The electricity market in Germany: RegTP or REGTP?
Transcript of The electricity market in Germany: RegTP or REGTP?
The electricity market in Germany: RegTP or
REGTP?
GERT BRUNEKREEFTTilburg Law and Economics Center
University of Tilburg, Netherlands
http://www.uvt.nl/tilec/
SESSA/CMI
DAE/University of Cambridge/UK
July 2004
Overview
• Institutional background
• The road to rTPA and REGTP
• What happened?
• The margin squeeze
What can be expected next?
GB/TILEC/Jul04 2
• What can be expected next?
• Competition, concentration and unbundling
• New entry
• CO2 prices as a capacity element?
• Concluding remarks
Institutional background
• Energy Act 1998
• 100% end-user eligibility
• low degree of unbundling, while high degree of V.I.
• negotiated third party access (nTPA)
• Competition Law / Federal Cartel Office
GB/TILEC/Jul04 3
• Competition Law / Federal Cartel Office
• essential facilities doctrine (clause 19.4.4):
• access to networks
• non-discriminatory, and,
• fair and reasonable charges
• nTPA
• Association Agreements: VVI, VVII, VVII+
• soon VVIII?
Institutional background (cont’d)
• Cartel Office
• Review of network access, April 2001
• highly critical
• expresses concern about ex-post control
• Ministry of Economics
GB/TILEC/Jul04 4
• Monitoringreport: Aug. 2003
• prepares way to regulated-TPA
• nTPA in electricity “works”, but access charges very high
• nTPA in gas disaster
• Energy Act 2004:
• implementing the EU Directive 2003
• rTPA as from July 2004 plus REGTP
Institutional background (cont’d)
• Energy Act 2004
• Legal and management unbundling as minimally required by EU directive
• Regulated-TPA
GB/TILEC/Jul04 5
• Regulated-TPA
• ex-ante approval of the method to calculate charges (thus control of level is ex post)
• justified by existence of 900 network operators
• following cost principles as in VVII+
• basically RoR regulation (6.5%), but possibility for incentive regulation left open
What happened?
• VVI
• very bad
• VVII
• structure of network access (charges) good,
GB/TILEC/Jul04 6
• structure of network access (charges) good,
• level left to network owners
• VVII+
• following the 2001-Review of Cartel Office
• self-regulation of level of network charges
• allows comparison of network charges
What happened? - The margin squeeze
• Combination of
• vertically integrated firms
• i.e. network and competitive business
• unregulated network charges
leads to margin squeeze of competitive
GB/TILEC/Jul04 7
• leads to margin squeeze of competitive businesses
• Violation of level playing field
• Low competitive activity
• Low entry activity
• bad for investment
• bad for security of supply
What happened? - wholesale prices (EEX)
30.00
40.00
50.00
60.00
eu
ro
/MW
h Base
Peak
3-yr future base
GB/TILEC/Jul04 8
0.00
10.00
20.00
01
/07
/20
02
01
/09
/20
02
01
/11
/20
02
01
/01
/20
03
01
/03
/20
03
01
/05
/20
03
01
/07
/20
03
01
/09
/20
03
01
/11
/20
03
01
/01
/20
04
01
/03
/20
04
eu
ro
/MW
h
3-yr future base
3-yr future peak
Source: EEX
What happened? - End-user prices
14.00
15.00
16.00
17.00
euro
cent/
kW
h Dc w taxes
Dc w/o taxes
GB/TILEC/Jul04 9
9.00
10.00
11.00
12.00
13.00
Jul-9
8Ja
n-99
Jul-9
9Ja
n-00
Jul-0
0Ja
n-01
Jul-0
1Ja
n-02
Jul-0
2Ja
n-03
Jul-0
3
euro
cent/
kW
h
Dc w/o taxes
Dd w taxes
Dd w/o taxes
Source: Eurostat
What happened? - Network charges
3.00
4.00
5.00
6.00
7.00
LV profile
LV meter
MV
GB/TILEC/Jul04 10
0.00
1.00
2.00
3.00
Mar
-02
May
-02
Jul-
02
Sep
-02
Nov-0
2
Jan-0
3
Mar
-03
May
-03
Jul-
03
Sep
-03
Nov-0
3
Jan-0
4
MV
HV
Averaged for different consumer profiles according to VDN. Post-VVII+
Source: VDN, various years.
