role and structure of the german regulatory authorities · role and structure of the german...

www.bundesnetzagentur.de

Role and structure of the German regulatory authorities

and the role of BNetzA in implementing the “Energiewende“

Workshop Germany – Brasil

University of Campinas, March – 13th 2013

Dr. Annegret Groebel, BNetzA

Head of Department International Relations / Postal Regulation

© Bundesnetzagentur

Agenda

1. Presentation of BNetzA – the German regulator

2. Energy regulation in Germany

3. German energy policy – the „Energiewende“

4. New competencies for BNetzA – synergies

5. Network Development Plan 2012:

a) Consultation launched

b) Grid expansion approved and submitted

6. Challenges and Next Steps

7. Conclusions


Introductory Remarks

In Germany:

Network industries traditionally were (legal) monopolies mostly owned by the state or

regional municipalities or at least enterprises under huge state influence.

Deficits resulting from the monopolistic structures led to the desire for more dynamics,

higher efficiency and lower prices.

Process of liberalisation was initiated by the European directives in order to open up

markets for competition while the state influence was restricted to regulation in order to

guarantee and safeguard competition.

Process of legal market opening (liberalisation) will not work without economic

regulation to ensure new entrants (competitors) can make use of new possibilities and

compete effectively: (ex ante) regulation guarantees a level playing field!

For effective regulation the NRA needs to be independent

Independence is increased in the case of a multi-sector regulator


Overall Mission of Bundesnetzagentur…

… to promote sustainable competition in the markets for electricity, gas,

telecommunications, postal services and railways...

…via regulating these markets, i.e. market regulation by a regulatory body with

ex-ante powers (to impose sector specific obligations)

administrative body whose decisions are administrative acts

(subject to juridical control)

no micromanagement of markets, but pro-competitive regulation: setting

conditions by implementing the rules and giving price signals in order to steer

market forces towards a competitive market development as competition is the

best driver for efficient investment and delivering benefits to consumers (more

choice and more value for money)

© Bundesnetzagentur 5

Bundesnetzagentur: the German National Regulatory Authority

Independent higher federal authority in the scope of the Federal Ministry of Economics and Technology

Sector-specific regulatory authority tasked with

ensuring effective competition in network industries:

Telecommunications and Posts (since 1998),

Electricity and Gas (since 2005), and

Railways (since 2006)

Electricity and Gas network planning (since 2011)

BNetzA employs ar. 190 staff in energy regulation,

up to 240 staff will be recruited for Electricity and Gas

network planning

Overall headcount for all sectors: ar. 2600 staff

HQ in Bonn

http://wiki.intranet.intern.adns/MediaWiki/images/Bundesnetzagentur_a.jpg


Organisation Chart BNetzA (1a)


Organisation Chart (1b)

President

Vice President Vice President

Management

Office

President's

Chamber (Ruling Chamber 1)

Ruling Chambers

2

3

4

5

6

7

8

9

Information

Technology and

Security

Human Resource

& Accounting

Department

Regional Offices of BNetzA

Department for

International

Relations & Postal

Regulation

Department for

Energy Regulation

Department for

Railway Regulation

Department for

Economic

Regulation Telecoms

incl. numbering

Department for Legal

Telecoms

Regulation,

Frequency Manage.

Department for

Technical Telecoms

Regulation incl.

standadization

Department for Grid

Planning (NABEG)


Ruling Chamber 6

Access Electricity Grids

Ruling Chamber 7

Access Gas Networks

Ruling Chamber 9

Grid charges,

gas

Ruling Chamber 8

Grid charges,

electricity

601

Economic Policy Issues

607

Gas Distribution Network Access

602

Incentive Regulation, Benchmarking

608

Electricity Transmission Network Access

603

Monitoring

609

Gas Transmission Network Access

604

Unbundling

610

Grid Charges, Electricity

605

Duties un. the Renewable Sources Act

611

Grid Charges, Gas

606

Electricity Distribution Network Access

612

Cooperation with State authorities

Department 6

Energy Regulation

Ruling Chamber 4

Investment Measures

Organisation of energy regulation inside BNetzA (1c)

613

Grid Development


Organisation Chart (2) – Internal Governance

BNetzA headed by President and two Vice-Presidents

nominated by government upon proposal of Advisory Council appointed by the President of Germany besides their responsibility to govern BNetzA, President and Vice-Presidents form the so-called

“President’s chamber”, a ruling chamber with legally defined competences with regard to market definition and analysis and frequency management

Advisory Council

members of Upper House of Parliament & Lower House of Parliament (democratic control)

advise BNetzA on various issues

Ruling Chambers

key regulatory decisions executed by Ruling Chambers

one chairperson and two vice chairs

clear rules for ruling chamber proceedings

• hearings and oral proceedings

• participation in proceedings

• investigation rights

independent rulings and strict administrative procedures

Short timelines and decision stays effective when challenged in court

Departments:

Economic, Legal and Technical Department for telecommunications, departments for each of the other sectors, plus HR/accounting and IT department for all five sectors (synergies) as well as litigation office and press office responsible for all sectors


An Independent Regulator?

What does “independent” mean?

no influence by market players (no regulatory capture)

no influence on daily business by ministry (no overruling)

Regulator has to be impartial, i.e. take neutral decisions

Problem: how to guarantee it?

clear separation of functions

rules that clearly define the roles / competencies

clear assignment of powers (incl. enforcement)

institutional set-up (organisational structure / governance rules)


An Independent Regulator !

BNetzA is a higher federal authority in the scope of business of (but separate from) the Ministry of Economics and Technology

Institutional set-up and rules, transparency:

consultations

oral hearings

publication of docs

Ruling chambers’ decisions independent (consistency requirement), no overruling by Ministry

No control at all?

