Europe: Utility break-ups - German experience is cause for concern

Experience in the German electricity market suggests that the failure to require the complete breaking up of energy firms that offer all services from generation to distribution and sales is compromising competition.

Commenting on the EU directive on the liberalisation of the internal electricity market (Windpower Monthly, October 2009), Ulf Gerder, a spokesman for Germany's wind energy association Bundesverband Windenergie (BWE), said: "We have long argued for complete ownership unbundling of the networks from generation and sales divisions in energy companies, as this will result in the biggest increase in market competition." Without that, the wind lobby has serious reservations about its effectiveness, says Gerder. "There is every reason to be sceptical about its impact."

A report, published in July, from the Monopolies Commission on the German electricity and gas sector in 2008 seems to justify Gerder's fears. The unbundling of network operations from all other operations in energy companies was mandated in Germany in the Energy Industry Law of 2005. This implemented the 2003 EU internal energy market directive and was applied to Germany's four high voltage network operators from 2005, and to over 1000 distribution network operators in 2007. Energy regulator Bundesnetzagentur monitored its effectiveness.

Short-term leasing

A key criticism of the Monopolies Commission's report is that most legally unbundled network operators have simply leased the networks from the parent company, and more than a third have lease periods under four years, a short time for planning purposes.

The report adds that almost half the network operators have a staff of just four or less, raising doubts about their independence from the parent company. Many companies do not have their own internet site or logo, and spatial separation from other divisions has not always been created. "If all that happens is a switching of letter boxes, this will hardly lead to more competition," says Gerder.

Full unbundling, he adds, would eliminate any conflict of interest, but the four big energy majors in Germany do not seem likely to do this. E.on, which owns the high voltage transmission network in Germany's windy north-west, is preparing to sell its high voltage grid company, but not its distribution network operation. It "volunteered" to do this, along with selling or swapping 4.8 GW of power station capacity, in early 2008, as part of a deal in which the European Commission agreed to drop a potentially long-running and damaging case on anti-competitive behaviour. Swedish state-owned utility Vattenfall Europe, which owns the north-east network, is investigating doing the same as E.on.

RWE, meanwhile, hived its high-voltage grid operations off into one of its subsidiaries, an independent transmission operator called Amprion, in September, a step that it assures will fulfil the requirements of the third EU single energy market package. It will not sell Amprion, it says. And, EnBW has not decided whether it will create an independent transmission operator or use the services of an independent system operator. But it certainly does not intend to divest the transmission division, says the company's Friederike Eggstein. EnBW has plenty of time to decide on its strategy since the directive allows a full 30 months before unbundling, of whatever kind, must be implemented.

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