Network tariffs are an important part of energy costs for consumers, yet, surprisingly, the way these fees are established in Germany is completely opaque, writes Andreas Jahn, Berlin-based Senior Associate at global energy policy advisors Regulatory Assistance Project (RAP). According to Jahn, it is unclear how network operators and the regulator calculate costs and how they are allocated to customers. He calls on the German government—and on the EU— to demand more transparency on network tariffs.
“Putting consumers at the heart of the energy market” is how the European Commission, the European Council, and the European Parliament characterize the reform of the European energy market. The pan-European electricity market is already saving consumers billions in costs by connecting national markets.
Yet these savings could still be increased substantially. An important part of consumers’ energy costs are the network costs, which have been growing steadily in recent years across the EU. Since they are regulated, they are not subject to competition. Consumers have no choice in the matter. What you would expect, then, is that they would be established in a transparent manner, so consumers and taxpayers are able to see how they are calculated and allocated.
Neither customers nor retailers are provided with reliable information about the costs of the various networks or the total grid costs for Germany
In Germany, however, this is not the case at all.
Every year in October, all four German transmission system operators and almost 900 distribution network operators publish price sheets that show the network fees for the upcoming year. Based on these published prices, consumers can calculate whether their network charges will change, and the energy retailers can start calculating tariffs for their customers.
However, beyond these bare prices, there is very little information available. Neither customers nor retailers are provided with reliable information about the costs of the various networks or the total grid costs for Germany. Not even the regulator has access to this aggregate number. And this is despite the fact that Germany has had a revenue regulation system in place since 2005, which has been revised twice and reinforced with a performance regulation mechanism.
Asking questions
Curious about this lack of transparency, RAP collected data from various sources and started asking questions. In cooperation with Agora Energiewende, we published a paper (in German) exploring the results and shedding light on this often-overlooked issue.
We found that in 2018, the costs for the transmission system will increase by more than €600 million to a total of approximately €5.8 billion. That is only for transmission; distribution costs raise the total to some €24 billion, but this is only a rough estimate.
There are several justifiable reasons for this increase, such as the need to contract reserves and higher redispatch costs to operate the network in the absence of locational marginal pricing. However, we are at a loss as to exactly where these costs are incurred or how they are allocated to networks and, ultimately, to customers. It is unclear why some customer groups face higher network charges than others.
For example, the increase in network costs from German transmission system operator amprion is only borne by the customers connected to the low-voltage distribution networks, not by the industrial customers who are connected at the transmission level.
It is unclear why some customer groups face higher network charges than others
Nor is the public ever informed about how the regulator has assessed cost increases (tariffs are based on a cost-plus system). This ongoing gap in transparency has led to what can be described as “regulatory capture” of the regulator by the network operators.
A study commissioned by the German regulator comparing the regulatory procedures for establishing network regulation and network fees in the United Kingdom, the United States, the Netherlands, Austria, and Italy found that nearly all of the countries (except Italy) demonstrated a more transparent process than Germany. The monitoring report that the regulator (the Bundesnetzagentur) published about its own activities, addresses the international comparison of transparency only marginally—on one single page out of 500. The Bundesnetzagentur regards revenue regulation as a confidential issue relevant to “network competition.”
Long-term benefits
Unfortunately, the German Supreme Court ruled in the fall of 2017, as the result of a court case brought by “green” energy retailer LichtBlick, that the policy to keep control of grid revenues out of the public domain is in line with national law.
This means that lawmakers will have to take action to enforce more transparency.
If the Energy Union is to successfully offer consumers the benefits of a common market, the first step must be cost transparency for all Europeans. The data and decisions must be disclosed by all parties involved. This requires implementing strong regulations and empowering institutions at the European level, such as the Agency for the Cooperation of Energy Regulators (ACER), to implement transparent network tariffs or even demand them from Member States.
Achieving transparency is not an impossible task. Germany has already improved clarity around other energy-related fields in recent years. More than 1.6 million solar photovoltaic installations financed by support schemes are listed on a public webpage, and regulators introduced a platform to strengthen transparency on the wholesale electricity market. Progress has been made in regulation, by leveraging cartel law to increase transparency without impeding the market or its actors.