Ministry can give (general) directives, but they have to be published

BNetzA decisions subject to juridical review by independent courts

Democratic oversight via the Advisory Council and accountability rules


Accountability

Activity Report on status and development of telecoms and postal sector as

well as for energy and railway sector to be submitted to the legislative bodies of

Germany every two years ensures accountability

Principles of administration to be published at regular intervals

(transparency and predictability)

Report of the Monopolies Commission to be submitted every two years to

report whether there is effective competition in the telecoms + postal markets as

well as in the energy and the railway markets (assessment of whether objectives

have been reached)


Multi-sector regulation (1)

General Advantages of a multi-sector approach:

Regulatory capture can be avoided.

Regulator can take its decisions based on a wider perspective.

Broad expertise strengthens the regulator’s role as professional policy adviser.

Multi-sector competences strengthen the regulator’s independence.

Different levels of regulatory powers are levelled up to the strictest one!

Advantages both in terms of professional decision-making as well as in

organisational terms: realizing synergies and saving administrative costs


Multi-sector regulation (2)

Advantages with regard to regulatory decisions

Reflection of market realities

Networks are increasingly

converging.

Struggling over

competences between

different authorities can be

avoided.

Synergies

Similar questions arise in all

sectors.

Broad expertise can be used

and shared/transferred.

Expertise and experiences

from other sectors can easily

pour in regulatory decisions.

Regulatory Consistency

Close co-operation of

experts from different

sectors allows consistent

regulatory approaches and

measures.


Synergies (1)

BNetzA‘s competence to regulate different infrastructure based sectors (network

industries) allows for the creation of synergies and a broad discussion of regulatory

issues as problems and tools to solve them are the same: pro-competitive market

regulation that needs to be enforced with ex-ante access and price regulation

Examples:

• BNetzA’s telecommunications and energy experts have substantially contributed

to the ongoing discussion about the determination of adequate capital costs in the

railways sector (project team).

• BNetzA’s experts for telecommunications standardisation are deeply involved in

the work and discussion to develop smart grids in the energy sector.

• Rotating of staff members ensures knowledge transfer, particularly important

where networks, services and markets converge

• BNetzA’s responsibility for energy regulation and the network development

plan facilitates new task of planning and permitting to speed up the

necessary grid expansion

Some departments are responsible for the authority as a whole: e.g. HR for all

recruitments of BNetzA, IT for all IT services (synergies, cost saving)


Synergies (2)

In the past 15 years regulation in Germany has

provided for a stable framework and the promotion of

effective competition and efficient investment.

Transparent, reliable, predictable and proportionate

regulatory decisions are crucial for attracting investors,

which is particularly important now with the expansion

of the electricity grid as well as the roll-out of highspeed

broadband networks.

Multi-sector competence and expertise is beneficial in

converging markets and environments.

In the case of new challenges a multi-sector regulator

is better prepared and has the capability to

- elaborate similarities,

- transfer experience and knowledge,

- prevent anti-competitive interference,

- maintain flexibility.


Regulation vs. Application of competition law

Competition law intervention:

abuse of dominance (i.e. anti competitive behaviour) by dominant firms

(ex- post intervention)

ban on cartels (incl. some exceptions) (ex-post)

merger control (ex ante/ ex post)

No ex-ante price approval, but ex-post price examination by BKartA (NCA):

usually prices of comparable competitive markets

checking for margin squeeze

Ex-ante powers of the national regulator BNetzA when applying regulatory law:

ex-ante price control: prices based on costs of efficient service provision (stricter

standard)

ex-ante margin squeeze test


Utilities

Federal Network Agency/

State Energy Regulators

Generation

Network

End user supply

State Competition Autho.

Cartell Office (NCA)

BNetzA & BKartA – Example Energy (1)


BNetzA & BKartA – Example Energy (2)

Federal Network Agency (BNetzA/NRA): Network regulation under the Energy Industry Act, inter alia:

approving network access charges ex-ante

setting-up an incentive regulation scheme

ensuring non-discriminatory network access and set access conditions

taking steps against abuse of market power by network operators

monitoring unbundling provisions

setting fines, where appropriate

Federal Cartel Office (BKartA/NCA): Application of competition law in generation/production and supply:

Abuse of market power in wholesale markets,

control of end-user prices,

merger control

Cooperation: each one has the right to comment on the draft decisions of the other and each one is obliged to inform the other of observations/findings that may be relevant for the fulfillment of the tasks of the other

© Bundesnetzagentur © Bundesnetzagentur 20

Energy Industry Act - Independence of the Regulator

BNetzA : seperate higher federal authority within the scope of business of, but separate

from the Federal Ministry of Economics and Technology

Staff and Management act independently (art. 35, art. 37(4) and (5) Electricity / Gas

Directives)

from any market interest

do not seek or take direct instructions from any government or other public or

private entity when carrying out the regulatory tasks

Takes autonomous decisions: independence from any political body!

Collaborate with EU regulators (CEER)

Collaborate with the Agency for the Cooperation of Energy Regulators (ACER)

Effective regulation requires an independent NRA

Effective regulation on the European level requires a close cooperation among NRAs


National legislation directly linked to the European targets and provisions:

1. 2009 Renewables Energy Directive: 20/20/20 targets

2. 2009 Internal Energy Market Package: integration of national markets into a

European energy market (transposed with amended 2011 Energy Industry Act)

3. and implementation of IEM: European Network Codes and Market Coupling

4. 2011: Energy Infrastructure Package: connecting European energy

infrastructure and integration of renewables

National energy policy has an effect on the European level: both are interlinked!

