Unbundling, deregulation and the implementation of the European law for a liberalised and competitive energy market are the most discussed issues within the German energy market. There are four major interest groups – established utilities including grid operators, consumer organisations, political parties and energy traders. The network transmission fee is receiving particular attention from all these groups.

In 2003 the overall electricity consumption in Germany exceeded 500 TWh. Roughly 50% of the energy consumption is taken up by industrial customers, 25% by commercial and public organisations and 25% by residential customers. Between 900,000 and 1.5 million of the customer base, depending on the classification method used, is represented by C&I customers. Approximately 38 million households are supplied with electricity and served in the residential segment.

There has been a definite move to consolidation of the 1000 electricity utilities in the country, with four major companies emerging – EnBW, EON, RWE and Vattenfall. They each have significant stakes in several hundred local utilities and distribution entities. The four companies are also responsible for the four different grid control zones in Germany. The major utilities, together with some of the smaller organisations, offer a full service from energy production and transmission to distribution.

COMPETITION IN EUROPE

Transportation and distribution grids for electricity and gas are seen as a natural monopoly, while energy production, trade, sales and other services have been deregulated. The aim of unbundling is to separate the monopolistic elements and allow competition to take place. The European Commission’s aim is to achieve fair and open competition, which will result in attractive prices for electricity and gas by:

  • Creating transparency for grid usage costs.
  • Suppressing horizontal subventions (e.g. for public transport).
  • Preventing malpractice on the part of integrated utilities.
  • Allowing discrimination-free grid access for all market participants.

The National Ministry of Economics and Employment (BMWA) released a draft of the ENWG law (the Energiewirtschaftsgesetz) in February 2004. In July the government drafted a new version, which still has to be passed by parliament (Bundestag) and the federal assembly (Bundesrat). This comprehensive document means that the industry will face a lot of work in order to evaluate, comment on, negotiate and finally implement the decisions.

The initial plan to have the regulation in place for 1 July 2004, in order to meet the European regulation, was not achieved. The European Commission has the option to take action and implement measures against European members which have not met the deadlines and thus are not able to implement European law into local law. We expect that the new law will be released and applied at the end of 2004, or by 1 May 2005 at the latest.

The law contains four significant aspects for unbundling of the grid operation:

  1. Unbundling in accounting (separate accounting for different business units).
  2. Unbundling with respect to data and privacy (the obligation to manage data in an appropriate way and avoid misuse of data for personal profit; and the provision of data internally and externally in a non-discriminatory way).
  3. Unbundling of organisations (decision-makers must not hold senior business positions in both interest groups, for example network and sales organisations, and units need to become financially independent*).
  4. Unbundling legally (legally separated business units*).

*valid only for companies with more than 100,000 customers.

Many utilities are not yet able to fulfil the requirements of the planned law, although it is almost certain that once the law has been passed it will apply immediately. The regulation authority clearly states: “utilities will run into problems when not making preparations for or co-operating with the imple-mentation of the law”. Once the law is in place utilities have to be able to prove that they have made serious efforts in order to be ready to fulfil its provisions. System and solution suppliers are using their sales networks and offering road shows to inform their customers of their obligations.

Serious investments in system development have been made in order to help utilities get ready for the future. New features being offered will allow utilities to comply with audit measures like comprehensive historical proof of data processing and data manipulation.

The focus of the regulator and its regulation authority REGTP (Regulation Electricity Gas Telecom Post) will concentrate as a first step on fair grid costs versus sustainable grid quality with respect to grid access and transmission/distribution.

The basic objective is to conserve the network status, performance and quality. The price definition has to be based on three elements:

  1. Calculated costs and profits.
  2. Conformity to trade accounting rules.
  3. Transmission and distribution fees must be similar compared to other grid operators of the same structure.

The grid service fees represent physical network costs, system costs (e.g. metering) and compensation for losses due to transmission. In Germany 18 structural variants exist, depending on voltage level, network density, number of inhabitants/km², and power consumption density/km². Today grid service fees have to be published on the Internet.

The regulatory authority states that in many cases the high network fees are used to co-finance the energy costs from internal deliveries. The German government estimates the surcharge of transmission fees for electricity and gas to be at a level of 20% at present. Due to the high transmission fees, many of the independent energy trading companies have not survived, and the European-wide purchase, trade and delivery of energy has not yet been established.

By law the regulatory authority will be obliged to work as a central point to receive and process complaints regarding prices for network fees, and anybody will be able to send a complaint to the authority. It in turn must indicate within two months whether or not the complaint is valid. Thus systems used on a commercial or technical level must be able to offer the necessary transparency and history for the generated data. More and more the network operator will depend on the performance of the system, its quality and its options for audit reviews.

The success of the regulator will depend partly on the co-operation of the network operators, and on the power and support laid down in the regulations when they are published.

There is an ongoing trend of consolidation activities of the major utilities. This is supported by the fact that the German Minister of Economics has allowed the deadlines for implementation of the European law to be shifted, giving utilities more time to grow and strengthen their competitive position in international markets.

THE GERMAN METERING MARKET

In the context of intense political discussions regarding deregulation, the metering market in Germany continues to evolve.

Metering industrial customers
In general it is apparent that remote meter reading is on the increase, both for customers with a lower level of consumption and for customers with smaller contracted maximum power. There is also a clearer differentiation between the customer focus for AMR with intelligent modems of premium quality and high functionality, combined with low total cost of ownership, versus simple modem technology which offers a better financial return in the short term.

A new generation of meter reading has begun through the use of new communication technologies such as GPRS with TCP/IP for fast and intelligent data acquisition. Downstream processes such as billing systems rely heavily on premium authentic metering data, which is provided by metering systems that are automatically able to detect errors caused by events like power cuts and take appropriate steps to rectify the data. The meter and communication unit have therefore become part of the central metering system, which has the task of delivering accurate technical meter values. According to the new law, the network operator will be obliged to offer a complete historical view of modified meter data, and modification and computing of data must be fully documented. The system must be capable of requesting second readings from meters in the field, to ensure accuracy.

Metering household customers
The time has come for residential customers to shift from electro-mechanical meters to full electronic meters, as the price of electronic meters decreases. Most households are served with a single tariff; a double tariff structure is used mainly for households equipped with electric storage heaters. This type of heating covers approximately 2 million homes, and the number is unlikely to increase, since this solution is becoming more and more unattractive compared to other options such as fuel oil or gas.

REVENUE PROTECTION

Revenue protection has not been a significant problem in the German electricity market, with difficulties being experienced in collecting between 2% and 8% of total revenues. Nevertheless there is a clear trend that cultural and social behaviour is changing. Germany’s difficult economic climate, which has led to less social involvement and support by the state and has reduced purchasing power on the part of individuals, is likely to result in significant financial problems for an increasing number of households. Consumers are also likely to change their payment behaviour. More and more people will switch from cash to credit payments, or from automatic bank debit to deferred payments on an invoice basis. This trend is expected to accelerate significantly in the next decade.