Germany

Germany

Major utility taken to task by energy regulator -- German regulator disallows charging for fictitious costs for wind power balancing

Germany's new energy regulator, the Bundesnetzagentur (BNA), has stepped in to prevent Vattenfall Europe Transmission from charging electricity customers for fictitious costs supposedly related to balancing wind power's variable supply. BNA unearthed the questionable costs claimed by Vattenfall, one of Germany's four transmission system operators (TSOs), when it examined the grid company's application to raise network charges to customers for the last six months of the year.

The method used by Vattenfall for assessing its balancing power costs is out of line with that used by the other grid operators, BNA discovered. As a result, the regulator sliced 18% off Vattenfall's proposed hike in network charges for July-December. With specific reference to wind power's share of Vattenfall's balancing costs, BNA says "an efficiency comparison with other network operators revealed these were significantly too high." Vattenfall declines to reveal how much of the 18% is related to wind.

Under Germany's renewable energy law, the four TSOs are obliged to take all the national wind power generation onto the network and then apportion the purchase cost among the country's electricity retailers. Each retailer's quota of wind power -- compared to its final sales -- is the same. Vattenfall Europe Transmission (VET), says BNA, "could not explain convincingly why the costs presented by other TSOs were not comparable with its own costs and it is not evident that other TSOs have better facilities to smooth wind power than VET."

If BNA's reasoning survives an appeal by Vattenfall, not only will an important precedent have been set for the entire German wind sector, but consumers will benefit from greater efficiencies leading to lower prices. "We welcome the regulator's decision. It was long overdue," says Ralf Bischof of the German wind energy association Bundesverband Windenergie.

Appeal rejected

Vattenfall immediately took BNA's ruling to a court of appeal, at the same time applying for a stay of execution on the regulator's order until the court decision. The case is not likely to be heard until the spring. But the Düsseldorf higher regional court rejected Vattenfall's plea against immediate execution of the 18% cut, with the result that the utility cannot implement the full increase in its network charges as planned. Vattenfall says the BNA's ruling will cost it about EUR 50 million in lost income over the next six months.

BNA has interpreted the court's refusal to allow a stay of execution for VET as a point in favour of its ruling. The court, reasons the regulator, is thus supporting BNA's methodology for assessing the balancing power element of network charges to customers. Vattenfall argues that its method for calculating the cost is correct.

The tricky bit

For accounting purposes, VET does not pool wind power's variable supply with all the other variations on the system, including variations in demand, where in practice most of the difference between supply and demand is cancelled out. Instead it operates a virtual separate balancing pool for renewable energies, which it commissions sister company Vattenfall Trading Services to run.

For its part, Vattenfall Trading orders day-ahead power at the energy exchange EEX and intraday power through over-the-counter trading by telephone, with a final balancing pool bill for all remaining fluctuations attributed to wind energy added to its monthly bill to VET. That bill, for a virtual cost not incurred in practice, is passed to consumers.

The other network companies, RWE Transportnetz Strom, E.ON Netz and EnBW, also call on their own sister trading companies to balance wind power fluctuations, but instead of charging for each deviation from scheduled wind production separately, the approach to billing is based on what happens in practice, where variations are balanced in the system at no extra cost. As a result, the three TSOs do not charge their sister companies for a fictitious balancing cost.

BNA says there is no reason to assume that the three trading companies are choosing not to bill their respective TSOs for costs incurred by balancing wind power, since the result of doing so would be to cap profits for the sake of making wind power look cheaper than it is. The strong indication is that the methodology for calculating balancing charges used by the three TSOs is more accurate than that used by VET and its trading sister. On this basis, says BNA, it is reasonable to re-calculate VET's wind power balancing costs using the average specific costs per megawatt hour for balancing out wind power at the other TSOs.

Furthermore, BNA suggests that VET should stop treating wind power in an isolated fashion and call on its trading sister to co-ordinate wind with other balancing tasks to match supply and demand. It should also ask its sister to pass on the resulting savings in balancing cost.

Inefficiencies

BNA is far from the first organisation to raise doubts about the claims of German utilities that wind power is driving up the cost of balancing supply and demand. The Global Wind Energy Council, in a new global outlook study released last month, draws attention to research by Greenpeace highlighting the inefficiency of balancing power management in Germany. "In Germany, the level of reserve capacity being kept available has decreased at the same time as wind power has increased. Between 2002 and 2004, the level of "control power" kept available fell from 8.3 GW to 7.3 GW. Over the same period an additional 6 GW of wind capacity was installed," states Greenpeace in its report, "Offshore Wind Energy: Implementing a new powerhouse for Europe."

Bischof points out that BNA's job has only just started. "Now we hope that further discrimination against wind power will be tackled that could bring savings of several hundred million euro to consumers." Recognition of the value of local wind power serving local demand is one such issue, he says.

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