BNetzA cooperates closely with NRAs on EU level, both within CEER and ACER,

e.g. informing both organizations early on about measures and impacts for

cross-border trade

National measures and European targets


− Separation of generation and supply activities from network operation (Unbundling)

− Network access regulation, including tariff regulation (incentive regulation)

Transport

and

distribution

networks

Supply Generation

Wholes

ale

trading

Potentially competitive market segments

►No ex-ante regulation, ex-post supervision by the Competition Authority

Natural monopoly

►Regulation

Network regulation in the energy market value chain

Limited responsibility of Bundesnetzagentur in comparison

with other national energy regulators − More recently, however, rapidly

growing fields of activity recently, linked to the Energiewende


Energy Regulation – the Legal basis

Market opening already in 1998 (i.e. customers have the right to switch to another

operator), but only in 2005 BNetzA was given ex-ante regulatory powers

Energy Industry Act 2005

(Energiewirtschaftsgesetz – EnWG)

Unbundling: isolate the network from the other activities to neutralize the “monopoly

power” and to prevent discriminatory behavior as well as cross-subsidization

Third party access

Ex-ante regulation of network charges:

Electricity Network Tariff Ordinance and

(Stromnetzentgeltverordnung – StromNEV)

Gas Network Tariff Ordinance

(Gasnetzentgeltverordnung – GasNEV)

Incentive Regulation Ordinance

(Anreizregulierungsverordnung – ARegV)


Liberalization – Aims of the new Energy Industry Act 2005

measures aims

“neutralization” of the energy grids

unbundling

non-discriminatory access and usage

Ex-ante approval of network tariffs by

the Bundesnetzagentur


Liberalization – German energy market since 2005

New Energy Industry Act 2005 aims at a secure, low-priced, consumer-friendly, efficient, and

environmentally compatible supply of electricity and gas.

Responsible regulatory authority: Bundesnetzagentur – Federal Network Agency

(less than 100.000 costumers: fall in the responsibility of the Energy State regulatory authorities)

Unbundling: strict separation between transmission/distribution network and all other parts of the

value chain)

Non-discriminatory third-party access to energy networks

as the basis for the development of competitive markets

Ex-ante approval of grid charges

Since 2005 the following basic split of competences between

the Federal authorities (national level) applies:

Federal Network Agency: Network regulation

Federal Cartel Office: Generation/production and supply

(e.g. abuse of market power in wholesale markets, plus merger control, but no longer

supervision of the grids)

Introduction of the Energy Industry Act 2005


Split of regulatory competencies in a dual approach

State level competence for networks with fewer than 100.000 customers

State level competence for networks not crossing State borders

Energy State Regulatory Authorities control tariffs, system responsibilities,

unbundling provisions, abuse proceedings

BNetzA has sole responsibility for the national level and cross border (i.e. for

EU level contact, cooperation with NRAs from other EU Member States)

Transfer of competencies from the States to BNetzA possible

(currently 6 out of 16 States have indeed transferred their competencies to

BNetzA)

Aim: Consistent regulation through a joint Committee of BNetzA and

the 10 existing Energy State Regulatory Authorities

However, this regards regulatory functions only, so far the permitting

responsibility lied solely with the State Permitting Authorities (in general

separate from the State Regulatory Authorities)

Division of labour: Federal vs. State level (1 )


Baden-Württemberg

Saarland

Rheinland-Pfalz

Hessen

Nordrhein-Westfalen

Hamburg

Brandenburg

Sachsen-Anhalt

Sachsen

Bayern

Division of labour: Federal vs. State level (2 )


TenneT (formerly E.ON Netz, acquired by TenneT, publicly-owned Dutch TSO, Ownership Unbundling) Amprion (subsidiary of RWE, a Vertically Integrated Undertaking) TransnetBW (subsidiary of EnBW, a Vertically Integrated Undertaking)

50Hertz (formerly Vattenfall Europe Transmission, acquired by Elia, publicly-owned Belgian TSO and IFM, an Australian investment fund, Ownership Unbundling)

Electricity Transmission System Operators

More than 10 gas TSOs,

Circa 1600 electricity and gas DSOs


Distribution System Operators

Ca. 866 electricity DSOs in

public or private ownership,

in addition to the 4 TSOs

(plus 695 gas DSOs and

17 gas TSOs)


Energy regulation in practice

Examples for BNetzA’s activities:

Approval of investment budgets/measures with regard to the connection of offshore wind farms to the transmission networks onshore.

Guidelines concerning the induction of renewable energy into the transmission networks.

Assessment of the effects resulting from the plan to take off nuclear power plants from the grid.

Like in the telecommunications sector BNetzA also provides advice to the German Ministry of Economics and other decision makers as well as the legislator with regard the transposition of the European energy directives (2009 – 3rd energy internal market package) and the amendment of the German Energy Act.

According to the energy package (approved 7/8 July 2011) BNetzA is responsible for the spatial planning procedures concerning the roll-out of supra-regional (interstate) and cross-border transmission lines) in order to accelerate the required extension of the networks.

Closer coordination with regard to cross-border issues with NRAs of the Member States of the EU within ACER – Agency for the Cooperation of Energy Regulators


Principles of incentive regulation (1)

Incentive regulation is a reliable instrument for network regulation

incentive for network operators to increase rate of return while reducing

their costs: becoming more efficient

leads to reduced network fees for consumers

win-win-situation for all actors

leads to comparable efficiency scores


Advantages of incentive regulation

no annual cost control, lesser bureaucratic burden

automatic cost reduction incentive:

Operators who “beat” or exceed the regulator’s efficiency target

generate higher returns than operators that perform less.

cost reduction for network users

(rebasement at the beginning of the 2nd period)

Disadvantages of incentive regulation

Risk for less efficient network operators

(for example unprofitable network operation)

Risk for network users

(for example decrease in network investments and quality decrease), but

this can be prevented by e.g. investment budgets and with quality

regulation, thus incentive regulation can be designed in such a way that

the necessary investment takes place while operation becomes more

efficient and quality of service is maintained

Principles of incentive regulation (2)


§ 21a EnWG and Incentive Regulation Ordinance (ARegV)

