EU Competition Law Costs German Consumers Billions
German electricity consumers will have to pay billions of Euros due to an “undercover” settlement between DG Competition and German TSO TenneT on cross-border capacity. Through their electricity bills they will pay for TenneT´s commitment to more redispatch and other stabilising measures in (Northern) Germany to guarantee an hourly capacity of 1300 megawatts in its transmission grid for Danish wind (really?) energy.
With this deal DG Comp, TenneT as well as the directly and “indirectly” participating parties – especially the German government and energy ministry – give their blessing to the increase of already very high network tariffs (6,9 Cent/kWh) in Germany, that have recently taken the place of the green energy levy (6,7 Cent/kWh) as most dangerous political powder keg.
By enforcing EU Competition Law, the settlement leads the aims of the same EU Competition Law ad absurdum: consumer welfare! Only the cross-border wholesale market benefits from the deal, the retail market for end consumers is not linked to the wholesale market. To put it brief: German consumers face horrendous costs without benefiting from a deal based on a legal instrument that is meant to protect them.
The extraordinary fast and peaceful “extrajudicial” deal, that is likely to become binding soon with DG Comp´s approval, has been made completely under the radar of the German public and even German energy experts. It raises a lot of questions, amongst them:
- Why are TenneT, the German government, the German energy ministry or the national regulatory authority “Bundesnetzagentur” (BNetzA) not fighting more/longer for “their” consumers?
- Why has DG Comp not used this “perfect case” to finally split Germany into two bidding zones as they have been dreaming of for a long time and done in a similar case in Sweden?
It all hints to a big “do ut des”-game on EU-level including not only all highly disputed issues of the Clean Energy Package but also other policy fields.
It is a well known problem: due to the lack of sufficient power lines and too unflexible fossil fueled power plants the German electricity networks are often congested. TenneT has several options to solve the problem: redispatch and shut down of Northern German wind farms – or block Danish energy at the interconnector with Denmark. TenneT has obviously chosen to reduce the capacity at the electricity interconnector between Western Denmark and Germany – for a good reason. The costs for national redispatch and feeding-in management are expensive. And the costs for redispatch and compensations are socialized through end consumers´ bills (network tariffs). Consequently, blocking Danish wind energy is less expensive and – from a political and public relation point of view – less explosive. In 2017, German end onsumers had to burden 1,4 billion Euros of redispatch costs. TenneT alone is responsible for 1 billion Euros. From the perspective of German end consumers TenneT´s decision has been a good one.
But this discriminates traders of Danish wind energy against traders of German (wind?) energy. Consequently, DG Comp started a case. TenneT has offered a settlement that is very likely to be accepted by DG Comp. Core commitment: a guaranteed hourly capacity of 1300 megawatts in its transmission grid for Danish wind energy.
More cross-border capacity = higher redispatch costs = higher network tariffs
The problem is that the capacity of TenneT´s transmission grid has not changed. If TenneT guarantees 1,3 GW hourly capacity for Danish Wind, then TenneT has to do more redispatch and other grid securing measures, especially shut donw more Northern German wind farms. The settlement automatically leads to higher network charges.
Three words of the settlement are explosives: There is “NO COST CAP” for the costs incurred by TenneT in providing the guarantee of hourly capacity. In other words, the end consumers´ liability is UNLIMITED. The rest is pure mathematics: the guaranteed hourly capacity will increase the current costs of already 1,4 billion Euros only in 2017!
The deal seems to be done surprisingly fast considering what is at stake. Why is TenneT not fighting more? Why are they giving in if they have a very powerful argument on their side that the EU Commission is fearing: enormous costs for consumers due to action by an EU institution? Why isn´t TenneT using this momentum to get a better deal for their consumers?
They don´t really have to care: DG Comp are the bad guys, not TenneT. All costs are forwarded to end consumers.
It could have been a lot worse: two bidding zones.
They were told to accept DG Comp´s complaint and act fast by other parties.
German institutions´ strategy?
This leads to questions regarding German institutions. There can be no doubt that they not only have been consulted but given their consent to the deal. Why have the German Government, the German Ministry of Economics and Energy and the BNetzA accepted this deal that hits German end consumers hard? Why haven´t they fought for their consumers? And why haven´t they informed the public about the settlement´s implications?
