The President of the Federal Network Agency (BNetzA), Klaus Müller, says he is a peace-loving person who enjoys lively, objective debate. His appearance at the meeting of German electricity and gas network operators in Berlin must have been exactly to his liking. But perhaps the debate soon became a bit too lively for him.
Because the chief regulator of the German energy market got a lot of fire on the open stage: E.on Netze boss Thomas König countered his authority's latest decision with “complete absurdity”. Colleague Torsten Maus from the northwest German utility EWE asked the BNetzA President, to the applause of hundreds of industry representatives, to “not drive the car into the mud”.
The “cart” that Maus means is the entire German energy transition. The capital required for the ecological transformation is measured in trillions by 2045. In the next five years alone, someone will have to raise hundreds of billions for network expansion. Since the state would be hopelessly overwhelmed with such expenditure, it would have to be private donors. But they want to see returns. And the BNetzA determines how high it is.
That's basically true: after all, copper cables and gas pipes are so-called line monopolies. In monopolies the price is not based on supply and demand, but is simply set by market power. But because this is prohibited by competition law, the state, in the form of the Federal Network Agency, sets the price for network use and thus also the profits of investors.
For years, companies and the supervisory authority have been arguing like tinkers over which capital costs they can submit to the authority for reimbursement because this is essential to their profits. But at the “Networks Meeting Point” of the Federal Association of German Energy and Water Industries (BDEW) in Berlin, the dispute escalated beyond the usual level.
The BNetzA had published a “draft determination” which shows that from 2028 gas network operators will only be allowed to claim capital costs of 3.76 percent. A percentage that sent shockwaves through the energy industry because of the current interest rate developments on the market. “The Federal Network Agency is making a calculation that has nothing to do with the reality of the capital markets,” criticized the head of the Thüga Group of municipal utilities, Constantin Alsheimer: “You shouldn’t be surprised if investments fail to materialize.”
A harsh threat: If there is no investment in network expansion, the energy transition will also fail. At the BDEW Congress, E.on board member Thomas König, who is responsible for network business, wanted to know from the BNetzA President: “How do I explain to my investors that I have to borrow money from the bank at 4.5 percent interest, but only get 3.7 percent back from the Federal Network Agency?” According to König, this is “simply completely absurd.”
The BNetzA draft was only about gas networks. But utilities fear that the authority will be just as stingy when it comes to the power grid next year. Thüga boss Alsheimer is not the only one who sees the danger “that the BNetzA methodology will also be transferred to the electricity distribution networks in the next determination.” And there “investments in the hundreds of billions will be required in the coming years – including for renewable energies, storage, heat pumps, electromobility and new industrial consumers, which will be integrated into the overall system by expanding the power grids.”
But given the risk profile, who should give money for a measly 3.76 percent interest rate? “We are creating a situation in which it will no longer be attractive to invest in electricity and gas networks at all,” warned EWE Netze boss Maus. Although he said “we”, he meant him: the BNetzA President Klaus Müller.
It's not easy for him either: The BnetzA President has to find the balance between the demand for the lowest possible electricity and gas costs for industry and consumers on the one hand and the desire of energy transition companies for adequate returns on the other.
The high energy costs in Germany are already contributing significantly to the industry cutting an average of 15,000 highly qualified jobs per month. The network costs, for which Müller is responsible, are among the largest items on gas and electricity bills. Not allowing the energy transition to become even more expensive is part of his political mission. Of course, keeping them alive is also important.
The dispute at the BDEW network conference made it clear that the financial requirements of the energy transition and its ability to be financed are like two trains that are moving towards each other without braking and are on the verge of a crash.
BNetzA boss Müller hastened to assure that he understood all the arguments very well. But unlike the network operators in their financial distress, he has to see “the bigger picture”. Müller declared that the concern that the provisions for the return on capital for gas networks would be repeated for electricity networks next year was unfounded: These are two completely different cases: While demand for natural gas is expected to decline, high growth must be organized for electricity networks.
In doing so, however, Müller raised the suspicion among some participants that he was treating the gas networks particularly neglectfully because of the climate neutrality planned for 2045 and, in essence, wanted to largely dry up financially.
In any case, the public utility company Thüga warned before the event against prematurely abandoning the German gas infrastructure. “In addition to today's supply, gas distribution networks secure innovations of the future: access to the hydrogen core network for regional customers, biogas, decentralized electrolyzers and storage as well as supply to heating networks,” explained Marcus Böske, managing director of the Thüga-Gesellschaft Energie Südbayern: “Therefore, the Federal Network Agency's interest rate draft endangers essential decarbonization projects and crucial elements of the energy transition.”
A view that is also shared by economist and energy expert Veronika Grimm: In her most recent study, the Nuremberg professor advised not to rely too much on the success of the energy transition plans, but rather to prepare for various development opportunities.
In particular, says Grimm, Germany would do well to conclude long-term gas procurement contracts with a term of 20 years. Maybe you still need the fuel after all. And in that case it would be good to also have functioning, well-maintained pipes in the ground.