Set two regulatory periods with a duration of 5 years each (first regulatory period for gas operators to last 4 years only)

Longer planning horizon for operators

Decouples revenues from costs: More efficient companies are granted higher returns, less efficient companies receive lower returns

Regulator seeks to incentivise network operators to identify further economies and increase profits, customers also benefit from efficiency increase

Revenue “cap“ set for each calendar year of the regulatory period (thus “revenue path”)

Revenue cap ≠ price cap: Avoids giving network operators an incentive to increase sales

Start of 1st regulatory period: 2009

Rationale of incentive regulation (1)


Regulatory authority must set individual efficiency requirements

based on the relative efficiency of each network operator

by means of an efficiency benchmarking on the basis of suitable efficiency benchmarking methods, to apply both

Data Envelopment Analysis – DEA and

Stochastic Frontier Analysis – SFA;

with standardised (irrespective of different asset age structures, amortisation approaches and capitalisations) and

non-standardised capital costs.

Regulator must use “best-of-four-methods”-result

Individual efficiency requirement must be set at a level allowing the network operator to achieve and exceed it, using all possible and reasonable measures

Minimum efficiency (“floor”) set by law at 60%, hardship clause

DSOs may choose a simplified procedure with efficiency score pre-set at 87.5%

Cornerstone: Individual efficiency targets


Regulatory period

Year 0 Regulatory period

Year 5

Re-Assessment of costs

(Year 4 in gas)

Initial and final cost appraisal

Decoupling of revenues and costs:

Operator may „keep“ cost reductions

„below“ the revenue path

during the regulatory period.

Allowed

revenues

Actual

cost

Rationale for incentive regulation (2)


Incentive Regulation - Formula

Incentive regulation since 2009

Implemented to provide incentives, both CAPEX and OPEX are subject to incentive regulation

Revenue cap regulation with efficiency benchmark

Efficiency comparison

Productivity factor

Expansion factor

Quality element

Inflation rate

Non-controllabe costs 1 (e.g. taxes)

Non-controllabe costs 2 (e.g. structrual

parameters)

Controllable costs

Cost components

Allocation factor for inefficiency reduction

At = t/10 for the first regulatory period

ttt Infl

Infl

0 c,t0 2, nc t1, nct Q EF PF CA 1 C C RC0

t


While DSOs may primarily benefit from the Expansion Factor, TSOs may apply for ‚Investment budgets‘ for expansion projects:

Connection of offshore-facilities to the grid

grid extension measures to connect new power generation

integration of Renewable Energy/Cogeneration facilities

development of the gas transport capacities between market areas

development of interconnection capacities

underground cables

restructuring measures to ensure technical network security

cable temperature monitoring and operation of high temperature cables

Individual applications will be checked ex ante for costs and the necessity of the project

Approved costs will be treated as “non-controllable costs” for one or two regulatory periods in general, i.e. increasing revenues directly

Investment budgets/measures (1) - § 23 ARegV


Allowed Revenues in the first Regulatory Period

2006 2007 2008 2009 2010 2011 2012 2013 2014

Year

Base year for

Revenue Cap

New revenue path

including additional

expansion costs and

efficiency targets

Investment budgets/measures (2)

= Costs of expansion investment in 2010 and following years


The Energiewende

The change of Energy policy in Germany after Fukushima and the Role of the

Regulator


Nuclear Phase-Out in Germany (1)

On 15 March 2011, the German

government announced to shut

down 8 of its 17 reactors

immediately, i.e. all reactors that

went online before 1981

On 30 May 2011, the government

plan to progressively shut down

all nuclear reactors by 2022 and

massively foster the development

of renewable energy production

By 2050 80% of the production

with renewables

Consequences on the grid stability

analyzed by BNetzA - Report on

our website

operating

shut down


Following the Fukushima

catastrophe, the orientations

set in 2010 have been

complemented by an

accelerated nuclear

generation exit

(previously foreseen

for 2036)

Moratorium imposed

by the Government on

the eight oldest nuclear

power plants immediately

after the Fukushima

catastrophe rendered

permanent

Closure of the remaining

nine nuclear power plants

by 2022

2021

2022

2015

2021

2017 2021

2022

2022

2019

Already decommissioned

Date of decommissioning

Nuclear power plants

Nuclear Phase-Out in Germany (2)


Energiewende – Political process

Important that the previous Socialdemocrat/Green Party government under Chancellor Schröder had launched the slow phase out of nuclear power to be replaced by renewables already

When Merkel was reelected in 2009 she reversed this approach by prolonging the time nuclear power plants were allowed to run

When Fukushima happened, Merkel was shocked as obviously all the safety measures failed and ordered (overnight) a shutdown of the 8 oldest nuclear power plants („moratorium“)

In the following discussions she had to convince her own party more than the opposition which favoured the phase out of nuclear power anyhow, thus the Green Party was in favour as were the Socialdemocrats

Important to remember that without the original shift towards renewables, Merkel would not have been able to push through the „Energiewende“ which consisted of a package of 8 new or amended laws


Effects of the Energiewende

Change on the generation level away from conventional and nuclear power to renewables as well as the shut down of nuclear power plants after Fukushima caused a number of effects on the electricity grid:

Short term: more redispatching measures needed to stabilize the grid (more critical situations) and temporary change in the direction of cross-border electricity trading: Germany became a net-importer for a while whereas it usually is a net-exporter

Middle term: more efficient use of existing capacities

Long term: grid expansion and reinforcement plus smart grid development on the distribution level

Long term: smart market development and increase of energy efficiency (energy savings)

Bundle of measures on both the transmission and distribution level as well as on the demand side


The German Energy Package 2011

Legislative measures – 8 new laws or amendments to existing laws adopted in July 2011

Atomic Energy Act – phase-out of German NPPs

Act to Accelerate the Expansion of the Grid – including acceleration of spatial planning (NABEG) – to speed up grid expansion

