On November 30, 2022, the German Federal Cartel Office (“FCO”) and the German Federal Network Agency published their joint Energy Monitoring Report 2022. The report focuses on conditions in the German electricity and gas markets in 2021 and also takes a look at developments in early 2022 which were marked by heavy disruptions in the energy markets following Russia’s war against Ukraine.
Higher Electricity Market Concentration Due To Decreased Generation Capacity
Already in 2021, prior to Russia’s invasion of Ukraine, the situation on the electricity market was tense. This was primarily caused by two factors: First, the implementation of the nuclear and coal phase-out resulted in a reduction in conventional generation capacity. Second, comparatively low wind and fewer sunny days in 2021 reduced electricity generated by renewables. This resulted in a greater dependency on the remaining conventional power plants.
The FCO also identified an increased market concentration in its 2021 Market Power Report. The Energy Monitoring Report finds that, in 2021, the cumulative market share of the top five power producers in power sales grew from 65.3 to 66.5 percent. In addition, the analysis carried out (Residual Supply Index) indicates that, for the first time in 10 years, a single electricity producer—RWE—meets the presumption threshold for a dominant market position.
This difficult supply situation in the electricity sales market was further aggravated in 2022 by the scarce gas availability caused by Russia’s war against Ukraine. Additional extraordinary effects, such as lower output by French nuclear power plants, also negatively impacted the supply situation.
While the decision by the legislator to extend the operating lives of nuclear and coal-fired power plants will likely mitigate these tensions on the electricity market, the report could not yet conclusively assess the specific effects.
Rising Prices On Wholesale And Retail Markets
During the second half of 2021, significant price increases could already be recorded on the wholesale electricity market. Phelix-Base-Year-Future prices rose steadily towards the end of 2021 and, after the start of Russia’s war against Ukraine, prices peaked at around 1000 EUR/MWh in August 2022. Due to the tight supply situation, many of the gas-fired power plants could not be taken off the grid and thus set the wholesale electricity price. The trend in electricity prices is largely mirroring gas prices. A significant decline in prices was then already recorded after August 2022.
The impact of Russia’s war in Ukraine also had a significant impact on retail prices in the first quarter of the year. As of the reporting date of April 1, 2022, electricity prices for household customers had risen by around 10.5 percent and gas prices by around 48 percent compared to the previous year. The retail prices stabilized again later in the year.
According to the report, no supplier on the nationwide retail markets for electricity and gas had a dominant position. The cumulative market shares of the four largest electricity and gas suppliers for interval-metered and standard load profile customers did not meet the statutory threshold for presuming market dominance.
Import and Export of Electricity and Gas
While the German electricity net export volume slightly increased in 2021 compared to the previous year, the German electricity market also relies on imports from abroad to meet domestic demand. The ability of foreign countries to provide these imports has diminished, particularly as a result of the maintenance-related technical outages of many French nuclear power plants. At the same time, power plant shutdowns in Germany have led to a further reduction in supply. Despite these restrictions in supply, Germany did not experience any electricity shortages for several reasons: First, electricity consumption dropped to the levels noted during the pandemic in 2020. Second, electricity generation from renewables was 8.6 percent higher than in the previous year. With a plus of 18.7 percent, the increase was highest for photovoltaic systems. In the course of the year, their feed-in repeatedly exceeded previous highs due to good weather conditions at times and the increase in capacity. It rose from 53.3 GW to 57.7 GW. Also, the feed-in from wind power plants was higher last year: It increased by 12.5 percent from onshore wind plants and by 3.1 percent from offshore wind plants.
Overall, Germany exported more electricity than in the previous year. While imports fell from 39.60 TWh to 35.76 TWh compared to the previous year, exports rose from 56.99 TWh to 62.05 TWh. This resulted in net exports of 26.29 TWh, which was 8.90 TWh higher than the year before. The net export to France has more than doubled compared to the previous year. This was caused in particular by the unavailability of power plants in France. Several nuclear power plants in France were unavailable due to planned and partly unplanned maintenance and refurbishment work. In the summer, the situation worsened due to the drought and the resulting low river levels which didn’t allow for sufficient cooling.
Gas imports to Germany were down two percent on the previous year. Traditionally, Russia, Norway, and the Netherlands used to be important sources of gas for Germany. Since the shutdown of the gas flow from the pipeline Nordstream 1 in September 2022, gas imports from Russia have come to a standstill. Even prior to that Germany reduced its dependency from Russia’s gas supplies significantly since mid-2022. Within a year, Germany replaced gas supplies from Russia which constituted more than 60% of its demands with gas from the Netherlands and Norway as the main gas suppliers.
Conclusion and Outlook
Russia’s war against Ukraine caused a major disturbance in the entire gas and electricity market, from energy generation to retail sales. While the monitoring report was only able to provide an initial assessment of the war’s impact on the energy market, energy supply could be ensured despite the markets’ high volatility. The next monitoring report will likely draw a full picture of the impact of the government’s measures to replace supplies from Russia.