09/26/2012, Berlin

BDEW on the safeguarding of conventional generating capacities:

Energy sector positions itself with strategic reserve

Priority of market-conforming instruments shall be required by law / Proposals on the reform of the Energy Industry Act jeopardise the success of liberalisation

In the current debate about shutdown prohibitions and other measures proposed by the Federal Government to ensure a capacity reserve during the coming winters the energy industry has presented a counterproposal. On the basis of a unanimous decision taken last weekend by the Management Board, the German Association of Energy and Water Industries (Bundesverband der Energie- und Wasserwirtschaft -BDEW) requires that the instrument of a "strategic reserve" be granted precedence over rigid interventions of public authorities. "In the forthcoming discussions, our goal is to propose market-conforming and competitive rules which make the currently discussed legal regulations unnecessary", said BDEW President Ewald Woste.

Hildegard Müller, Chairwoman of the BDEW General Executive Management Board, underlined that such massive interventions in the energy market and the ownership rights of companies were only legitimate in the case of extreme emergency. "But we can almost completely exclude the occurrence of such an emergency by means of the instrument of a "strategic reserve" and complementary market-conforming instruments ", Müller said. In the opinion of BDEW, the government draft in its present version contained considerable legal and financial risks.

Cooperatively with experts of Consentec, the BDEW developed a swiftly feasi-ble practicable model of a strategic reserve which may already become effective next year. It thus has the same lead time as the intended interventions provided for in the government draft. These will also become effective from winter 2013/2014. For the coming winter, the sector had declared to enter into voluntary commitments. "Regrettably, this offer has not been consistently examined by the Federal Ministry of Economics, obviously because the Ministry was already determined to proceed with legal interventions in the market", Hildegard Müller emphasised.

The central focus of the strategic reserve is a "reverse auction". This auctioning procedure is transparent and market based; it prevents market abuse and enables the volume of the strategic reserve to be accurately determined. Companies that actually intended to shut down unprofitable power stations might offer their capacity. If they were awarded the contract, they would have to commit themselves for at least two years to keep these power stations ready for quick start but not trade their capacity for use elsewhere.

Higher transparency and improved information about the situation of the power stations offered are two of the benefits of strategic reserve in comparison to government interventions. In addition is, according to the sector, that there is no impairment of the market and that the strategic reserve can be extended in the long term, where necessary, to a capacity market, if possible also across borders, and thus throughout Europe. By a specific South-German component, the proposed strategic reserve finally takes account of the circumstance that according to present knowledge capacity bottlenecks are likely to occur mainly in Southern Germany.

"We trust that the Federal Government is also interested in a functioning liberalised energy sector over the long-term. Regulation entails further regulation as the simultaneously intended extensive interventions in the gas market’s supply structures show", said Ewald Woste.

According to the information of the BDEW, the drafts of the Federal Ministry of Economics on the Energy Industry Act provide, inter alia, that gas power plants with interruptible supply agreements shall be required to conclude non-interruptible agreements which would be to the detriment of other gas customers. These proposals are also clearly rejected by the BDEW.

Calculations of the BDEW have shown that in case of emergency, industrial customers would have to be disconnected to a large extent from the grid to ensure the supply of an average gas power plant only. The financial risks and practical consequences for the customers would be difficult to calculate. Household customers actually protected might finally lose their security of supply within the process chain. "Due to the very specific local conditions in terms of gas supply, it is absolutely necessary to concede priority to concrete location-related solutions of market participants. Unilateral safeguarding of electricity supply to the detriment of security of supply of natural gas might cause sustained damage to the natural gas market. Constructive proposals of the sector on this subject-matter have been available for months. Government interventions based on insufficient information will cause considerable damage in this field", Müller underlined. The BDEW offers the Federal Government concrete talks about the integration of the strategic reserve in the legislative procedure and on the preventive measures in the gas sector that need to be conceded priority to.


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