on the Energy Industry today, bearing the title: "Energy 2015: A competitive market design for the Energiewende" („Energie 2015: Ein wettbewerbliches Marktdesign für die Energiewende"). This Special Report examines the situation of competition on the electricity and gas markets and analyses the existing problems in the energy sector. The Monopolies Commission puts special emphasis on topics related to the design of the Energiewende (= Energy Turnaround).

The Monopolies Commission considers the planned evolution of the existing design of the energy markets directed towards an "Electricity Market 2.0" as a potential solution, which is however fraught with significant risks. "Only the consequent use of competitive instruments for the implementation of the Energiewende allows to effectively limit the costs of the Energiewende", says the chair of the Monopolies Commission, Prof. Daniel Zimmer.

The Federal Minister for the Economy and Energy plans to guarantee the security of supply by building up a capacity reserve, a plan which the Monopolies Commission sees critically. Since a reserve entails considerable efficiency risks, it should be subject to strict conditions, limited in size, and only be used as a temporary instrument. The Monopolies Commission sees critically the plan to transfer lignite-fired power plants into the capacity reserve, which is being considered for environmental reasons. This technology-specific intervention will entail high costs, but it will not reduce CO2 emissions as these are pre-defined by the EU emission trade system.

In the concept of the Federal Minister for the Economy and Energy, potential problems of the market power of energy suppliers only play a marginal role in comparison with the dangers to supply security. The market power indices calculated by the Monopolies Commission, e.g. the Residual Supply Index (RSI), indicate that currently no problem of market power exists in electricity wholesale and that overcapacities reduce prices and the propensity to invest. That being said, the reduction of overcapacities, which will become an issue in the Electricity Market 2.0, may lead to a reemergence of significantly higher market prices in the future. The Federal Cartel Office and the Federal Network Agency, thus, have the challenging task to distinguish excessive prices exclusively due to market power from other pricing. A particularly counterproductive measure is in this context the market power report foreseen in the ministerial draft for an Electricity Market Law, which the Federal Cartel Office will have to produce. Due to its design, this report will exclude some companies from the control of abusive practices. This could entail higher prices and, in the long run, new overcapacities.

With regard to renewable energies, the Federal Government's plans go into the direction of abolishing the determination of subsidy levels by law, and of determining them instead through tendering procedures in the form of auctions. The abandonment of the existing subsidy system is linked to the hope of a stronger orientation towards competition and a concomitant reduction of costs. The Monopolies Commission welcomes the efforts to create a more competitive subsidy system through the change towards a tendering model. That being said, it cautions that the systemic change will not lead to notable improvements without adequate surrounding conditions. The Monopolies Commission takes a particularly critical view of the fact that the new tendering system continues to differentiate the auctions based on technology. By using technology-neutral auctions instead, competition would arise between the production technologies, making it possible to come to a more efficient production of elicitrity from renewable energies and to prevent a further increase of the costs borne by the consumers.

The addition of renewable energies makes it necessary, according to the existing plans, to substantially enlargen the supply grids. The extension of grids has frequently given rise to acceptance issues in Germany in the past. The Monopolies Commission advocates examining alternatives to grid extension more intensively than has been the case to date. For example, the addition of renewable-energy installations could be steered regionally, e. g. via a regional renewable energy component (EE-Regionalkomponente), which would influence subsidies taking into account the grid costs arising due to the addition. In addition, the grid extension should not be designed to transmit the theoretical maximum feed-in of renewable energies, which only occurs rarely. The Monopolies Commission's analysis shows that the needed extension could be substantially reduced if some of the renewable energy installations were switched off at a wholesale market price below zero and if redispatch measures were taken into account during the planning of grids.

The following documents are now available for download: