Monopolies Commission Special Report Calls Again for Quota Model Support Scheme for Renewables

The Monopolies Commission has presented its fourth report on the energy markets, focussing mainly on the implementation of the German energy transition (Energiewende). In view of the many efficiency deficits that the report sees, the Monopolies Commission recommends a more market-oriented energy policy. For the promotion of renewable energy, the report proposes switching from the current system of fixed feed-in tariffs to a quota scheme modeled on the Swedish system.

The Monopolies Commission is a permanent and independent commission. It advises the German federal government on competition policy and regulation. To this end the Commission not only prepares the biennial report on competition in Germany (Hauptgutachten), but compiles various special reports, inter alia for the electricity and gas markets.

The report points out that the EEG surcharge that electricity consumers pay for the promotion of renewable energy rose from 0.2 ct/kWh in 2000 to 5.27 ct/kWh in 2013 (concerning the current deficit on the EEG balancing account, please see here). It also mentions that the (associated) need for grid expansion and new equalisation measures also contribute to the steady increase of the energy costs following the Energiewende.

The Commission proposes in particular the following remedies to achieve more market-orientation in the legislative framework for the energy markets:

1. Replacement of the EEG by Market-oriented and Technology-neutral Quota Model

The Commission once again (for the 2011 report, please click here) proposes to replace the current EEG support scheme (that provides for fixed feed-in tariffs and alternatively a direct marketing option) for new plants by a market-oriented and technology neutral quota scheme, modeled on the Swedish system and adapted to German needs. Under the quota model utilities would be obliged to buy certain quota of renewable energy. Producers of green electricity would receive green electricity certificates for each MWh. Utilities would have to pay for the electricity and for the certificates, as the certificates would furnish proof of the fulfillment of the quota. Adequate fines shall ensure that utilities comply with the quota requirements.

The report points out various advantages of the quota model over the feed-in tariff model, mentioning in particular the fact that grid expansion could better be coordinated with the growth of renewable energy sources. It also discusses the possibilities of promoting technologies that are deemed worth to be especially supported, e.g. by granting producers two green electricity certificates, but favours a technology-neutral scheme.

The quota model has also been embraced by other institutions in the past, including Liberal Party (FDP) member and former Economics Minister Rainer Brüderle, the German Council of Economic Experts and RWI. The various party positions on a reform of the EEG prior to the federal election on 22 September 2013, none of which include a quota model, can be accessed here.

For more information on the quota model and the possibilities to reform the EEG that the report also discusses, please see pages 142 to 156 or the report.

2. Management of Renewable Growth through Grid Charge Element

For a more efficient management of renewable growth that reduces the need for grid expansion, the Commission proposes to include a so-called “G component” in the grid charges for renewable power plant producers. Th G component shall rises the more the installation of a power plant requires grid expansion. It hence favours a decentralised expansion of renewable power plants (cf. no. 346, page 180).

3. No Hasty Implementation of Capacity Markets

The current EEG with its feed-in priority for green electricity and fixed-feed tariffs has lead to a growing, but fluctuating amount of renewable energy being fed into the grids. Prices at the energy exchange where the electricity is marketed by the transmission operators have fallen considerably, making it more an more unattractive to operate conventional power plants that can balance the feed-in variations by renewable power plants. Many conventional power plant operators are therefore thinking of closing down plants (for more information, please click here).
At the end of 2012, an amendment was introduced to the German Energy Act (EnWG) making a notification of the Federal Network Agency (BNetzA) prior to the closure obligatory for plants with a capacity of more the 10 MW.
Besides there is an ongoing discussion about the best ways to ensure back-up energy, including various proposals for a so-called capacity market, a separate market for back-up power that is different from general wholesale market for electricity. In view of the fact that capacity markets are difficult to reverse once introduced, and difficult to reconcile with the internal market for energy, the Monopolies Commission advises against an introduction at this point. In line with the Federal Association of the Energy and Water Industry (BDEW) and the President of the German Cartel Office, the Commission favours a Strategic Reserve Model on a small scale. Under the Strategic Reserve Model operators who are thinking of closing down unprofitable conventional power plants can opt to provide back-up energy for a certain period.

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