The German energy sector in 2016 – Competition gains, but digitalization…
On November 10th this year, the German energy regulator BNetzA published its annual monitoring report about the current state of the energy sector in Germany (BNetzA 2017). The recent report collected and analyzed data from 2016. From our perspective, four supervisions stand out of the analysis:
- Even though renewable capacity increased by more than 7 GW in 2016, annual production remained on the level of 2015
- CO2 emissions from electricity generation increased by 1 %
- Gas fired power plants increased generation by nearly 40% compared to 2015
- Market power of the largest power producers remains at 76%, but now 5 companies provide this market share, while in 2015, there were only four companies that held a market share of 76%
- No intelligent metering systems (smart meters) in 2016 and 2017
In the following we are going to summarize the key findings of the report. All data is taken from BNetzA (2017). We do not quote this throughout the post to increase readability.
Total electricity production increased – gas-fired power plants gained significantly
Total electricity production in 2016 reached more than 600 TWh in 2016. Among the conventional generators, gas-fired power plants gained most in 2016: Their share in total production increased by 38% compared to 2015 and reached similar output levels as 2012. Thereby, 2016 was the first time since 2011 that production from gas power plants did not drop in Germany.
The “Big 4” lose market power in generation – mainly due to Vattenfall’s sell of lignite power plants to LEAG
In line with the trend of the recent years, the market power of the four largest utilities in Germany (E.on, RWE, EnBW and Vattenfall – the Big 4) in the conventional generation sector decreased again in 2016. Mainly due to the fact that Vattenfall sold its lignite power plants to LEAG the market share of the Big 4 + LEAG (which actually makes it the Big 5), the market concentration has dropped for Germany: 2015 the Big 4 owned a market share of 76.2% in conventional generation, in 2016 the Big 5 (with LEAG included) own a similar share (76.5%). If you want to find out more about the strategy of the Big 4 in Germany take a look here.
Figure 1: Market share of the four/five largest generation companies in the German-Austrian electricity market (BNetzA 2017: p. 43) Note that the data in this picture is for the German-Austrian market while we refer to the German market only in the text above. Therefore, numbers differ a bit.
Renewable capacity increased – but production slightly decreased
In 2016, there were 52,907 new renewable generators connected to the networks in Germany. While this is still a large number, it is almost only half of the average of 95,543 renewable power plants that were connected within the last five years.
Onshore wind key driver for renewable capacity increase
By the end of 2016 the installed capacity of renewable electricity supply in Germany almost reached 100 GW (99.7 GW see figure 2). Compared to 2015 this means that the installed capacity increased by 6.7 GW (7.2 % increase) in 2016. The primary driver for the expansion of renewable capacity was onshore wind (+4.2 GW in 2016), while solar-powered generation only increased by 1.5 GW and offshore-wind generation by 0.8 GW in the same time period. In the current version of the renewable energy law (EEG 2017) the German government has defined an annual path for further expansion of each renewable generation technology. While onshore wind significantly exceeds the targeted 2.8 GW, solar-powered generation missed the development path defined by the government by 1 GW (target for 2016 = 2.5 GW).
Figure 2: Development installed renewable capacity from 2003 till 2016 in Germany (BNetzA 2017:p. 65)
Total electricity production from renewables dropped below level from 2015
Even though the production capacity from renewables increased by 7.2% in 2016, the total gross production from renewables only reached 161.5 TWh and thus dropped even slightly below the level from 2015 (161.8 TWh). The primary reason for the rather stable production from renewables was the low wind speeds in the north of Germany. Due to this reduced wind speed, electricity production from onshore windfarms dropped by 6.5% in 2016 compared to the production in 2015.
Figure 3: Development of renewable electricity production (fed into the grid) in Germany in TWh (BNetzA 2017:p.68)
Wind and solar PV production reached new all-time high
In May 2016, the combined production of wind and solar PV peaked by 48.3 GW. While the maximum production in previous years was often due to a storm in Germany, May 8th, 2016 was actually a very sunny day which resulted in high PV production (26.1 GW) combined with a medium wind production (22.2 GW).
More than 70% of production is funded via maker premium model
The fixed feed-in tariff model has gradually lost importance since 2012. In 2016, more than 72% of total renewable electricity production was funded via a market premium model and only 28% still received a fixed feed-in tariff. While 93.5% of all onshore wind farms and 100% of the offshore windfarms used the market premium model, only 22.6% of total electricity production form solar power was based on the market premium model.
CO2-emissions of electricity production increased by 1%
The CO2-emissions from electricity generation increased by 3.6t in 2016. In its report, the BNetzA (2017) stresses that this increase is mainly due to better data availability and not due to a real physical increase of CO2-emissions. The primary source of CO2-emissions in electricity production is lignite, which emitted more than half of the total emissions in the electricity sector, but produced only 23% of total production.
Need for congestion management and its costs are still high
On 329 days in 2016 the transmission grid operators had to apply redispatch to secure system stability. In total, 6,3 TWh of production had to be curtailed for redispatch, which equals 1.5% of the total production of all non-renewable generators (1.9% in 2015). Compared to 2015, the requirement for redispatch was reduced by roughly 25% in 2016. Correspondingly, the costs for redispatch fell from €412 million in 2015 to €220 million in 2016.
