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Federal government’s governance of energy transition still inadequate

PRESS RELEASE

In order not to jeopardise the success of energy transition: Federal Ministry for Economic Affairs and Energy needs to enhance steering and monitoring

Secure and affordable electricity supply is more and more at risk

“Since our past review in 2018 little has been done to make energy transition a success. This result is little promising. The federal government continues to neglect governance of the transformation process. This puts a safe, secure and affordable electricity supply at risk. What is more: Energy transition is at risk to overburdening private households and businesses”, stated Kay Scheller, the President of the German SAI, when he submitted a report to parliament on how the Federal Ministry for Economic Affairs and Energy is shifting to clean energy. “Electricity affordability has still not been clearly defined. Data on the security of supply is patchwork. The question as to whether the citizens and industry will have a reliable energy supply in the future is subject to risks that the federal government has not fully taken into consideration. I am concerned about the high electricity prices for private households and small and medium-sized enterprises. This jeopardises the acceptance of the intergenerational project. And endangers Germany’s competitiveness. There is need for action: The system of public surcharges and fees has to be reformed fundamentally.”

Full stocktaking and assessment of security of supply

The Ministry has to measure and evaluate secure electricity supply by means of indicators and threshold values. However, the Ministry’s monitoring is incomplete: Aspects on security of supply and system security such as grid expansion and storage, grid maintenance and stability or supply disruptions are not or only little covered by indicators.

Many other aspects will considerably affect future power supply. Hence, monitoring needs to include scenarios that identify and illustrate current developments and existing risks reliably and realistically:

  • So far, the federal government has not duly considered the planned phase-out of coal power. This will lead to a capacity gap of up to 4.5 gigawatt – the power of four large conventional power plants.
  • At the same time, the new plans on hydrogen production require a considerable additional need for electricity. This need must be met.
  • The stagnating grid expansion and restricted cross-border exchange capacities adversely impact on a safe and secure supply.
  • In its calculations the Ministry also needs to include years with extreme climate conditions in which wind and sun produce far less electricity.


Despite these unpredictabilities, the Ministry has not analysed a worst-case scenario. Such a stress test in which several risk factors coincide is necessary for a reasonable identification and evaluation of the security of supply, for a reliable risk analysis.

“The Ministry does not take enough preventive measures to avoid these real dangers for a secure energy supply” says Mr. Scheller. “The Ministry has to adequately perform its monitoring function as a matter of urgency.”

Define affordability and accelerate an overall price reform

The Ministry still has failed to define an affordable and efficient electricity supply. Up to what level can electricity be affordable?
With the current system of state-regulated price components, the high electricity prices will rise even more. This places a major burden on private final consumers, has a negative effect on Germany’s competitiveness and decreases acceptance for energy transition.

Many factors impact on the trend of electricity prices: e.g. demand for electricity, expansion of renewable energies, grid expansion and carbon pricing. The state-regulated price components, such as surcharges, taxes and grid fees account already for 75 per cent of the electricity prices and therefore add considerably to the high price level, above all via the surcharge to be levied pursuant to the Renewable Energy Sources Act. As a result, Germany has the highest electricity prices for private households and small and medium-sized enterprises in Europe. This trend is likely to increase: hydrogen strategy and including transport (e.g. promotion of electric mobility) and heat (replacement of oil and gas heating systems by climate-friendly plants or heat from renewable sources) in the energy transition will generate an additional demand for electricity. The cost for the further grid expansion and the increased use of renewable energies will also impact on the electricity price. These two factors are likely to make electricity prices soar in the years ahead.

For this reason, the system of state-regulated price components needs to fully overhauled. The Ministry needs to analyse how it can accelerate an overall price reform to mitigate the future burden on final consumers. In this effort the Ministry needs to define an affordable and efficient energy supply. The Ministry needs to set indicators with thresholds for reasonable electricity prices.

“Our audit findings clearly demonstrate that against the background of statutory requirements set to ensure a safe and affordable energy supply, the Ministry still does not enough to steer the shift to clean energy” Mr. Scheller stated. “This jeopardises the success of the energy transition we need.“

Background

In 2018, the German SAI sent a special purpose report to parliament and the federal government on the coordination and governance of energy transition by the Federal Ministry for Economic Affairs and Energy. We noted that this intergenerational project was insufficiently coordinated and poorly steered. In 2019, the Ministry presented the second progress report on energy transition according to which the federal government was implementing 227 projects subject to a monitoring process. We studied the following questions: Does the Ministry ensure that electricity supply remains secure and reliable? To what extent are the energy policy targets of security of supply and affordability achieved? We based our work on the statutory mandate set forth in Section 1 of the Energy Industry Act. Section1 stipulates that supplying the public with electricity must be guaranteed in a secure, inexpensive, consumer-friendly, efficient and environmentally sound manner on the basis of a growing share of renewable energies.

 

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