Sustainable energy supply

Germany has set itself the goal of being climate-neutral by 2045 at the latest. In order to achieve this, massive joint efforts are required across all economic sectors and social strata. Implementing what is technically feasible in an economically efficient manner is of central importance for the success of the energy transition. Inefficiently high costs and distribution effects jeopardise the acceptance of the energy transition among the general public. The regulatory framework has an important steering function and must set the right rules in order to create planning security and avoid bad investments and delays in the implementation of the energy transition. 

The energy-economic framework must take into account the necessary changes in business areas, roles and responsibilities in the energy sector and provide effective economic incentives for energy suppliers, grid operators and consumers.

Fraunhofer IFAM has many years of economic expertise in the areas of regulation and market design, profitability calculations and regional economic effects. We advise energy suppliers and local authorities with qualitative and quantitative analyses and provide support in the assessment and evaluation of regulatory and market developments.

 

Assess and evaluate adjustments to the regulatory framework through the Energy Industry Act & Co. in advance

All areas of energy supply - electricity, gas and heat - are largely determined by the regulatory requirements of the Energy Industry Act, the Incentive Regulation Ordinance and the Grid Fee Ordinances. These regulations must be regularly adapted to take account of energy and environmental policy objectives. The tasks and responsibilities of energy suppliers are also changing, as the increasing coupling of the energy sectors requires integrated planning and operation. The phasing out of fossil gas supplies and the simultaneous development of the hydrogen economy will have a significant impact on the business models of energy suppliers.

Estimating regulatory changes and their effects in advance makes it possible to recognize new business areas at an early stage and address risks for existing business areas in good time. In addition, the discussion about adjustments to the regulatory framework can be actively shaped from the outset and underpinned with well-founded arguments.

 

Whole system approach and output-orientated regulation: Taking look at international practice is worthwhile 

Regulatory adjustments are rarely revolutionary, but usually represent an evolution of existing incentive instruments and requirements. One can speak of a wave movement in which, depending on the regulatory focus, the emphasis is either on promoting investment or new tasks, or on increasing efficiency while maintaining the same tasks. At present, the upheaval caused by the energy transition is undoubtedly the dominant regulatory objective, and the opportunity to develop new business models is correspondingly great. The regulation of electricity and gas grids in Germany is characterized by incentive regulation, which is currently primarily aimed at cost efficiency, but also promotes capital investment. To assess the potential for further development, it is worth taking a look at international regulatory practice, which is often already one step ahead: output-oriented regulation (OOR) and incentives for improved cross-sectoral overall system optimisation ("whole system approach") are currently on the rise and may also be increasingly used in Germany in the future.

 

Regulatory revenue calculations and profitability calculations

Model calculations can be used to simulate the future revenue development of an energy supplier for specific scenarios.

For tasks in the regulated sector, Fraunhofer IFAM has a regulatory model available that calculates the revenue cap in detail according to the current Incentive Regulation Ordinance (AregV). Adjustments to the ARegV as well as alternative cost developments and investment plans can be simulated and analyzed as part of a business cash flow analysis. Calculations are possible both from the perspective of the company as a whole and from an investment perspective.

Similarly, profitability calculations can be carried out for unregulated tasks under various market development forecasts. A combination with the regulatory model is suitable for business areas at the interface between the market and regulation as well as for cross-sector issues.

 

Regional economic effects and economic analysis

Small and medium-sized energy suppliers and municipal utilities in particular generally have a strong regional connection and also see themselves as having a macroeconomic responsibility in this respect. The above-mentioned model calculations can depict the economic perspective as well as the business perspective: How do investment decisions and the development of business models affect overall welfare, including grid customers? What are the possible distribution effects between different types of grid customers? A central part of the economic analysis is also the calculation of regional economic effects. The regional distribution of value added and employment is calculated using the addition method or input-output analysis and can thus be incorporated into investment and operating decisions.

 

Our contribution to the assessment of the energy-economic framework

All technical solutions for a sustainable energy supply require a comprehensive examination of their economic viability to ensure that the right solutions are implemented efficiently. In the field of energy system analysis at Fraunhofer IFAM, Dr. Roland Meyer and Anne Nieters are responsible for precisely these economic issues and supplement the technical expertise with an economic and business management perspective.