Similar to redispatch, the need for feed-in management (curtailment of renewable production to secure system stability) in 2016 fell by 20% compared to the level of 2015. This means that 2.3% of the total production from renewables had to be curtailed to secure system stability (2.9% in 2015). The primary driver for the reduction of feed-in management was the lower wind power generation due to lower wind speeds in the north of Germany in 2016 compared to the wind production in 2015. As a result, the significant production peaks of wind farms fell by 25% compared to 2015. Still, the requirement for feed-in management remained on a high level and is estimated to rise again in 2017.
Figure 4: Curtailed electricity generation from renewable generators for the purpose of feed-in management in GWh (BNetzA 2017:p. 115)
The compensation costs for feed-in management in 2016 reached a level of €373 million and are therefore significantly lower than in 2015 (€105 million less).
Take a look at this post if you want to find out more about congestion management in Germany and the resulting need for more coordination between the network operators in Germany.
Network tariffs increase, especially for households
While the network tariffs for households in Germany remained rather constant in the period from 2013-2015, they increased by 9% in 2016 (+€0,59 ct/ kWh). A similar increase can be observed for commercial (+6%) and large industrial consumers (+10%) in 2016. This is especially due to the energy transition as decentralized generation from renewables requires investments in network infrastructure and increases the need for congestion management. Furthermore, self-consumption of renewable electricity, e.g. through private solar power plants, led to a decrease in the total demand (in kWh) from the network and thus to an increase in the network charges per kWh.
Wholesale prices dropped on the level of 2007
As could be observed regularly over the last years, the average price for 1 MWh on the wholesale market in Germany dropped again. Compared to 2015, the average price on the wholesale market for base load (Phelix-Day-Base) dropped by 8% in 2016, from 31.63 €/MWh in 2015 to 28.98 €/MWh. Thereby, the average wholesale prices have reached the lowest level since 2007.
Correspondingly, the average peak load price (Phelix-Day-Peak) was reduced by 9% (32.01 €/MWh in 2016) below the level of 2015 (35.06 €/MWh). This means that the average peak price (Phelix-Day-Peak) in 2016 was only 10% higher than the base load price (Phelix- Day-Base) in 2016. To put this into perspective, in 2008, the difference on average between these two prices was 21%.
Consumer prices increased – especially for basic tariffs
Though the wholesale prices decreased in Germany in 2016, this cost reduction did not mean a price reduction for consumers. On the contrary, consumer prices increased above the levels of 2015, especially driven by higher network charges.
Figure 5: Development electricity prices for private households in Germany in €ct/kWh (BNetzA 2017:p.242)
Consumer choice and retail competition on the rise
In 2016, the consumer’s choice between different retailers and products has grown again: in 86% of all network areas of distribution grid operators there were at least 50 retailers active (compared to 25% in 2007). In more than 50% of all network areas the number of active retailers surpassed 100, while four years ago this was only the case in one third of all network areas.
As an even more significant indicator of retail competition, the switching rate of consumers (private, commercial, industrial) increased as well. While 11.4% of all private household switched tariffs in 2016, more than 12.5% of non-private consumers did so in 2016.
No smart meter-rollout due to missing products that match German requirements
Though digitalization is discussed on every energy-related event in Germany, consumers still don’t have access to smart meters. In 2016, the requirements for intelligent metering systems (smart meters that are able to communicate data outside the household) have been defined, but there was and still is (now in November 2017) not one intelligent metering system available that meets the requirements defined by law in Germany. First intelligent metering systems that fulfill the legal requirements are expected to enter the market in Germany in the first quarter of 2018.
We discuss the smart meter roll-out in Germany in greater detail in this post here.
Competition between metering operators very low
Even though intelligent metering systems were not installed in 2016, there are still conventional meters in place and some consumers were equipped with modern metering systems (smart meters that are not able to communicate with external sources). In principal, the market for metering operation is a competitive market and open to every company that wants to become active here. Still, in 2016, only 9 metering entities were active in the market that had no affiliation with an incumbent energy utility or network operator. The market for metering operation is dominated by network operators and there is only little competition between them. On average, in each network operator’s business area, less than 1% of all metering points are operated by third parties.
Outlook
For 2017, it is likely that many trends such as the growing renewable capacity and production that could be observed in 2016 and before will further continue. One important change is that 2017 has seen a price increase on the wholesale market . This cannot be without consequences for production shares of different power plants and prices for private households. The next monitoring report by the German regulator BNetzA in 2018 will keep us informed.
Are distribution network operators in Europe threatened by a potential application of blockchain technology in the energy sector? This seems to be the pressing question that was at least partially the motivation for a recent report on blockchain in the energy sector by eurelectric, which is the European association of the distribution grid operators. From our perspective, this report reads like an attempt by the industry to reassure itself that its core business model – asset ownership and operation of the electricity networks – is not threatened by blockchain. While this might be true for asset ownership, this is different in the case of network operation.