Bundeskartellamt publishes 2023/24 Market Power Report on the electricity generation sector
25.11.2024
The Bundeskartellamt has today published its fifth Market Power Report describing the conditions of competition in the generation of electricity. The report analyses the market power situation in the generation and first-time sale of electricity in the period from 1 May 2023 to 30 April 2024. It also addresses the question how market developments which can already be observed today are likely to affect the market power situation in the future. 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.
Andreas Mundt, President of the Bundeskartellamt: “The electricity generation sector continues to be characterised by structural market power. In this reporting period, the power plants of RWE, which is by far the leading supplier, were indispensable for meeting electricity demand during fewer hours than in the previous reporting period. However, the degree of RWE’s indispensability – that is, the periods in which it would be possible for RWE to systematically increase market prices – remained at a level exceeding the threshold for the presumption of a dominant position. In the previous reporting period, LEAG and EnBW, the next largest suppliers, were close to the threshold, but they have also declined and are now significantly below the threshold. However, this must not hide the fact that it was merely the unusual market conditions which curbed the companies’ market power. Otherwise, the market situation would be even more tense.”
In the past year the market was characterised by a decline in electricity demand due to lower economic activity. At the same time, electricity imports increased significantly after the conclusion of the nuclear phase-out. In addition, closed coal-fired plants were reactivated in order to curb the electricity price increase in the context of Russia’s war of aggression against Ukraine. The increase in electricity imports shows that surplus foreign power plant capacities have become even more important for restricting the market power of domestic electricity producers.
The market power of the leading electricity producers is expected to increase again after the end of the reporting period. In particular, since the end of the reporting period, the domestic power plant capacities directly active in the market have decreased. For example, the temporarily reactivated power plants have already been closed again, and further permanent shutdowns in the context of the phase-out of coal power are due. Moreover, as the economy is hoped to recover soon, electricity demand, and thus the indispensability of individual electricity producers, is expected to tend to increase again. The capability of electricity imports to curb domestic market power potential is not unlimited as unused foreign power plant capacities are not always and infinitely available to meet the demand for electricity in Germany.
Andreas Mundt: “It currently does not look like the market power situation will continue to ease. In fact, the opposite is the case. We expect that since May 2024 RWE’s power plants have become increasingly indispensable again and that this trend is likely to continue. Due to the market developments we are observing, the power plants of the next largest power generating companies LEAG and EnBW are also likely to become increasingly indispensable again.”
For many products, a provider’s market power can be determined based on market shares. In the electricity generation sector, however, market shares do not provide meaningful information as electricity can only be stored to a very limited extent. Input and consumption have to correspond at all times. It is therefore not decisive what market share individual companies have achieved over the year. Instead, what is essential is if and to what extent an electricity producer is indispensable for meeting electricity demand. When electricity demand is high but supply is short, it is possible for indispensable suppliers to systematically increase their electricity prices. The market power of a supplier in the electricity sector therefore depends on how many hours of the year its power plants are absolutely necessary to meet electricity demand (indispensability or pivotality of a supplier).
A supplier’s dispatchable conventional power plants are particularly indispensable for meeting demand when feed-in volumes of wind and solar generated electricity are low in periods of high electricity demand. The recent price spikes on 6 November 2024, when supply of wind and solar electricity was extremely low (“Dunkelflaute”), were a striking example of this.
For it to be possible for suppliers to systematically drive up prices in periods when their power plants are indispensable, and thus abuse their market power, they need to be able to predict these periods with sufficient accuracy. The Bundeskartellamt’s analyses have shown that RWE is able to systematically predict when its own power plants will be indispensable for meeting demand.
Andreas Mundt: “Our Market Power Report cannot formally determine a dominant position. Ultimately, such a finding will require a specific decision in an individual case. However, the extent of RWE’s indispensability and the fact that it can be systematically predicted suggest that RWE has to observe the prohibition of abusive practices under competition law.”
For electricity producers, having a dominant position affects how they are allowed to behave in the market. In particular, they are not allowed to systematically withhold generating capacities where it would be profitable to use them, and thus drive up prices. Such behaviour would constitute an abusive practice and is prohibited.
Balancing energy
In its report the Bundeskartellamt again also analyses the market conditions in the supply of different types of balancing energy. Supplying balancing energy is an ancillary service required for balancing fluctuations in the grid frequency. A major reason for including this analysis is that the costs for these ancillary services have increased.
The analysed data show that pump storage plants are extremely important for positive secondary control power and that the concentration of suppliers is very high, with EnBW being the leading supplier. The data suggest that EnBW has a dominant position in this market. This would have to be examined in greater detail, taking into account more factors, in an individual case.
The Bundeskartellamt has a statutory responsibility to publish a separate report on the conditions of competition in the generation of electricity at least once every two years. In view of the recent and the upcoming permanent closures of power plants, the Bundeskartellamt will publish also the next market power report sooner than the statutory two-year period.