Network tariffs are an important part of energy costs for consumers, yet, surprisingly, the way these fees are established in Germany is completely opaque, writes Andreas Jahn, Berlin-based senior associate at global energy policy advisors Regulatory Assistance Project (RAP). According to Jahn, it is unclear how network operators and the regulator calculate costs and how they are allocated to customers. He calls on the German government—and on the EU— to demand more transparency on network tariffs.

“Putting consumers at the heart of the energy market” is how the European Commission, the European Council, and the European Parliament characterize the reform of the European energy market. The pan-European electricity market is already saving consumers billions in costs by connecting national markets.

Yet these savings could still be increased substantially. An important part of consumers’ energy costs are the network costs, which have been growing steadily in recent years across the EU. Since they are regulated, they are not subject to competition. Consumers have no choice in the matter. What you would expect, then, is that they would be established in a transparent manner, so consumers and taxpayers are able to see how they are calculated and allocated.

Neither customers nor retailers are provided with reliable information about the costs of the various networks or the total grid costs for Germany.

In Germany, however, this is not the case at all.

Every year in October, all four German transmission system operators and almost 900 distribution network operators publish price sheets that show the network fees for the upcoming year. Based on these published prices, consumers can calculate whether their network charges will change, and the energy retailers can start calculating tariffs for their customers.

However, beyond these bare prices, there is very little information available. Neither customers nor retailers are provided with reliable information about the costs of the various networks or the total grid costs for Germany. Not even the regulator has access to this aggregate number. And this is despite the fact that Germany has had a revenue regulation system in place since 2005, which has been revised twice and reinforced with a performance regulation mechanism.

Asking questions

Curious about this lack of transparency, RAP collected data from various sources and started asking questions. In cooperation with Agora Energiewende, we published a paper (in German) exploring the results and shedding light on this often-overlooked issue.

We found that in 2018, the costs for the transmission system will increase by more than 600 million euros to a total of approximately 5.8 billion euros. That is only for transmission; distribution costs raise the total to some 24 billion euros, but this is only a rough estimate.

There are several justifiable reasons for this increase, such as the need to contract reserves and higher redispatch costs to operate the network in the absence of locational marginal pricing. However, we are at a loss as to exactly where these costs are incurred or how they are allocated to networks and, ultimately, to customers. It is unclear why some customer groups face higher network charges than others.

For example, the increase in network costs from German transmission system operator amprion is only borne by the customers connected to the low-voltage distribution networks, not by the industrial customers who are connected at the transmission level.

It is unclear why some customer groups face higher network charges than others.

Nor is the public ever informed about how the regulator has assessed cost increases (tariffs are based on a cost-plus system). This ongoing gap in transparency has led to what can be described as “regulatory capture” of the regulator by the network operators.

A study commissioned by the German regulator comparing the regulatory procedures for establishing network regulation and networks fees in the United Kingdom, the United States, the Netherlands, Austria, and Italy found that nearly all of the countries (except Italy) demonstrated a more transparent process than Germany. The monitoring report that the regulator (the Bundesnetzagentur) published about its own activities addresses the international comparison of transparency only marginally—on one single page out of 500. The Bundesnetzagentur regards revenue regulation as a confidential issue relevant to “network competition.”

Long-term benefits

Unfortunately, the German Supreme Court ruled in the fall of 2017, as the result of a court case brought by “green” energy retailer LichtBlick, that the policy to keep control of grid revenues out of the public domain is in line with national law.

This means that lawmakers will  have to take action to enforce more transparency.

If the Energy Union is to successfully offer consumers the benefits of a common market, the first step must be cost transparency for all Europeans. The data and decisions must be disclosed by all parties involved. This requires implementing strong regulations and empowering institutions at the European level, such as the Agency for the Cooperation of Energy Regulators (ACER), to implement transparent network tariffs or even demand them from Member States.

Achieving transparency is not an impossible task. Germany has already improved clarity around other energy-related fields in recent years. More than 1.6 million solar photovoltaic installations financed by support schemes are listed on a public webpage, and regulators introduced a platform to strengthen transparency on the wholesale electricity market. Progress has been made in regulation, by leveraging cartel law to increase transparency without impeding the market or its actors.

As for the degree of transparency required, decision-makers must conduct stakeholder processes that identify the interests of the parties and make decisions based on the regulatory framework of the pan-European and national power markets. Only then can market reforms deliver their full value.

Increases in the price of electricity are mostly attributed to increases in regulated charges, which cannot be influenced by market processes. Yet in the absence of publicly available data, it is impossible to determine the extent to which these increases are actually justified. Even if we know the underlying grid costs, we cannot determine whether the costs are being shared between different consumer groups in an equitable manner.

This lack of transparency undermines public confidence in the energy transition. Now that the German Supreme Court has reinforced the confidentiality of regulated network data and decisions, it’s up to the German federal government to catch up with European transparency standards for network regulation. This would not only demonstrate respect for the longstanding public support for the German Energiewende, but would also secure long-term benefits for all European customers in shared markets.

This blog was originally published by EnergyPost.