Energy Industry Act – transposition of 3rd Internal Energy Market Directives (enforcing stricter unbundling rules: OU, ISO, ITO and new monitoring tasks)

Renewable Energy Sources Act (EEG) – cost-efficient expansion of renewables

Energy and Climate Fund Act – from 2013 all revenues from auctioning emission allowances will be a contribution to this fund

Energy efficiency – i.e. tax concessions for renovation of buildings; climate-friendly development of cities and municipalities; public procurement

entered into force: the 4th and 6th August 2011

Range of new provisions to implement the Energiewende given to BNetzA! A long process…with impact on its neighbors


Grid Expansion Acceleration Act (NABEG)

speeds up the permit procedures for necessary high voltage power lines (in the past

processed by the State Permitting Authorities, took up to 10 years)

now: Federal Network Agency in charge for inter-state (trans-regional) connections

(max. 5 years between application and final decision)

coordination between the national and European 10-year-network-development-plan

(completion of the European internal energy market)

Grid Expansion Acceleration Act


Renewable Energy Sources Act (EEG)

Basis for the success of renewable electricity in Germany

is the Renewable Energy Sources Act

(Act on granting priority to renewable energy sources, Erneuerbare-Energien-

Gesetz, EEG)

EEG entered into force in 2000 and has been amended several times

Purpose of the EEG: Facilitating a sustainable development of energy supply by

promoting the development

of technologies for the generation of electricity from RES

Objective: Increasing the share of renewables

in electricity supply to at least 35 % by 2020 and continuous increase thereafter

(up to 80 % in 2050)


EEG-related tasks of the regulator

BNetzA must inter alia monitor:

the transfer of renewable electricity and tariffs including the marketing of such

electricity by the TSOs,

calculating and claiming the EEG-surcharge by the TSOs

in case BNetzA has a legitimate doubts, audits of installation operators may be

conducted

compliance of Grid System Operators with feed-in management rules; BNetzA

may set further feed-in management guidelines

Additional task: Calculation of the feed-in tariffs for

PV installations

© Bundesnetzagentur 48 48

Germany’s Energiewende (energy turnaround)

National targets 2020 2030 2040 2050

Reduction of greenhouse gas

emissions

(in comparison with 1990)

40 % 55 % 70 % 80-95 %

Share of renewable energy

in final energy consumption 18 % 30 % 45 % 60 %

Share of renewable energy

in electricity generation 35 % 50 % 65 % 80 %

Reduction of primary energy demand

(in comparison with 2008) 20 % 50 %

Action plan adopted by the Federal Government in 2010


Renewable

energy

generation

Conventional

electricity

generation

Energy

efficiency

increase

640

Domestic

electricity

generation

Electricity

generation Electricity

imports

Electricity

demand

90

285

550

2008 2050

350

510 130

160

65

in TWh

+ > 300% 80% share

of renewables

14.5% share

of renewables

Ambitious targets on Renewable energy,

energy efficiency and electricity imports

Germany’s Energiewende (energy turnaround)


Government Energy

Policy:

Share of electricity

produced by

renewables to rise to

35 % by 2020

80 % by 2050

Renewable Energy

Act (EEG) designed

to foster this process

NABEG to speed up

grid expansion and

ensure integration

of renewables

Electricity Mix Germany 2011 Renewables: 19.9 %

Hard coal

18.6%

Natural gas

13.7%

Nuclear

17.6%

Lignite

24.9%

Renewable energy

sources: 19.9%

Oil1.1%

Other 4.2%

Source: AG

Energiebilanzen

Renewable Energy Targets Electricity Production


Key Challenge: Grid expansion for the

Quelle: Alpha Ventus

Quelle: VDE

Quelle: Vattenfall

Quelle: Spiegel Quelle: Kurier.at

Quelle: sigma wind energy

storage power

stations

grids

CCS systems

climate-neutral

buildings

biomass

power plants

Electric mobility

photovoltaics

Integration of the Renewables

© Bundesnetzagentur Renewables and Grid

Expansion

52

Changes in Generation Require New Grids (1)

Traditionally, fossil and

nuclear production

plants have been built

close to where the

energy was actually

needed, i.e. where

most of the industrial

load is located: in

Southern/Western

Germany. .

Renewable energy

production develops

mainly in Northern

Germany, esp. wind


Increase by 2022:

12.900 MW Scenario B

Increase by 2022:


2021

2022

2015

2021

2017 2021

2022

2022

2019

shut down

planned shut down

Main generation

Main load

wind offshore

wind onshore

Increase by 2022:


solar


Changes in Generation Require New Grids (2)


Changes in Electricity Generation Require New Grids (3)

Increase by 2022:


2021

2022

2015

2021

2017 2021

2022

2022

2019

shut down

planned shut down

Increase by 2022:


wind offshore wind onshore

Increase by 2022:


solar


Expansion and

reinforcement of the

networks urgently needed

Transmission system

Offshore wind farm

connection

Modernization of the

distribution system

Investments needed of

approx. € 30 to 50 billion

until 2020 (DENA-II study)

New competences for

BNetzA: a new role

beyond regulation!

Increase by 2022:

7.300 MW Scenario B

gas-fired plants


German „Energiewende“ package 2011

Rapid expansion of renewables: 80% wind, solar and biomass by 2050

Nuclear phase-out by 2022

Reduced electricity consumption as a result of increased efficiency

Increased cross-border electricity trading

Consequences for the network

Volatility of consumption and production in terms of both time and

location reduces predictability and requires higher resilience

Average distance between production and consumption increases

Volatility of the network situation increases: more difficult to manage

Network development (grid expansion) is a clear priority:

to speed the process up BNetzA was given new competencies

Underlying transformation of the energy system

Reasons for Network Development:

Kapazitäten und Netze – Herausforderungen für die

Versorgungssicherheit

© Bundesnetzagentur 56 © Bundesnetzagentur 56

How will BNetza work on this?

