On February 17, 2021, the German Federal Cartel Office (“FCO”) published its third report on market power in the electricity generation sector (“Market Power Report”), analyzing the competitive landscape from October 1, 2020 to September 30, 2021.[1]  Again, the FCO published its results one year earlier than statutorily required because of the continuing phase-out of nuclear and coal energy.

As per its previous Market Power Reports, the FCO applied the Residual Supply Index to quantify whether an electricity provider is indispensable to meet the demand and presumed dominance if an electricity provider is indispensable to meet the demand for at least 5% of the hours of a given year. [2]  While in its second Market Power Report, the FCO found that market leader RWE AG (“RWE”) did not hold a dominant position in the generation and first time sale of electricity for general supply in Germany and Luxembourg at the time, it already anticipated that RWE may well pass the dominance threshold in the near future.  Following the reduced domestic generation capacity resulting from the shutdowns of three larger coal-fired power plants in 2021, the FCO now found RWE to be indispensable for meeting the demand in a significantly higher number of hours and thus to clearly exceed the dominance threshold.  Considering the shutdown of another three nuclear power plants at the end of 2021 and the continuing phase-out of nuclear and coal energy, the FCO’s president, Andreas Mundt, expects RWE’s market position to expand even further.

As required by European regulation[3], on November 2, 2020, Germany introduced the balancing energy market.[4]  With a view to the fundamentally changed market conditions in this area, the FCO explained in detail in the third Market Power Report indicators for the analysis of the new market conditions for the different types of balancing energy and found high levels of concentration in the area of positive aFRR balancing energy.  Andreas Mundt stressed that pump storage plants play an important role in this field, singling out Energie Baden-Württemberg AG as the largest supplier.  The FCO further announced to closely monitor pricing patterns of large balancing energy providers.

In light of the dynamic transformation process of the energy markets driven by the continued phase-out of nuclear and coal energy as well as the development of European platforms for the procurement of balancing energy services, the FCO considers publishing its next Market Power Report already in 2023.

Editors: Katharina Apel and Anna Lubberger

[1] The FCO’s third Market Power Report for 2021 is only available in German here; the FCO’s Press Release of February 17, 2022 is available in English here.

[2] The FCO’s first and second Market Power Reports for 2019 and 2020 are only available in German here and here; see our Cleary Antitrust Watch blog articles here and here, respectively.

[3] Namely the “European Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing” and the “Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity”.

[4] Balancing services are provided by transmission system operators and help to balance out frequency fluctuations in the electricity grid.  There are three types of balancing services: (i) frequency containment reserves, which must be fully available within 30 seconds, (ii) automatic frequency restoration reserves (“aFRR”), which must be available within five minutes, and (iii) manual frequency restoration reserves (“mFRR”), which must be available within 15 minutes.  Further, one can distinguish between positive balancing services (when consumption exceeds electricity generation) and negative balancing services (when electricity generation exceeds consumption).  Until November 1, 2020, Germany used a joint tendering process for the procurement of aFRR and mFRR.  Since November 2, 2020, aFRR and mFRR are tendered in two separate markets.  Delivering balancing energy is now possible without prior participation in a capacity auction (i.e., all pre-qualified aFRR and mFRR providers can participate in the relevant energy auctions).