Federal Network Agency Releases Monitoring Report 2011

The Federal Network Agency (BNetzA) has released its Monitoring Report 2011. It documents, analyses and evaluates the developments in the German electricity and gas markets in 2010 with regard to generation and transport (grids) as well as the wholesale and retail trade. The report shows the progress made in the regulated markets and sees a need for further action in the (regulated) grid sector and the upstream and downstream sectors.

1. Change of Energy Supplier

In 2010 BNetzA called on customers to use the opportunity to change the energy supplier in order to save energy costs. In 2010 the number of customers that did switch their electricity or gas supplier rose considerably, the 2011 report points out.

2. Grid Expansion

2010 saw another increase in Generation from energy sources, especially in the solar sector. In spring 2011 eight nuclear power plants were shut down following the Fukushima nuclear disaster that lead to a reversal of Germany’s nuclear policy. The reduction in base load capacity and the simultanous integration of more renewable power plants is a great challenge for network operators, the monitoring report says, pointing out that grid expansion was imperative, as networks had come to their limits.

The 2011 report shows that grid expansion has not improved since the last report. On the contrary, 12 of the 24 extra-high voltage power line projects that receive priority treatment under the Energieleitungsausbaugesetz (EnLAG) are behind schedule. Data submitted by the transmission system operators to BNetzA also show that 73 of the total of 149 expansion projects until 2014 (including 19 power line projects aimed at connecting offshore wind farms) are delayed.

Not only transmission system operators, but distribution system operators as well are faced with the challenge to connect renewable power plants to the grid and purchase and transmit the electricity fed into the grid as required by the Renewable Energy Sources Act (EEG). Distribution system operators are responding by optimising, enhancing and expanding their grids to an even larger degree than in 2009, BNetzA says. Feed-in management actions pursuant to Section 11 EEG, meaning that grid operators take technical control over installations connected to their grid system and temporarily shut down the installations, were the expection in 2010. They mostly occured in networks in northern Germany with a high wind yield, BNetzA says.

The revised German Energy Act (EnWG) that introduced the provisions on grid development plans and the new Grid Expansion Acceleration Act (NABEG) provides ways to speed up the necessary grid expansion and should be used to this end, BNetzA demands. The agency points out that often a lack of public acceptance was the reason for the delay in power line projects. BNetzA would try to improve public opinion with regard to grid expansion by engaging in dialogue BNetzA says.

3. Electricity Markets

Apart from the increase in renewable energy capacities BNetzA mentions that not only were eight nuclear power plants closed down in 2011, but more base load power plants were planned to be shut down until 2014. The missing capacity would presumably be replaced by new capacity, BNetzA says. However, the delay of a number of power plant projects that the 2010 report had already highlighted had increased further. To ensure the security of supply it was vital that the power plant projects under construction would be finished on time. This applied in particular to power plants in southern Germany, BNetzA says, warning that even if the projects in this area are completed the situation will still not be without risk.

2010 saw a very liquid electricity wholesale market, with trade volume exceeding actual demand seventeen times. While offmarket trade (not including trades cleared at the exchange) still exceeded exchange traded volume fourteen times, trade via the exchanges increased considerably compared with 2009. This came mainly from spot market trading of electricity from renewable energy sources that the transmission system operators are required to sell at the energy exchange. This trading activity had a price dampening effect in 2010. At the futures market prices in 2010 basically remained on 2009 level for base load while peak load prices fell by 7%. Volatility at the spot and futures market decreased significantly compared with previous years, BNetzA says, attributing this phenomenon at least partly to the marketing of renewable electricity at the EPEX spot exchange and to market coupling of Germany with the Scandinavian markets in late 2009.

Electricity prices for domestic customers kept rising, the report finds. The average electricity price on 1 April 2011 amounted to 25,45 ct/kWh. The rise of more than 2 ct/kWh is due to a higher EEG reallocation charge in 2010 and higher costs for the procurement of electricity and the sales activities by the utilities, the report says. By contrast, grid charges fell (again) from 5,81 ct/kWh in 2010 to 5,75 ct/kWh in 2011.

4. Gas Market

The number of Market areas in the gas market further has been further reduced since the 2009 report. Market areas already halved from twelve to six in 2009 (three H- and three L-market areas each). Since October 2011 only two gas market areas exist, which encompass both gas qualities.

Competition on the gas retail market developped positively, BNetzA says. At the beginning of the market regulation competition in the gas markets lagged behind electricity markets by a few years. In 2010, however, relatively more gas customers than electricity customers changed their supplier.

Prices in the gas market depend very much on wholesale prices, BNetzA points out. Following a price slump in 2009, prices recovered in Q2 2011 gaining almost 30%. This was reflected in the development of retail prices. On 1 April 2011 domestic customers had to pay an average price of 6.64 ct/kWh (2010: 6.48 ct/kWh). Domestic customers who changed the supplier only paid on average 6.06 ct/kWh (2010: 5.92 ct/kWh), equalling savings of 8.7% compared with the general tariff.

5. International Integration

Market coupling between Germany and the Scandinavian market in November 2009 was followed by market coupling with the Central Western Europe (CWE) region so that nine national electricity spot markets in Germany, France, the Benelux and Scandinavia) are now connected. BNetzA has been assigned the project management for a pan-European market coupling until 2014 by the Agency for the Cooperation of Energy Regulators (ACER). It was striving to expand the northwestern market coupling gradually by more regions or markets, BNetzA announced.

Source: Federal Network Agency

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