Implementation of EnWG 2011 and NABEG:

BNetzA is building up competence in −

network modelling and network planning

specialist planning and plan approval

environmental issues and

procedures of participation

Around 240 new colleagues being recruited

Connection between the new tasks and

energy regulation issues synergies and

bundling of competence

Cooperation with Laender level:

consistent decisions

Bundesfachplanungsbeirat




New network development process: From scenarios to plans and permits

Scenarios Network Development Plan

Federal Requirements Plan

Corridor permitting

Line path permitting

BNetzA approved

TSO scenario framework

TSO consulted on draft

Network Development

Plan

BNetzA consults on

revised TSO NDP

BNetzA to confirm NDP and draft a

Federal Requirements

Plan

Legislator to adopt Federal

Requirements Plan

TSOs to submit permitting

applications




Enhancement of Network Development

Network development as a transparent concept under federal supervision of BNetzA

Faster permit procedures are on the way in Germany – legislation passed in June

2011

Network expansion is clearly decided: “of highest public interest”

Planning

of cross-

border and

interstate

transmissi

on system

corridors

by BNetzA

Option for

Permitting

Procedure

s for

BNetzA

10-year network development

plan (“NEP”/TYNDP)




Draft Scenario Framework by TSOs

Consultation

Approval of the TSOs‘ „Scenario Framework“ by BNetzA

Approved „Scenario Framework“

Establishment of the Draft German Network Development Plan

involving all TSOs by 3th June 2012

Consultation of German Network

Development Plan and of the

Environment Report by BNetzA

Draft Federal Requirements Plan by BNetzA

Federal Requirements Plan (Bundesbedarfsplan)

Scenario Framework reflects the development of the energy policy framework (e.g. production capacities, consumption, etc.). It is the starting point to define the need for network development.

Federal Requirements Plan reflects the need to develop the network in a concrete way

Process leading to the Network Development Plan




Network Development Plan: Involve the public

Objective of the National Network Development Plan: Increasing local acceptance

Prerequisite is improved transparency

Consultation of network development plan

on several stages:

Include the public (especially the actual and

potential users) with 6 townhall meetings

Acceptance of public: overcome NIMBY




Consultation of the „NEP 2012“ started on 6 September – lasting until 17/10/12

All in all 3,800 km of new transmission lines are needed (current total: 17,500 km)

The Network Development Plan, consulted on and modified by the four transmission system operators, sets out the nationwide expansion measures for the grid up to 2022 / 2032 that are needed to secure electricity supplies into the future. The Bundesnetzagentur with the help of TU Graz has made its first assessment of these which it has published in an accompanying document.

Contains a total of 50 projects, 13 accepted in principle, the rest will be reviewed in parallel to consultation

Strategic environmental assessment: BNetzA is taking protection of the environment, too, extremely seriously

6 public hearings are scheduled to take place across Germany

NEP and following from that the draft Federal Requirements Plan (containing the concrete corridors/routes) is expected to be adopted by end 2012

All information published on extra website: www.netzausbau.de

Consultation of the German Network Development Plan



© Bundesnetzagentur 62 62 62 62

Key to map

DC new build

AG new build

AC reinforcement

Existing AC network

DC corridor

B

DC corridor

A

DC corridor

C

DC corridor

D

Initial transmission network planning for 2022

Scenario B of draft TSOs‘ NDP

Contains all measures needed for a

secure and reliable network system

operation, contains time plan

(prioritisation) of measures

Recommends for the first time the use

of HVDC to a considerable extent

NOVA principle

Assessment of necessity of measures

by BNetzA and of consistency with

Europ. TYNDP

Most important: North-South

transmission lines to bring electricity

from the Offshore wind farms in the

North Sea to the industrial users

concentrated more in the South of

Germany




Electricity transmission network planning

National Ten-Year Network Development Plan (TYNDP) prepared by the 4 TSOs for consultation, based on EU Directives

Covers 2012-2022 submitted to consultation end of May 2012

Based on generation/load scenarios

Identifies requirements for network optimisation, improvement and expansion

New AC links: 2800km on existing routes, 1700km in new routes

For the first time, 2100km of DC links (10 GW capacity) in 4 corridors

Cost estimated at 20bn euro over 10 years

BNetzA consulted on the TYNDP and approved it with revisions

TYNDP submitted as draft federal requirement plan to the Ministry of Economics on 26 Nov. 12 to be turned into federal law, spatial planning and line permitting for nationwide and cross-border transmission lines to follow to speed up permitting procedures

On 19 Dec. 2012 the Ministry published the draft Federal requirement plan law including competencies for BNetzA with regard to permitting of nation wide and cross-border transmission lines

All information can be found online: www.netzausbau.de




64

Results of BNetzA‘s assessment

BNetzA for now

only confirmed the need for:

51 out of 74

proposed projects

Only 3 out of 4 proposed

DC corridors were approved

Overall 2800 km in new routes were

confirmed,

2900 km reinforcement of existing

routes

AC 380 kV new build

3 HVDC corridors – new build

AC 380 kV reinforcements

© Bundesnetzagentur © Bundesnetzagentur 65 © Bundesnetzagentur 65

One and a half year after…

not so optimistic any more, but still supported by 80% of the population

But: it is a „Generation project“

BNetzA to support the policy goals on the regulatory side and by using its new

competences to shorten planning procedures („OSS“)

