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Germany

Germany

Safeguards added to liberalisation plans

A blueprint for deregulation of Germany's electricity industry has at long last been approved by government ministers, but only after the addition of environmental safeguards. Last minute intervention by federal environment minister Angela Merkel introduced clauses defining "environmental compatibility" and providing protection for renewable energy.

The blueprint, steered through the Bonn Cabinet by economy minister Günter Rexrodt, has long been under way. The first draft was presented in early 1994 and it was only at the third attempt that Rexrodt won the approval of Cabinet -- and only after accepting Merkel's amendments. Strangely, the implications for the environment and renewables have raised little broad interest. An attempt by the association for renewable energies, BEE, to rally opposition to an earlier Rexrodt blueprint failed to receive much coverage. BEE feels the utilities are using liberalisation as a lever to abolish, or at least maim, the Electricity Feed Law (EFL), on which the renewable market is based. It also fears the economic strength of the large utilities, which it says will enable them to elbow out competition in a free market; and it warns of higher prices for medium sized industry, commercial and household customers.

Although initially ignored, BEE's concerns finally attracted the attention of Merkel who blocked the passage of Rexrodt's blueprint in September, insisting on several improvements. These include a clear definition of the relationship between electricity and the environment: "Environmental compatibility entails that energy supply complies with the requirements of a rational and saving use of energy, that it guarantees a sparing and long term use of resources and that the environment is burdened as little as possible." Merkel also saw to it that new renewable plant, in contrast to traditional power plant, will not need to obtain a licence in order to supply customers.

In a joint statement with Rexrodt, Merkel also vows to retain the EFL as "a supporting element to make possible an expansion of the use of renewable energies. " A proviso is added, however, that "regional imbalances disadvantaging the coastal regions" are to be ironed out to some extent. This refers directly to utility complaints that in windy areas of Germany the burden of expensive wind kilowatt hours falls on relatively few shoulders. Further, there may be a clamp down on windfall profits, but "without impairing the further expansion of renewable energies."

Taking a wider view, Merkel stresses the role of the European Union's new electricity Directive. Many of its options should be explored, she says. One such option in the Directive suggests: "A member state may require the system operator, when dispatching generating installations, to give priority to generating installations using renewable energy sources or waste or producing combined heat and power." Merkel recognises that the Directive can be a valuable lever for the renewables sector, but that considerable political staying power will be required to activate it while liberalisation passes through parliament.

Another Directive option favoured by Merkel is a demand for transparency and non-discrimination -- changes which can only benefit the wind business. In particular, guaranteed access to the grid is essential. Even with the EFL in operation, wind developers are hampered. A plan for wind plant owners to collectively build a peak load power station (say fired with biogas) to provide electricity when the wind is not blowing is stymied without grid access. The Directive states: "The system operator shall provide to the operator of any other system with which its system is connected sufficient information to ensure the secure and efficient operation, co-ordinated development and inter-operability of the interconnected system."

Although the Rexrodt plans have been rubber stamped by Cabinet, parliament has yet to deal with them and it looks as though it may be a rough ride. Protests have been rolling in for months from the municipal utilities and the federations of towns and cities, largely supported by the opposition Social Democrat Party which has a majority in the Upper House. The municipal utilities fear their best customers could be swiftly snapped up by the larger utilities, leaving them economically stricken and ripe for take-over while the towns and cities are afraid that an income of some DEM 6 billion -- earned from selling exclusive rights to utilities for the use of public rights of way for electricity cables -- will dwindle.

Utilities not bothered

In contrast, after some initial grumbling, the major utilities are surprisingly relaxed about liberalisation. Perhaps this is because they are already making strategic purchases of shares in smaller utilities as well as signing deals with industrial customers to safeguard their existing market. Rexrodt has also left out of his blueprint the biggest threat to utilities -- clear guidelines on negotiated third party access (TPA) . As his plans stands, effective TPA will have to be enforced through the courts. Head of energy at the federal economy ministry, Elmar Becker, believes only three court cases would be enough to established TPA as law, but such cases can take years to get that far.

Full liberalisation along the lines of the British wholesale power pool is Merkel's most favoured approach. But she seems to have capitulated before the first utility volley was fired. How to achieve such a free market in a country where the high voltage grid is owned by nine different utilities -- a structure which took 100 years to develop -- is indeed a vexing problem. Until it is solved, wind energy will be forced to rely on the politically vulnerable EFL.

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