Who Says This is a Crisis?
Europe’s biggest electricity market is suffering from a “crisis of confidence” over power prices, which cannot be ignored, the head of Germany’s regulatory authority said this week.
Speaking at the Handelsblatt energy conference in Berlin, Matthias Kurth said his office aimed to remedy the “breakdown in the relationship” between consumers and suppliers by collating accurate data from utilities to determine fair and competitive price levels across the supply market. Before the installation of a regulator last summer, German consumers, both industrial and retail, had to take their complaints about high prices to the federal cartel office. This has led to at times lengthy legal battles between consumers and their utilities. The new energy watchdog, the federal network agency, on the other hand, aims to ex-ante regulation.
“Instead of going to court, the market will be able to seek the approval of the regulator. But this presupposes that we work methodically in collecting price data. We need the facts now and not at the end of a legal case,” Kurth said.
A total 550 of the 942 utilities that the regulator has asked for data have provided inadequate information, he added. And German consumers are right to question the wide differences in price between suppliers and regions. The most expensive supplier, ENBW in Stuttgart, charges Eur632 per 3,000 kilowatt hours. Its prices have risen by almost 45% since 2000. At Eur573/3,000 KWh, the cheapest supplier is N-Ergie in Nuremberg. Its tariffs have risen by less than 14% in the same period.
According to 2005 data collated by the association of German power suppliers VDEW, Germany ranks as fifth most expensive retail power supplier among the other original 15 EU member states, after Italy, Holland, Portugal and Denmark. It is the third most expensive power supplier to industry after Italy and Portugal.
The regulator’s work towards the fair calculation of supply tariffs is the first stage of its role that will lead later this year to the introduction of incentive based regulation that aims to encourage utilities to self-regulate in order to meet efficiency targets.
VDEW’s newly-appointed president Werner Brinker said incentive regulation should aim to make a fair comparison of efficiency levels between utilities and to “neutralize” the cost of CO2 emissions trading.
“Incentive regulation only works if grid operators can increase their efficiency and get a return on their investments,” Brinker said. “There will need to be a holistic approach that includes calculation, standardization, benchmarking and regulative processes. And we need a capital market-oriented system that rewards efficiency.”
According to VDEW, German energy companies will need to spend Eur40-bil in the next 20 years on grid maintenance and upgrading work. Another Eur40-bil would be spent on power stations.
Brinker said that despite the regulator’s criticism that prices varied widely, competition was already apparent with a choice of suppliers available to consumers wishing to switch. But, Kurth said, the fact you can find 15 suppliers in Wedding isn’t the point; “it isn’t true for generation.”
Johannes Teysson, chairman of Eon Energy in Munich, said utilities were often the scapegoats in competition disputes and that there was a danger of not achieving a balance between the market and regulation.
“We talk too much about this and that EU directive, but the path to liberalization does not have to be put into question whenever we come across a minor problem. Regulation needs to be based on infrastructure and fair network access. It has nothing to do with imports and distribution. And the directives have nothing to do with regulation; these two terms should not be amalgamated,” Teysson said.
“We have to make sure that politicians are not seduced by short-sighted ideas because investors will not like that,” he added.
The need for investment in grids could be proven, Kurth said, by the inquiry into the recent collapse in transmission lines in Munsterland that left more than 250,000 homes without power. RWE is due to submit its report into the failure, and whether the Thomas steel used to construct the pylons was to blame. Kurth said he expected the inquiry to conclude by the end of April and only then could he estimate the potential cost to the power industry should this type of steel be found to have been at fault.