Abstract

New Regulatory Law Following the Transformation of Energy

This article addresses the regulatory framework in German energy law. Because Germany has decided to terminate nuclear energy and switch to renewable energies within a short period of time (the so called “Energy Reform”), it has been necessary to adjust the “Energy Sector Act” and several related statutes and rules. For example, there is a need for a new electricity grid to transport wind energy from the north to industrial and population centres further south. Due to frequently fluctuating weather conditions in the north, the proportion of renewable energy flowing into the electricity grid at any one time varies. As a result, new safeguards need to be put in place to protect the grid’s reliability, stability, and security of supply. The change to a “smart grid” also requires considerable investment in the network infrastructure at all levels. In addition, the regulation of charges for third-party access to the grid must provide incentives for investment both in the grid and in new conventional power plants. Most important, the system of financial support for renewable energy in the “Renewable Energy Act” itself needed to be adjusted to reflect the increasing market share of renewable energy.

Some scholars argue that, to address these challenges, German energy regulation has switched from a market-based-approach to a planning approach with increased government control. This article takes a contrary, more nuanced, position. Germany still has no centralized planning for new power plants. The legislator has rejected the “missing-money” theory and adheres to an “energy-only” market. To ensure the stability of the power grid, a very complex regulatory system for feed-in management has been extended but not changed in its basic structure. While there are some new legal restrictions for the closure of conventional power plants to guarantee that there is enough spare (stand-by) capacity, these restrictions are integrated into a system of competitive tendering. To further enhance the market share of renewables, Germany has opted for guaranteed feed-in tariffs. The amended “Renewable Energy Act” now establishes a very complex combination of elements of price and of quantity guidance. The Act does not provide for strict quotas for renewables; instead, the level of financial subsidies for new renewable energy sources will be linked to flexible quotas. In addition, there will be more competitive tendering for new renewables-generation capacity in the future. So the financial promotion of renewable energy will be characterized both by more market flexibility concerning subsidies on the one hand but more state intervention because of quotas on the other hand. The regulation of access charges already changed some years ago from a pure cost-based approach to a revenue cap. Several elements that allow grid operators to refinance investments have already been outside of the efficiency-enhancing regulatory mechanism. Thus, the increase of state intervention is limited fundamentally to the land-use-planning of the new “electricity-highways.” On the consumer level, there neither has been nor is there currently significant regulation. Suppliers are obliged to provide information about their energy mix, empowering consumers to freely decide about the proportion of renewable energies in their energy usage.

In sum, the amended German energy law continues to seek to integrate the promotion of renewable energy into a regulatory system based on competition. Financial incentives play a much more prominent role than command and control or state-driven planning. Competitive tendering becomes more and more important. To a large extent the regulatory system is based on engaging companies (grid operators, power plant operators) to take on state tasks (Indienstnahme Privater). While this system can amount to a narrowing of the constitutional right to freely exercise a profession, it can be justified because the regulatory system always provides for sufficient financial compensation. In the final analysis, it is the energy end users who must – rightly – bear the costs of the Energy Reform. The difficulty of establishing a completely fair system of burden-sharing between the different groups of energy users does not affect the lawfulness of the other parts of the regulatory system.

Energy regulation must connect competition-based market-structures with the enhancement of sustainability. Therefore, in the real world, no allin-one economic approach is available. A combination of planning, financial incentives and more or less artificial markets set up by regulation is needed. The policy question is how to strike the correct balance.