Table of Content
1. Introduction
2. Historical background
2.1 History of Energy supply
3. European Perspective
4. Current Situation
5. Why Regulation is needed
6. Liberalisation
6.1 Legal background of liberalization
6.1.1 European Single Market policy 96/92/EG
6.1.2 European Single Market policy 200/54/EG
7. Regulation
7.1 Cost-based Regulation
7.2 Why changing it to incentive regulation
8. Incentive Regulation
9. Conclusion
10. References
Regulation of Electric Power in Germany
1. Introduction
The electricity market in Germany was faced with loads of changes since the 19th century, when it all began due to Werner von Siemens (and among others) and his first electric generator. But soon electricity became a public good and the governments realized, that it needed to be provided to every citizen. Therefore many different systems, regulations and deregulations were implemented over time. After a historical overview and a European perspective on the electricity market, we present you the Liberalization process and its cost-based regulation and, as a last point, the change to incentive regulation.
2. Historical background
2.1 The History of Energy Supply in Germany
With the first street light in Berlin in 1884 the history of public energy supply in Germany begun. Following the example of Berlin and other cities in the world, in the next decades other German cities developed an urbanized network of several power stations. Already at the beginning of the 20th century there was laid out the first long-distance cable and there were several German power stations which offered a cheaper price for power at night for consistent capacity utilization. In 1938 the German Energy Industry Act mandated the electricity supply under the supervision of the German Reich, therefore the National Commissioner was then responsible for the price and introduced the first basic fee. Quick after World War II the biggest electricity suppliers reached again the pre-war level, but in 1954 the separation of the electricity grid network of the German Democratic Republic (GDR) and the Federal Republic of Germany (FRG) was conducted and still inflicts some problems today. After that, the first German nuclear power plant “Grunremmingen A” (1966) started supplying electricity to the grid. In 1974...
Table of Contents
1. Introduction
2. Historical background
2.1 History of Energy supply
3. European Perspective
4. Current Situation
5. Why Regulation is needed
6. Liberalisation
6.1 Legal background of liberalization
6.1.1 European Single Market policy 96/92/EG
6.1.2 European Single Market policy 200/54/EG
7. Regulation
7.1 Cost-based Regulation
7.2 Why changing it to incentive regulation
8. Incentive Regulation
9. Conclusion
Research Objectives and Core Themes
This case study examines the development and regulatory framework of the German electricity market, focusing on the transition from traditional monopolistic structures to a liberalized, incentive-based regulatory environment. It aims to analyze how regulatory interventions, specifically those mandated by European Union directives, have influenced market competitiveness, price structures, and grid reliability.
- Historical evolution of public energy supply in Germany
- Impact of European Single Market policies on liberalization
- Economic justification for grid regulation as a natural monopoly
- Transition from cost-based to incentive-based regulation and revenue caps
Excerpt from the Book
5. Why Regulation is needed
Regulating a market means intervening in national economy processes and therefore it needs an established foundation, for example if market results are inefficient due to market or competitive failure (without any interference of the state). In some cases it is appropriate to regulate just some parts of the value chain. The value chain of the electricity market is divided into generation, transport, distribution and supply (Heuterkes/Jannsen, 2008, p. 52). A competitive market is possible for generation and supply, whereas transport and distribution need to be regulated. Those two levels represent a so called “bottleneck”. A bottleneck refers to be absolutely essential to reach the consumer and on the other side it is not possible to copy this facility with appropriate resources (Heuterkes/Jannsen, 2008, p. 52). In the case of electricity market the power grid connects producer and consumer. Being a bottleneck it is not substitutionable by another way of transport. Planning, building and service of power grid needs a high rate of investment and therefore it is just profitable in long-term as the provider benefits from economies of scale. So building up a parallel power grid would not be reasonably. Furthermore the resource which where invested in building up a power grid are irreversible in case of a shutdown (Heuterkes/Jannsen, 2008, p. 52).
Every local part of the national power grid can be seen as a natural monopoly. Consequently there are powerful network operators which can not be kept bay by additional competitors. Hence, network operators could use their market power which would open the possibility of maximising their profit. An additional problem are vertical integrated energy supply companies. Vertical integration means that fabricated materials which are used for making a certain final product and the final product itself are produced by the same company instead of being traded at the market.
Summary of Chapters
1. Introduction: Outlines the historical context of the German electricity market and the shift towards viewing electricity as a public good requiring specific regulatory frameworks.
2. Historical background: Details the timeline of public energy supply in Germany, covering early electrification to the challenges posed by post-war grid separation.
3. European Perspective: Discusses the influence of EU directives on national energy policies and the varying speeds of market liberalization across member states.
4. Current Situation: Provides an overview of the four major grid sectors in Germany and the role of industry pressure groups and the Netzregelverbund.
5. Why Regulation is needed: Explains the economic theory behind natural monopolies and why vertical integration necessitates state intervention in the electricity sector.
6. Liberalisation: Analyzes the legislative milestones, specifically policies 96/92/EG and 2003/54/EG, aimed at creating a competitive European single market.
7. Regulation: Examines the mechanisms of cost-based regulation and the problems associated with traditional tariff structures.
8. Incentive Regulation: Describes the implementation of revenue caps and efficiency benchmarking as tools to promote competition and lower consumer costs.
9. Conclusion: Summarizes the necessity of continuous data collection and international comparison to refine energy market regulations.
Keywords
Electricity Market, Germany, Regulation, Liberalisation, Natural Monopoly, European Union, Energy Policy, Grid Operators, Incentive Regulation, Revenue Cap, Infrastructure, Competition, Efficiency, Vertical Integration, Sustainability.
Frequently Asked Questions
What is the core focus of this case study?
The work focuses on the regulatory framework of the German electricity market, specifically analyzing how the sector transitioned from a monopolistic structure to a liberalized market governed by incentive-based regulations.
Which thematic areas are primarily addressed?
The study addresses the history of electricity supply, the impact of EU single market directives, the economic nature of grid operation as a natural monopoly, and modern incentive regulation mechanisms.
What is the primary research objective?
The main objective is to evaluate the effectiveness of regulatory interventions in promoting competition and achieving efficiency in the electricity sector while ensuring secure supply.
Which scientific methods are utilized?
The study employs a descriptive analysis approach, utilizing historical case study evidence, regulatory policy review, and comparison of market data and economic theories concerning monopoly behavior.
What topics are covered in the main section?
The main section covers the legal background of liberalization, the transition from cost-based to incentive-based regulation, the role of the Bundesnetzagentur, and the challenges of integrating renewable energy sources.
What are the key terms associated with this work?
Key terms include Liberalization, Incentive Regulation, Revenue Caps, Natural Monopoly, Grid Operation, and Competition.
How does the "Averch-Johnson-Effect" influence the industry?
It describes the tendency of firms under rate-of-return regulation to over-invest in capital to artificially inflate profits, a behavior that regulators aim to eliminate through incentive schemes.
What are the identified criticisms of the current incentive regulation?
Grid operators express concerns that the current regulatory environment, specifically regarding how revenue caps are calculated, may discourage necessary long-term infrastructure investment and negatively impact future supply quality.
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- Carsten Dümichen (Autor), 2011, Case Study: Regulation of Electric Power in Germany, Múnich, GRIN Verlag, https://www.grin.com/document/203746
