After the Turnaround in Energy Policy:
Germany on the Road to a Planned Economy?
First published May 25, 2014
by Prof. Martin Kment *
Download the full article: 16 Page PDF.
Summary:
The German legislature dictates that the expansion of energy networks must not only ensure security of network and supply, but also be affordable, user-friendly, efficient, and environmentally sound. To make this possible, the expansion begins with a requirements planning, the purpose of which is to determine the probable demand on transmission capacities, defines expansion priorities, and determines the future ratio of different forms of energy. The responsibility for the overall network development planning lies with the private operators of the energy networks. The responsibility thereby corresponds with the network operators' own corporate responsibility for decision-making with regard to infrastructure investment.
Parallel to the responsibility of the network operators is the responsibility of the state with regard to infrastructure. The state is informed of the development and efficiency of the energy network infrastructure, and reviews the network planning envisaged. It also obliges the network operators to operate a safe, reliable and efficient energy supply network. The network operators' requirements prognosis is therefore by no means conducted without legal binds.
Under the provisions of the new Energy Act, the network operator has to lay down in a 10-year network development plan the means by which it intends to comply with its legal obligations, with this plan being subject to governmental control. It is only after the Federal Network Agency has carried out its regulatory review that the network development plan can lead to a federal-wide requirements plan that is binding. If the creation of the federal requirements plan is still based quite significantly on the estimates of the network operators, then they can, though, no longer escape from this plan according to its legislative enactment. What then occurs is that the state co-opts the private network operators to put the network expansion into effect.
Once a requirements plan has been created, the Federal Network Agency begins to look for route corridors for the expansion projects envisaged and to make these corridors legally binding for future network expansion. At the same time, the transmission system operators lose their freedom to decide autonomously on the date that network expansion measures will be introduced. Since the coming into force of the Network Expansion Acceleration Act in July 2011, they are required by the Federal Network Agency to submit an application to obtain regulatory approvals within a reasonable period of time, as long as they have not already submitted beforehand the application required to begin the process on their own accord. The time limit can also be given weight by a penalty payment.
These obligations of the state approval process are matched at the level of decision-making regarding investment, since the largest obstacle to expansion is currently seen as lying in the network operators' reluctance to invest. If the legal prerequisites for the energy network expansion have been created and the network operator fails to make the necessary investments, then the Federal Network Agency has to demand that the operator make the necessary investment within a specific period of time. At the end of this period, the Federal Network Agency may instruct a third party to make the investment, with the network operator incurring the costs.
The fundamental principle of regulatory law, which lies in the essential freedom of private market behaviour, becomes visibly lost with these compulsory obligations to submit applications and to invest, and we can speak here in terms of a paradigm shift. Ultimately, the legal framework that regulatory law ideally bestows upon the economic behaviour of private actors is made considerably narrower by the Network Expansion Acceleration Act. If already the establishment of expansion requirements is subject to control, and if network operators are then obliged to initiate planning processes which are intended to implement the requirements plan, and if this finally still ends in an obligation to invest, then the energy sector is turning slowly but surely into a planned economic system. Regulatory law is thereby becoming alienated and its performance noticeably impaired. The private network operator loses its authority to make a decision regarding investment autonomously, even though it bears the economic risk of the investment. It must make the necessary applications and invest later.
This entails disadvantages in practice: the displacement onto the energy network operators of the investment risks and efforts triggered by the energy turnaround is certainly a clever move from a governmental point of view, particularly from a financial perspective. The idea reaches its limits, though, where the investment needs become so great, and especially when they involve huge volumes of investment, that the private sector, in the form of a private investor, can no longer shoulder the financial burden. The fate of the network operator Tennet TSO GmbH illustrates this quite clearly. Tennet has stated that it has already invested six billion euros in network expansion (more than the gross national product of Mauritania or Liechtenstein in 2010), but has been unable to muster the necessary 15 billion euros.
* The author is director of the Institute for Environmental Law at the University of Augsburg and chair of Public Law and European Law, Environmental Law and Planning Law. The internet sites were verified on January 1, 2014.
Cite as: Kment, After the Turnaround in Energy Policy: Germany on the Road to a Planned Economy?, 23 German American Law Journal (May 24, 2014), http://amlaw.us/martin-kment-energypolicy2014.shtml