Grid expansion is a key issue

Reduce congestion on transmission grids

Integrate offshore wind production in the transmission grids

Have smart distribution grids

Tight time table can only be met if all parties involved cooperate as closely as

possible each one playing its role

Early involvement of public in every stage of consultation to overcome NIMBY effect

as there is a general acceptance of nuclear shut down

In the long term all elements must work together: grid expansion, smart grids and

energy efficiency of users in a smart market design, probaby capacity mechanisms,

process to be coordinated

Close cooperation with all NRAs + ACER to reach European targets


The Energiewende requires the integration of renewables and thus an

expansion and reinforcement of the electricity grid (both on the

transmission as well as on the distribution level) requiring considerable

investment

The Energiewende will work only if the grid expansion is speeded up by

shorter planning and permitting procedures as one of the main obstacles

The Energiewende requires in the short term more redispatching measures

of the TSOs to stabilize the grid

New competences of BNetzA with regard to planning procedures for

nationwide and cross-border electricity transmission lines: synergies as

BNetzA is the energy regulator: OSS concept

Shortening of planning and permitting procedures requires also a greater

coordination both within Germany between the Federal and the Laender level

as well as on the European level (European Energy Infrastructure Package of 27/11/12)

Conclusions (1)


Acceptance of the users is essential: extensive consultation process started by BNetzA on 6 September 2012 of the NEP 2012 containing all grid expansion measures planned by TSOs (more than 3000 comments)

NEP and draft Federal Requirements Plan approved by end of Nov. 2012 by BNetzA and submitted to the Ministry of Economics on 26 Nov. 2012

Necessity and obligation of operators to invest once the Federal Requirements Plan Law is finally adopted and legally binding, BNetzA to be responsible for permitting of nationwide and cross-border lines

Incentive regulation is desgined in such a way that all new projects can be realized, attractive rate of return on equity of 9.05%, stable + predictable regulatory regime provides confidence to investors

Tight time table, but so far BNetzA has delivered and performed the new tasks assigned with NABEG, the Energiewende is managable, but all players must cooperate as well as coordinate and join the effort!

Overall, a strong independent regulator well resourced is essential

Conclusions (2)


Summary and Outlook

Introduction of ex-ante regulation through BNetzA with the 2005 Energy Industry Act was

successful:

Electricity tariff regulation is successful since 2005

Network tariffs (in particular for households) decreased since 2005 and switching increased

Incentive regulation sets efficiency targets for cost reduction and ensures necessary

additional investments in the future

One of the major drivers will be the integration of renewables

High quality and security of supply to be ensured in the future

Substitution of the shutdown of 8 nuclear power plants in 2011

Withdrawal from the nuclear energy generation by 2022

Grid expansion to balance the increasing generation of renewable energy in the northern part

of Germany and the lack of nuclear power capacity in southern Germany (“power

transmission highways”)

© Bundesnetzagentur © Bundesnetzagentur 69 © Bundesnetzagentur 69

Thank you very much for your attention

Dr. Annegret Groebel

Bundesnetzagentur

Head of Department – International Relations / Postal Regulation

Tulpenfeld 4

D-53113 Bonn

[email protected]




Existing energy network (capacity “KW”)

Smarkt grid and smarkt market distinction

Increase of transmission/distribution capacity for renewable energy needs by

building new lines

Upgrade of existing (distribution) grids by adding communication-, metering-,

control- and automation technology + IT to enhance quality, efficiency and capacity

of the grid

Establishing technical prerequisites for markets

(e.g. data hub) and establishing market rules beyond the grid

Grid

S

mart G

rid

Sm

art Market

intelligent Energy Markets

(Trading of energy and energy-related services “kWh”)




Political / regulatory action

Existing grid

+ intelligent grid control (adding ICT)

Natural monopoly requires regulation

Intelligent markets

Increased energy trading and new

services

Prerequisite:

Smart Meter and availability of

consumption- and price data

Liberalisation, deregulation and

competition

(Smart) Grid Smart Market




Smart Grid

Transmission grids are already smart today…

Where appropriate, enhancement of „Smartness“ could be needed (monitoring of power lines, better information flow from DSOs to TSOs)

Focus on new (conventional) power lines (Offshore connection, SuperGrid, corridors)

Distribution grids have to become smart…

Network status / usage not really known

Feed-in (amount and generation profile) of local generation not known

No or little possibility for active switching operations

Focus on refitting of grid with communication, metering, control, regulation and automation technology and IT components as well as expansion of grid

Smart Grids vs. conventional grid expansion

This is a entrepreneurial decision of the DSO (not the regulator) in line with incentive regulation

Decision is dependent of many parameters (available technology, anticipated utilisation, capacity need due to business models of Smart Market etc.).




Smart Market

existing grid

+ intelligent control

= Smart Grid smart

metering

smart

storage

smart

consumption

smart

generation




Network tariff developments

Most recent developments:

Transmission network tariff increases due to:

capital costs of approved “investment measures”

in the incentive regulation system

for connecting offshore wind farms and reinforcing onshore lines

cost for system services such as balancing, redispatch or

the contracting of “reserve power plants” to ensure

security of supply in winter are passed on to final customers

Distribution network tariff increases due to:

upstream transmission network tariff increases

passed on to final customers

remuneration for network tariffs avoided through decentralised feed-in

use of the „extension factor“ in the incentive regulation system

retrofit costs for older PV to address frequency stability issues („50.2 Hertz“)




Network tariff developments




Retail electricity price developments 2006-12

4,49 5,90

7,19 8,36 8,10 8,41 8,39

7,30 6,34 5,92

5,80 5,81 5,75 6,04

2,48 2,58 2,81

2,91 3,71 5,18 5,42

4,66 5,26

5,47 5,68 5,79

6,11 6,21

26,06

23,42 22,75 21,39

20,08 18,93

25,45

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012

ct/kWh

Energy procurement & supply

(incl. margin) Network tariff

Surcharges and concession fees

Taxes

Development of household electricity retail tariffs in 2006-2012 (volume-weighted average across all tariff plans)

