Bundeskartellamt publishes 2022/23 report on the market power situation in electricity generation – a few companies have consolidated their market power – electricity imports increasingly significant

The Bundeskartellamt has today published its fourth report on the conditions of competition in the generation of electricity, the so-called “Market Power Report”. The report analyses the market power situation in the generation and first-time sale of electricity in the period from 1 October 2021 to 31 March 2023. The analyses the Bundeskartellamt carried out for its Market Power Report are based on extensive data on the utilisation of all power plants in Germany during the reporting period.

Andreas Mundt, President of the Bundeskartellamt: “The market power situation in the generation of electricity has consolidated. RWE remains the largest electricity producer in Germany. RWE is indispensable for meeting the electricity demand in Germany in many hours and thus clearly exceeds the threshold for the presumption of a dominant market position. EnBW and LEAG have come close to this threshold.” 

Market shares are a common indicator of a company’s significance for competition. Regarding electricity generation, however, market shares do not provide meaningful information as electricity is not storable. Electricity must be generated at the precise moment it is demanded, at every hour of the year. The market share percentage a company has achieved over the year is thus not decisive. What matters instead is if and to what extent an electricity producer is indispensable for meeting the demand for electricity. When demand is high and supply is low – for example at times of little sun and wind – this shortage makes it possible for indispensable producers to manipulate prices. Market power in the electricity sector is therefore assessed by looking at how many hours of the year a company is indispensable for meeting demand (pivotality).

Having a dominant position has very significant consequences for electricity producers. In particular, they are not allowed to artificially withhold generating capacities as this would make it possible for them to manipulate and drive up prices at times of supply shortages. This would constitute an abusive practice.  With its Market Power Report, the Bundeskartellamt intends to help electricity producers assess whether they are subject to abuse control by the authority and thus prohibited from manipulatively withholding capacities.

Andreas Mundt: “The Bundeskartellamt’s Market Power Report does not include a formal determination of a dominant position as such a finding would require a specific decision made by the authority in an individual case. Exceeding the threshold for the presumption of a dominant market position is a strong indication for companies – in this case RWE – that they must comply with the prohibition of abusive practices. It would be highly problematic under competition law if such a company caused an artificial shortage of electricity supply. EnBW’s and LEAG’s power plant fleets have become indispensable for meeting electricity demand in an increasing number of hours. However, neither of the companies have so far clearly exceeded the threshold for the presumption of a dominant market position. The power plant fleets of the three leading electricity producers are particularly indispensable for meeting demand when feed-in volumes of wind and solar generated electricity are low in periods of high demand.”

There are some particular features to the development of domestic power plant capacities during the reporting period. Towards the beginning of 2022 a number of German power plants were shut down permanently, including three nuclear plants. To curb the electricity price increases in the context of Russia’s illegal war of aggression against Ukraine, the working life of three other nuclear plants was extended and several coal-fired plants were reactivated for a significant period of time. The market power situation has consolidated despite this crisis-related capacity expansion.

The Bundeskartellamt also examined how unused foreign power plant capacities, and thus electricity imports, affected the development of the market power situation in the reporting period.

Andreas Mundt: “Electricity imports will in the long term become increasingly indispensable to keep the market power of Germany’s leading electricity producers in check by means of competition. Over the course of a one-year period Germany’s electricity exports are higher than its electricity imports. However, this overall view must not hide the following facts and their assessment under competition law: Foreign generating capacities tend to be particularly important, at times even indispensable, for meeting demand when wind and solar generated electricity volumes are low while demand for electricity is high. Without sufficiently high import volumes in times of such shortages, the market power of domestic electricity producers would be even more substantial. Already in 2022 the market power of domestic electricity producers could in many cases only be restricted by electricity imports. In the current year further conventional power plant capacities are being decommissioned. The competitive significance of electricity imports for meeting demand in shortage situations, and thus for restricting the leading electricity producers’ market power, is therefore likely to keep increasing in the foreseeable future.”

If and to what exact extent electricity imports restrict market power in the individual case depends on the capacity of the transmission system and on the supply and demand situation in Germany’s neighbouring countries. The Bundeskartellamt’s analyses found that in 2022, unlike in previous years, market situations where the market power of domestic producers could only be restricted by electricity imports no longer only occurred concentrated in early summer, which is when a significant proportion of conventional domestic generation capacities are unavailable due to plants being temporarily shut down for their annual inspection. They also increasingly occurred in the fringe hours of the day in autumn as well as at times of little sun and wind in the winter months.

After the reporting period Germany definitely completed the phase-out of nuclear power, and the limited reactivation periods of coal-fired power plants are gradually ending. Further power plants are scheduled to be permanently shut down, primarily in the context of the phase-out of coal power. The significance of electricity imports for restricting the market power of Germany’s leading electricity producers is therefore likely to keep increasing further. The actual developments will be analysed and presented in the next Market Power Report.

The Bundeskartellamt has a statutory responsibility to publish a Market Power Report at least once every two years. In view of the developments outlined above, the Bundeskartellamt will also publish the next Market Power Report earlier than mandated by the statutory two-year period.

An Executive summary of the Market Power Report in English may be found here.

The German version of the Report may be found here.