Bundeskartellamt zu Strom: How RWE suddenly became dominant in the market – Economy

The news seems to have fallen out of time: politicians have been discussing for years how quickly Germany should phase out coal and nuclear power. The government is constantly emphasizing how it intends to push the expansion of renewable energies. And meanwhile, of all things, the old coal and nuclear company RWE is rising to become the dominant company in power generation. At least that’s how it is now determined by the Federal Cartel Office. How does that fit together?

In order to find out how powerful individual power plant companies are, the Cartel Office examined electricity generation in Germany and Luxembourg from autumn 2020 to autumn 2021. It should be noted: Wind turbines or solar systems that receive fixed remuneration for their electricity in accordance with the Renewable Energy Sources Act (EEG) did not register the authority. Because they feed in their electricity with priority anyway. The Cartel Office is concerned with the remaining market, which recently accounted for almost 60 percent of all electricity in Germany – particularly important in times of little wind and sunshine.

But measuring market power there is not that easy. RWE sometimes only generated 15 percent of all the electricity on the market – but up to 40 percent at peak times, as the authority found out. That depended on how in demand the electricity from RWE’s gas, coal and hydroelectric power plants and the last nuclear reactors was.

The Cartel Office therefore poses a different question: In how many quarters of a year were RWE power plants indispensable for the electricity supply? Depending on how high the authority estimates the competition from electricity imports from abroad, it comes to shares of eight to 16 percent. “According to our investigations, RWE is above the threshold for a market-dominant position,” says Cartel Office President Andreas Mundt. Because competition authorities designate a power plant operator as dominating the market if one could not cover the electricity demand for at least five percent of the time of a year without its piles.

A lot depends on how long lignite-fired piles will continue to run

But what does that change if RWE now dominates the market? The President of the Authority pointed this out in an interview at the turn of the year: No company should “benefit unduly from bottlenecks and abuse its position,” warned Mundt. “When capacity is tight, there could be incentives to drive up prices by deliberately withholding capacity.” The authorities must avoid that. So you should keep a close eye on RWE in the future, especially in times of sharply rising electricity prices. A specific abuse procedure is of course not yet in the room.

The figures from the Cartel Office now relate to a special period: Germany needed more electricity last year, as industry in particular recovered from the Corona crisis year 2020. At the same time, several climate-damaging coal-fired power plants went offline as planned. And less green electricity was generated than in the previous year, mainly because the wind was weaker.

There are other reasons why RWE in particular has gained market power in this mixed situation. For example, the eternal RWE rival Eon outsourced its large reactors to Uniper six years ago and parted ways with Uniper. Since then, Eon has focused on networks and sales. And Uniper is gradually taking at least the coal-fired power plants in Germany off the grid. Other companies such as Vattenfall or Steag are also gradually shutting down hard coal piles.

Lignite companies such as RWE in the Rhineland or Leag from Lausitz have also agreed exit plans for their large opencast mines and power plants with the federal government. So far, however, the end date has been 2038; the new federal government now wants to “ideally” bring the exit forward to 2030. The group is also arguing with the critical investor Enkraft about how quickly RWE should break away from lignite: Enkraft demands a spin-off of the particularly climate-damaging business, while RWE rejects it.

RWE is benefiting from high electricity prices and is raising its profit forecast

In any case, the Cartel Office expects that lignite operators like RWE will gain in importance for the time being. At the end of this year, the last three nuclear power plants in Germany are to be taken off the grid, and the phase-out of hard coal power generation is also progressing. All of this “tends to further strengthen RWE’s market position,” predicts Mundt.

Open detailed view

The group itself criticizes the cartel office’s report: It is not responsible for the circumstances that led to the allegedly dominant position. RWE hasn’t built any new coal or nuclear power plants for years, instead the Essen-based company has already shut down piles. The company also believes that the Cartel Office underestimates the competition from abroad. And RWE can’t do anything about the weaker wind either.

In any case, the company wants to continue investing, especially in renewable energies, which account for a growing share of its business worldwide. And in new gas-fired power plants at existing locations, especially for times when there is little wind and sun. In a climate-neutral future, such gas piles could be operated with hydrogen, which can be produced from water using a lot of green electricity.

What is certain is that RWE is currently benefiting from the generally high electricity prices. The group has now raised its profit forecast for this year by around 300 million euros, up to 1.7 billion euros. Accordingly, RWE expects higher profits, especially in the business with gas and hydroelectric power plants and the phased-out coal and nuclear models. The company refers to a “dynamic market environment”: Significantly higher gas prices, also as a result of the political conflicts with Russia, have recently pulled electricity prices up as well. On Thursday, the RWE share rose to its highest price in almost eleven years.