German utilities to mend their ways

An expert hearing on the balancing power market this month, initiated by Germany's federal economics ministry, may prompt cost reductions in the sector that will benefit wind energy. The volume of power needed to balance unscheduled fluctuations in input and output from the country's four electricity network zones has grown in recent years, partly to iron out intermittent wind energy deliveries from Germany's massive wind energy fleet. The rising cost of balancing power, shouldered by all electricity customers, has been highlighted as a negative aspect of wind generation.

A monitoring report by the economics ministry on market developments in the liberalised electricity and gas sectors since 1998 has highlighted shortcomings in the balancing power procurement mechanism and concludes that ironing out these weaknesses would improve efficiency of the electricity market. That balancing power is currently resistant to competitive forces was demonstrated in February when the federal cartel office opened official procedures against energy giants RWE and E.on on suspicion they were charging excessively high balancing power prices.

The monitoring report highlights that official pressure was needed to make these two companies as well as EnBW and Vattenfall Europe put balancing power needs up for tender. Even so, "the number of bidders in each balancing zone has remained small" and the incumbents' power stations in their respective balancing zones "are probably the largest bidders by a long way," and thus effectively control bidding.

The expert hearing could take heed of criticism from the market and recommend merging the four companies' balancing zones to create just one in which liquidity will be far higher. This should lead to a drop in balancing power prices. For the future, checking that this market works properly will be one of the tasks of Germany's new energy regulatory authority, to be set up at the existing telecommunications and post regulatory office in July 2004.