Source: BNetzA Monitoring data




Retail electricity prices

Breakdown of the household electricity retail tariff in 2012 (volume-weighted average across all tariff plans)

24.1%

8.2%

0.6%

0.0%

20.6%

7.9%

2.5%

15.9%

6.4%

13.8%

Network tariff Metering and billing

Electricity tax Value-Added Tax

Concession fee Renewable energy surcharge (EEG)

Co-generation surcharge (KWKG) Network tariff reallocation charge (§19StromNEV)

Energy procurement Supply including supplier margin

Source: BNetzA Monitoring data




Renewable energy support 2010-2011




EEG remuneration scheme 2013

Shares of individual cost positions




** estimate

2012:

11,7 ct/kWh

2013:

ca. 14,4 ct/kWh

Concession fee (average)

Value-Added Tax

Electricity tax

EEG surcharge

KWKG surcharge

§ 19 StromNEV reallocation charge

Offshore liability surcharge (from 2013)

+2,7

ct/kWh

Strompreisanalyse Oktober 2012 26.10.2012

Seite 81

Retail electricity price developments in 2013

Source: BDEW

Overall level of fees, taxes and surcharges




Hurdles that need to be overcome

Planning and permitting procedures to be shortened:

Implementation of a “One Stop Shop”

BNetzA in charge of

Approval of investment financing (“budget” for new projects)

Federal sectoral/spatial planning

Plan permitting approval

(if determined by ordinance requiring the consent of the “Bundesrat”)

Ownership unbundling requirements

Investors are not interested in controlling rights, shareholder agreements are a

common approach

Traditional financial regulation which considers investments in energy infrastructure as “risky” (eg Solvency II)




Financing Grid Expansion

Capital spending globally cautious… but:

investors look for attractive opportunities;

stable economic data in Germany

Considerable investment needs in power grid

Regulatory framework in Germany is

economically interesting and legally stable

Bundesnetzagentur has done a lot to clear up

any cases of doubt regarding the framework

conditions

Quelle: pixelio.de




How can all of this be financed?

Network is refinanced by the users (rolled in network charges)

In case a network operator is unable to organize the financing

of the needed measures involvement of

financial Investors possible

No scarcity of capital, investment budgets/measures approved

by BNetzA for all but one project

Basic principle: All Projects should be privately financed




BNetzA's philosophy on returns

More important than the nominal rate of return is the

sustained profitability of the investment, generating

steady, stable cash flow.

Providing certainty to investors: regulation is predictable

BNetzA sees to attractive returns for the long term




Return on equity : BNetzA decision on 2 November 2011

risk premium

3.80% Risk-free rate:

historic 10 year current

yield average

corporation tax

Interest rate after

taxes: 7.39%

3.59%

1.66%

Rate of return

before corporation

tax: 9.05%

Rate of return

before corporation

and trade tax:

10.48 %




Investments in grid: almost no investment risk (1)

No planning and approval costs, ie the costs incurred before a line is taken

into service are borne by the consumer

Cost increases are recognised fully where there is proof of good reason for

the increase

There is no risk for German network operators as a result of the incentive

regulation account and individual consideration of the cost of debt

"Stranded investment" costs are borne entirely by the consumer (for

instance, if the line is built but the wind farm doesn't materialise)

No risks from fluctuating capacity

• as a result, for instance, of weather-reflective feed-in, or

• cyclical consumption, or

• technical faults in the generating facilities (eg wind farms)




Investments in grid: almost no investment risk (2)

Proposal of BNetzA: Strong limitation of liability. Regarding construction and

operation of offshore connection lines TSOs are liable for claims of offshore-

operators only with respect to intention and gross negligence. Liability for

damages due to gross negligence is limited. Any additional liability of TSOs is

excluded.

Real time refinancing; investors earn money from the very first day

Actual cost of debt are remunerated, if the cost of debt correspond to market

condition

Strict continuation of the calculation methodology ensures risk-adequate rates

of return that are predictable and that can be planned for in the long term


European Energy Infrastructure Package

CEER/ACER is actively following the ongoing discussions on the Energy Infrastructure Package proposed by the Commision in October 2011: promote transeuropean energy infrastructure

The criteria for the selection of Projects of Common Interest (PCI) projects should be clear and quantifiable. Otherwise we will have long discussions which will just delay investments – which is not the intention.

Investors need to be clear that only efficiently incurred costs will be allowed by national regulators for cost recovery from network tariffs in order to ensure the effective use of capital.

We do not want to delay commercially sound projects by suggesting that they may be eligible for incentive that they don’t actually need. Nor do we want to allow the costs of investments to spiral inefficiently. It is essential that national regulators retain the power to decide on the nature of incentives, on a case-by-case basis, and that such incentives should be proportionate to the risk incurred by investors.

National Regulatory Authorities have the core expertise in ensuring that investments in infrastructure are made, and are made efficiently. However, the critical issue is whether the framework within which regulators operate helps them to work effectively – or hinders them.


Conclusions incentive regulation (1)

Incentive regulation works as it can provide incentives both for efficiency as well as

investments

Strict continuation of the calculation methodology ensures risk-adequate rates of

return that are predictable and that can be planned for in the long term providing

certainty for operators and giving investors confidence

There is no risk for German network operators as a result of the incentive regulation

account and individual consideration of the cost of debt

Higher rates of return do not deliver more rapid expansion but mean higher use of system charges!


4 reasons why it is worth investing in German energy infrastructure:

1. Germany is the biggest electricity and gas market in Europe.

2. Germany has the most secure electricity network in Europe and an

excellent natural gas infrastructure.

3. Germany has the most ambitious energy and climate change targets.

Infrastructure expansion is a growth market.

4. Bundesnetzagentur has done a lot to clear up cases of doubt regarding

the framework conditions

Conclusions incentive regulation (2)

role and structure of the german regulatory authorities · role and structure of the german...

Documents