On December 19, 2019, the FCO published its first report on market power in the electricity generation sector (“Market Power Report”).[1] The report is intended to provide market participants with more legal clarity as to their own position in the market, thereby complementing the recently published FCO/FNA Guidelines on the control of abusive behavior in the electricity generation and wholesale trade sector[2].

The FCO analyzed the electricity sales market and its competitive landscape between October 1, 2018 and September 30, 2019. In the FCO’s view, the product market for electricity sales comprises the generation and first sale of electrical energy for general supply. Due to increasing price divergence, the FCO no longer considers Germany, Luxembourg, and Austria to be part of the same geographic market, but rather Germany and Luxembourg on the one hand and Austria on the other to constitute separate geographic markets.

With respect to the assessment of market power, the FCO deemed that market shares based on generation volume are only limited indicators of market power.[3] It therefore additionally applied the Residual Supply Index (“RSI”), which quantifies whether an electricity provider is indispensable to meet demand. In the sector inquiry on electricity generation and wholesale, a dominant position was presumed if an electricity provider was indispensable to meet the demand for at least 5% of the hours of one year (i.e., in at least 438 hours/1.752 quarters of an hour).[4] The FCO further noted that the Return on Withholding Capacity Index (“RWC”), which measures electricity producers’ incentive to withhold capacity, might become a useful additional screening instrument going forward.[5]

The FCO concluded that market leader RWE does not currently hold a dominant position. However, even a relatively minor shortage of supply capacities in the course of the nuclear and coal phase-out could push RWE over the dominance threshold. The FCO is therefore considering whether to publish the next Market Power Report after one year, instead of the statutory two-year interval.

[1]              The Market Power Report is only available in German here; the accompanying FCO Press Release, December 19, 2019, is only available in German here. The instrument of the Market Power Report was introduced with the 2016 Electricity Market Act. Previously, the report was part of the annually published monitoring report of the FCO and the Federal Network Agency (“FNA”).

[2]              See German Competition Newsletter September – October 2019, p. 7 et seq., available here.

[3]              This is because electricity is unsuitable for storage, consumption and generation are volatile, and because of the short-term inelasticity of demand and the systemic importance of the security of supply.

[4]              The RSI was previously also used by the FCO and the European Commission in their respective reviews of RWE AG (“RWE”)’s acquisition of a minority stake in E.ON SE. See German Competition Newsletter May – June 2019, p. 7 et seq., available here.

[5]              The Monopolies Commission has been using the RWC as an additional tool in its Sector Reports Energy since 2015.