What happened? - Network charges
• Some observations:
• esp. LV very high
• slightly decreasing LV, slightly increasing HV
• large variation among network operators
GB/TILEC/Jul04 11
• spread smaller since VVII+
• high prices go down, but low prices go up slightly (Growitsch/Wein, 2004)
• LV networks owned by big four charged lower prices than independent networks
• consistent with theory of regulatory threat
What happened? - The margin squeeze
1
VAT
Eco tax
EEX
Network charge
Retail
GB/TILEC/Jul04 12
• Mueller/Wienken (2003) calculate for Autumn 2002, that roughly 40% of dom. cust’s have lower than required minimal margin (i.e. sum of wholesale and retail).
0.00 5.00 10.00 15.00 20.00
ct/kWh
Retail
Source: own calculation
What happened? - The margin squeeze
• Observation:
• margins in wholesale and retail were very low,
• then retail margin restored somewhat (as end-user prices went up a bit and wholesale price stayed low),
GB/TILEC/Jul04 13
low),
• and meanwhile wholesale price goes up at expense of retail margin.
• New entry in generation almost none (except wind)
• Retail: Yello struggles; others (riva ares) gone
• cum. switching rate 2003: 4.3% of households
What’s next? rTPA and REGTP
• REGTP
• more than just a formality? Probably yes
• rTPA
• ex-post control of ex-ante method
• no regulatory gap (by mechanism)
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• no regulatory gap (by mechanism)
• hence typically cost-based regulation
• To be expected:
• network charges should go down
• competitive margins should increase
• V.I. will become a problem
• new entry?
Generation capacity and reserves
15.0
20.0
25.0
in G
W
reserves
N.A. cap
GB/TILEC/Jul04 15
Source: Brunekreeft/Twelemann, forthcoming
0.0
5.0
10.0
1995 1996 1997 1998 1999 2000 2001 2002
in G
W
free cap
sum of NA and free
Nuclear phase-out
15000
20000
25000
GB/TILEC/Jul04 16
0
5000
10000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
nuclear cap. (MW)
Source: Pfaffenberger & Hille, 2003.
Renewables
Renewables (% in TWh)
8
10
12
14
GB/TILEC/Jul04 17
0
2
4
6
8
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Brunekreeft/Twelemann, forthcoming
Generation capacity
• Still sufficient capacity,
• .. but decreasing
• security of supply is becoming an issue
• lower excess capacity
GB/TILEC/Jul04 18
• lower excess capacity
• reduction in competitive pressure
• new entry
• What happens with nuclear?
• Highly uncertain
• New renewables?
Investment
5000
6000
7000
8000
9000
Generation
T & D
total
GB/TILEC/Jul04 19
Source: Brunekreeft/Twelemann, forthcoming
0
1000
2000
3000
4000
1988
1990
1992
1994
1996
1998
2000
2002
total
total AB
total NB
In million euro
ETS NAP
• German National Allocation Plan
• Free allocation of CO2 rights
• incumbents & new entrants
• old: historic emission
GB/TILEC/Jul04 20
• old: historic emission
• new: benchmarking with upper and lower limit
• free CO2 rights increase variable costs for all,
• but lower capital costs, and thus entry price
• Thus, CO2 price mimics capacity element for new plant
ETS and new gas
40
45
50
55
60
65
Ele
ctri
city
pri
ce (
euro
/MW
h)
Scen. 1 free
Scen. 2 paid
Var. Cos t I
GB/TILEC/Jul04 21
Source: Brunekreeft/Twelemann, forthcoming
15
20
25
30
35
15
17
19
21
23
25
27
29
31
33
35
37
39
41
CO2 price (euro/TCO2)
Ele
ctri
city
pri
ce (
euro
/MW
h)
Var. Cos t I
net power price
Concluding remarks
• nTPA did not work
• rTPA likely
• to improve competition
• and to reduce prices
• however, now high G-concentration and vertical
GB/TILEC/Jul04 22
• however, now high G-concentration and vertical integration will become problem
• Regulation improves opportunities for necessary new investment
• ETS promotes competition (threat of new entry) and security of supply
• Institutional uncertainty should be reduced!