German cartel chief maps out power market reform after election

Reuters News
Posted: Sep 11, 2013 9:10 AM

By Vera Eckert and Jens Hack

MUNICH (Reuters) - Germany's power market needs a quick jolt to become competitive again after September's national elections, the country's cartel office chief said on Wednesday, proposing a reformed marketing and funding system for renewables.

Energy policy has long been on hold ahead of the polls while the rapid growth of subsidized green power has undermined prices of conventional power and triggered plant closures, leaving the sector in urgent need of consolidation.

Chancellor Angela Merkel has said if she won a third term on September 22, she would find a way to cap the rising cost of energy that results from guaranteed prices for green power that she favors to replace lost nuclear capacity.

Antitrust office head Andreas Mundt said in an interview this gridlock had to end. But existing market-based mechanisms should be left in place and expanded on, rather than abolished to make way for an entirely new system.

"We should tackle this in three steps: reform the renewable support law (EEG) as that is the most urgent, then look at potential supply gaps ... and models how to organize power capacity reserves to mitigate them," he said.

"Only then should we ask do we need a capacity market system in Germany after 2020."

Mundt said his three-stage plan was low in bureaucracy, inexpensive and most importantly, reversible.

His job is to prevent abuses of market dominance in all industrial sectors in Europe's biggest economy, so while his role in energy is purely consultative, it is influential.

Several European countries such as France or Britain are weighing options to create markets in which backup capacity for intermittent renewable power is rewarded financially.

This is necessary if the EU moves increasingly towards low-carbon economies in order to meet its ambitious climate protection targets that mandate lower carbon emissions.

Mundt said it was too early for Germany to embrace such changes as its wholesale power markets were liquid and their price signals functioned well after 15 years of liberalization.

"I am skeptical whether an entirely new system can be politically implemented," he said.

Merkel has not given details of her reform plans. But in Mundt's view, priority for renewable power on the transmission grids - which pushes out conventional power when the weather is favorable for wind and solar power - should stop.

He also said green operators should fully market their production and if needed, buy conventional power to meet delivery obligations.

"That would help conventional power without us having to regulate anything here," he said.

He said politicians should make use of the new start after the polls, but also of a looming outcry over price increases for power consumers early in 2014 when a ballooning green power bill will be passed on via surcharges.

"These impulses and that momentum should be used," he said.

Households and industry are feeling the pain and exporters complain that the energy shift has driven up power prices so much so that their competitiveness is being lost.

Utilities like E.ON and RWE, hit by plunging prices for wholesale power which they sell, are also piling on pressure to reduce green incentives. They threaten to shut thousands of megawatts worth of plants.

(Editing by Marilyn Gerlach and David Evans)