The lesser evil: DG Comp could have used the case to finally reach its goal to split Germany in two bidding zones. Two bidding zones would politically be explosive as the prices for industry in (EU-critical) Southern Germany would increase.
The high costs due to EU action can help to reach another goal: break the opposition against HVDC-line „Südlink“ that is facing delay due to heavy protest. It might sound like this: „The higher costs for consumers is not our fault but the EU´s. So let´s do „Südlink“ as fast as possible to reduce congestion, redispatch costs and network tariffs.” The insidious about this: „Südlink“ also costs end consumers billions of Euros. So German consumers only have the choice of agony.
Germany might use this deal to get something else. EU-insiders know that policy making is a big „do-ut-des“-game.
DG Competition´s strategy?
Why is DG Comp acting now though the problem has been an open secret for a long time?
Is it pure coincidence that Danish traders have started the case and the commissioner in charge is Danish, too?
Why does DG Comp not use the bidding zone-sword to split Germany into two bidding zones?
Is it pure coincidence that while the TenneT-deal is waiting for conclusion, DG Comp has “suddenly” decided that the exemption of large consumers from paying network tariffs according § 19 of the German Renewable Energy Law (“EEG”) is an illegal state aid, after the case had been pending for five years? Is it opium for the “small people” and the public to distract from the much more expensive TenneT-deal?
DG Energy´s opinion? Compatible with “New Deal for Consumers”?
Why is DG Energy accepting the deal that will harm millions of consumers? This deal has the potential to impact the acceptance of the Clean Energy Package that has been marketed as “New Deal For Consumers” since the beginning? What is DG Energy´s opinion on the deal?
Information asymmetry and lack of transparency
Apart from the explosive content of the deal, it is the information asymmetry and the lack of transparency that makes this deal a “dirty” deal. It looks like a backroom deal between a number of players that is far higher than the official parties of the deal. The subject and the implications of the deal seem to be too complex, even for (German) energy experts.
German consumers, who already burden high cost for the energy transition and who are still willing to pay even more, deserve a fairer treatment. And there should not be any doubts: the problems at the German-Danish interconnector are not unique. At other interconnectors, e.g. the Polish and Czech boarders, there are the same – even bigger – problems.
The limits of European Competition Law
The standard justification for European Competition Law lies in consumer welfare through competitive markets. But the TenneT-deal does not contribute to (end) consumer welfare? So, shouldn´t the limits of EU Competition Law be reached when there are ONLY disadvantages for consumers? Shouldn´t TenneT be allowed to reduce the interconnector´s capacity to protect consumers from horrendous costs?
TenneT-deal in the light of the CEP
The Commission addresses the problem of systematic limitation of cross border capacity on electricity interconnectors across the EU in the Electricity Regulation (articles 13, 14) as part of the “Clean Energy Package”. Among other things, it aims at improving the rules on cross-border capacity in order to maximise the capacity made available and to ensure that transmission system operators do not unnecessarily limit the volume of cross-border capacity. The TenneT-DG Comp-deal shows that more cross border capacity automatically leads to higher redispatch- and other grid measures costs and hence to higher costs for consumers. Consequently, the makers of the CEP have to ask themselves whether the current proposals are heading into the right directions.
One thing should be clear to all participating players: without the support of end consumers the EU and its policy projects like the Clean Energy Package will not succeed.
TenneT is well progressing with grid expansion projects, so the minimum capacity of 1300 MW will not be a problem for TenneT.
The concern is that the guarantee will cause higher costs for German end-consumers due to more redispatch and feeding-in management (Einspeisemanagement) in Germany. Will it not?
Interesting blog you have produced Holger! Did you notice ENTSO-E’s press release today where they agree with you on the CEP proposal? I believe you have an important job as watchdog for the end-consumers and also for an efficient market model and security of supply. The current proposal may jeopardize our market model, not give investment signals, and in the end challenge the security of supply. Will you write a next chapter in this blog?
Thanks for your comment. Yes, it looks like that at least DG Comp does not care about the impacts on end-consumers. It is only focused on the functioning of the (wholesale!) market.
Still I’d make some adfitional questions:
1. What is or should be the (common) market to develop? German or EU? Electrons go cross-border.
2. Will the TenneT flexibility demand not incentivise some flexible supply or demand that would reduce the counter-trading cost? If really not, what is wrong with the German electricity market model / legislation?
3. What could be made for the problems with the German grid development? There is little doubt that German needs a stronger grid north-south.