Unilateral Actions Taken in National Energy Policy Threaten Integration in the European Market

Unilateral decisions taken by individual national states in already highly integrated electricity markets have significant financial impacts on all market participants. This is the finding of a study carried out by the Mannheim Centre for European Economic Research (ZEW), which focused on two unilateral energy policies implemented by Germany. Firstly, the immediate shut-down of five nuclear stations following the disaster in Fukushima in 2011, and secondly, the extension of renewable energies on the basis of the Renewable Energy Act (Erneuerbare-Energien-Gesetz, EEG).

The study found that annual additional costs resulting from Germany's exit from nuclear energy extends into the billions. These costs are not only incurred by Germany, but also by neighbouring countries. On the other hand, the EEG has led to a reduction in costs incurred by Germany's neighbouring states. For the authors of the study, this finding confirms that complete integration of the electricity markets in Europe can only be sustainable if considerable parts of national energy policy are coordinated on a European rather than on a national level. Solo actions undertaken without consultation with European partners must be avoided.

As part of the study, the extent to which the German electricity market is integrated with those of neighbouring countries was calculated on the basis of wholesale energy prices. In addition, the financial effects of German national policies on these neighbouring countries were also considered. The impact of the German exit from nuclear energy, and of the extension of fluctuating renewable energies following implementation of the EEG on electricity prices in both neighbouring states and in Germany itself, was thereby determined.

Exit from nuclear energy increases electricity prices in neighbouring states

In France, for example, electricity prices have undergone an average 16 per cent increase since the German exit from nuclear energy. For the period considered in the study (2010 to 2012), this equates to additional annual costs of three billion euros. The expansion of wind and solar energy in Germany in the years preceding and following the exit from nuclear energy (2010 to 2012) has also led, however, to an annual fall in energy prices of 800 billion euros per year. France has therefore incurred an additional annual cost of around 2.2 billion euros as a direct result of Germany's national energy policy. Indeed, the costs incurred by France are higher than those seen in Germany, which has suffered an additional annual cost of only 1.7 billion euros.

In the Czech Republic, electricity prices have increased on average by 19 per cent as a result of Germany's exit from nuclear energy. The Netherlands and Switzerland have both seen increases of around 7 per cent. Denmark is divided into two price zones, East and West Denmark, whereby prices have increased by 18 and 9 per cent, respectively. The study did not establish any price changes in Poland.

"EU-level coordination of national energy policy"

The measurement of the effects of German energy policy, and consideration of the extent to which cross-border energy network connections (electricity interconnectors) are used, has enabled the current level of integration between the German electricity market, and those of its neighbours, to be calculated. Analysis showed that the German electricity market is already significantly integrated with markets in the Netherlands (99 per cent) and the Czech Republic (89 per cent), as well as with the Swiss market (82 per cent). The level of integration is as high with the French market (74 per cent) or the two Danish price zones (76 and 69 per cent). Poland was found to be an exception; the Polish electricity market is almost completely independent of the German market with a market integration of only 14 per cent.

"Complete and sustainable market integration can only be successful if central parts of national energy policy are coordinated on a European level," concluded Sven Heim, researcher at ZEW and author of the study. "In the future, the current discussion regarding the necessity of a capacity market, which should compensate for shortages in energy provided by wind and solar energy through the provision of energy from conventional sources, should therefore take place on a supranational level."

For more information please contact:

Sven Heim, Phone +49(0)621/1235-183, E-mail heim@zew.de