In the absence of publicly available data, it is impossible to determine the extent to which increases in network tariffs are actually justified
As for the degree of transparency required, decision-makers must conduct stakeholder processes that identify the interests of the parties and make decisions based on the regulatory framework of the pan-European and national power markets. Only then can market reforms deliver their full value.
Increases in the price of electricity are mostly attributed to increases in regulated charges, which cannot be influenced by market processes. Yet in the absence of publicly available data, it is impossible to determine the extent to which these increases are actually justified. Even if we know the underlying grid costs, we cannot determine whether the costs are being shared between different consumer groups in an equitable manner.
This lack of transparency undermines public confidence in the energy transition. Now that the German Supreme Court has reinforced the confidentiality of regulated network data and decisions, it’s up to the German federal government to catch up with European transparency standards for network regulation. This would not only demonstrate respect for the longstanding public support for the German Energiewende, but would also secure long-term benefits for all European customers in shared markets.
Editor’s Note
The Regulatory Assistance Project (RAP) is a globally operating independent and nonpartisan team of experts dedicated to accelerating the transition to a clean, reliable and efficient energy future.
As a senior associate in Berlin, Andreas Jahn (@Andr_Jahn) focuses on issues relating to the German “Energiewende”, or energy transition, helping develop and advance regulatory options for a carbon-neutral power sector, including demand-side resources and tariff design. He also supports RAP’s work throughout Europe. He has extensive experience with power markets and regulation, as well as knowledge of the German national political arena.
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Mike Parr says
This para is interesting: “… the increase in network costs from German transmission system operator amprion ………….not by the industrial customers who are connected at the transmission level” since it shows that the German state operates on dualist principles: socialism for the capitalists and capitalism for the serfs, or would that be citizens – you can never tell the difference these days. Doubtless Angie will give some good reasons (& back in Brussels, those well known defenders of German industrial success, DG Competition, do …..nothing).
The authors could have usefully mentioned the court case in Germany where the TSOs wanted a higher (9.5% or 10%) return on assets (ROA), what passes for the regulator in Germany was offering 8% . The TSOs lost. The case shows all you need to know about TSOs (& DNOs). As private entities the focus is maximising the ROA & maxing out on assets – the recent HVDC line between RTE & RED (Perpignan – Figueras) @ Euro700m is a good example of the latter and Euro TSO profligacy (Double circuit 400kV line would have done the job @ 1/10th of the price). Looking on the positive side and from the TSO/ENTSO-E perspective, it’s the citizen-serfs that pay so what’s not to like? – meanwhile Euro “regulators” sit on their hands or get all cosy with those that they are supposed to regulate.
One other thing: 900 German DNOs – really? Perhaps the clue for high network charges lies with the number “900”. I appreciate that the UK from a Euro perspective lies in the outer darkness – however, it gets by with 13 operationally distinct networks.
Hans says
Strange that a monopoly would need to keep its’ data secret because of competition
Mike Parr says
well it’s a little bit like the law in ancient Rome – unless something is allowed by law – it is forbidden – in this case, unless monopolists are forced to be open, – the “factory default” in their case is secrecy – & there is very little you can do about it. Furthermore, the “regulators” (what’s the opposite of “regulator”?) are populated with what can be best called “the establishement” i.e. those who will keep things very much as they are.
Coreper voted (in secret) on the 10th Jan for Euro Council representation on ACER. Step forward one lucky winner: Mr Michel THIOLLIERE (FR). His Linkedin profile confirms this chap as solidly French establishment (ENA etc). ACER makes sure that everything is steady as she goes & the pace of developments are always such that the likes of EdF (aka – the French state) always get a bite of the cherry – well in fairness all of it – most of the time.
Speaking as a Euro-serf/Euro-pleb, I’m surprised that you are suprised that TSOs would keep data secret – why would they tell us – we might demand change – can’t have that (irony alert).
Hans says
I was not surprised, I just tried to bring attention to the silliness of the competition argument.
Mike Parr says
The link below goes to an article relevant to data-hoarding = keeping data secret – although covering “utilities” & not specifically TSO (or DNOs) it nevertheless offers a view as to where things could go unless Euro Serfs and the politicians they elect do something. Expecting Euro regulators to “do something” is like expecting pigs to fly – for reasons given in a pervious post.
https://chapel-group.com/2017/12/11/energy-data-a-utilities-secret-to-becoming-a-competitive-monopoly/