BNetzA President Homann on Options for Reform of Incentive Regulation

At today’s Handelsblatt Annual Energy Conference, Jochen Homann, President of the German Energy Regulator Bundesnetzagentur (BNetzA), explained details of the report evaluating and outlining options for reform of incentive-based regulation which was presented to the Ministry of Economics at the same day.

1. Overview

Mr. Homann stressed that – disregarding of some differences with the industry in detail – he still is committed to further an incentive-based regulation which supports new investments. In that regard incentive-based regulation shall be developed step by step and amended by new elements, rather than having a major reform, as this would provide less reliability for system operators. This also is in line with the general opinion of operators.

One important point will be to replace the current system of expansion factors (Erweiterungsfaktor) by a system which starts from actual values (Ist-Werte). This also will abolish the time-lag for taking into account of such investments in the system operator’s cost base. However, regulation has to be focused and flexible to take into account the particular situation of each operator. E.g. the challenges from increasing feed-in of renewable energies are different between distribution system operators active in cities compared to companies operating in rural regions. Therefore he does not believe that an approach which is too general will be acceptable to most system operators.

2. Discussion

In the following discussion with representatives from system operators, Torsten Maus, CEO of EWE Netz GmbH, Prof. Dr. Peter Birkner, Member of the Executive Board of Mainova AG and Stephan Kamphues, CEO of Open Grid Europe GmbH (“OGE”), the following aspects were highlighted:

Torsten Maus stressed that, as regards the efficient integration of renewable energy, for his company EWE Netz, which operates in areas with a lot of wind farms, the possibility to refuse to accept and thus switch off 5% of the quantities of renewable energies is an important element to reduce investments in the future. According to calculations of EWE Netz this would reduce new capacity demand by 50% and thus result in major cost savings. BNetzA President Homann acknowledged that this makes a lot of sense, and in that regard also the requirement to expand the system in a way to be capable of accepting any kWh fed into the system may need to be adjusted accordingly.

Prof. Birkner pointed out that not only renewable energies require the expansion of the grid, but for his company – as the operator of power and gas distribution grids of the City of Frankfurt/Main – the fact that each year population in Frankfurt increases by 20,000, plus more and more data centers requesting to be connected to the grid, create similar challenges.

Mr. Homann and Mr. Kamphues (OGE) were in agreement that there is no need to introduce a national gas reserve to improve the security of gas supply. Possibly it could make sense to allow gas TSOs to contract certain limited capacity as a reserve on the basis of a concept similar to the Reserve Power Ordinance (Reservekraftwerksverordnung – ResKV).

Prof. Birkner of Mainova also highlighted the need to maintain the dynamic stability of the power grid which will be reduced due to the fact that large-scale power plants are disconnected from the system and replaced by small size renewable power plants which are connected via inverters. E.g. in Frankfurt the number of short term interruptions has doubled from in average 5 to 10, and there are sensitive customers who in any such situation risk that their production is interrupted and it takes several days to restart.

Source: Handelsblatt Jahrestagung Energiewirtschaft 2015

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