Regulation and Investment Incentives in the Electricity Distribution Networks in Germany

After liberalisation of the electricity market in 1998, Germany relied on negotiated third party access to the electricity networks, basically meaning no regulation of network charges. As expected, this was not effective. In June 2005, the German government installed both a regulator (Bundesnetzagentur, BNetzA) and authorised regulation of electricity network charges. The Energy Act provided for cost based regulation immediately after entry into force and provided an option to switch to incentive regulation later. Meanwhile, cost based regulation is in fact applied, resulting in severe cuts in revenues. Moreover, the regulator presented a concept for incentive regulation to the government at the end of June 2006, aiming to implement incentive regulation by January 1^st 2008. The concept for the incentive regulation covers all networks, albeit distinguishing several types of networks, among which are 900 electricity distribution networks.