Threat of $227bn power market break up is pain for traders

3D Electric power lines over sunrise



Germany and Austria’s prospective breakup of their shared €200 billion-($227 billion) power market is vexing traders and companies that say splitting the union will push up manufacturing costs and drive away investment.
Lechwerke AG, a German utility, is resisting supplying its Austrian clients with longer-dated power contracts because it doesn’t know how much to charge them if the 14-year-old market disappears, according to Thomas Reitemann, the head of power procurement at the Augsburg-based company. Mondi Plc, a paper maker with production in Austria, estimates a split will push up the country’s power prices by as much as 15% and stifle competitiveness.
Today, prices are the same in both countries and electricity flows freely across the border. On gusty days, supplies from German wind farms to Austrian users can be more than their cables can handle, forcing power to take indirect routes through neighboring countries and risking blackouts. Germany says splitting the market will help reduce the €1 billion the nation’s grid companies spent keeping their networks balanced last year.
“A power market split would be an additional burden for Austria as an industry location,” said Stefan Doboczky, the chief executive officer of Lenzing AG, an Austrian cellulose-fiber maker. “This influences decisions about where we will make further investments — in Austria or abroad.”
By controlling cross-border trade, German regulator Bundesnetzagentur estimates that network operators would only need about a third of the 6.1 gigawatts of power plant capacity they keep on standby for balancing the grid. The total cost of keeping the nation’s network safe may exceed €1.5 billion in the coming years, according to the country’s economy ministry.
Bundesnetzagentur is to publish a report detailing how a split from 2018 will reduce costs and increase grid stability, the watchdog said by e-mail, without providing details.
Germany wants to reduce trading to what can be physically transported over the network, which is the case with most other European borders, Katharina Dubel, a spokeswoman at the German economy ministry, said by e-mail. For more than a decade, Austrian traders have bought German electricity when it’s cheap to sell to other countries at higher prices.
The nations failed to agree on a proposal favored by Germany to limit the amount of traded capacity at the border in March. Bundesnetzagentur is still seeking a common solution with Austria, it has said.

No Limits
The Austrian regulator doesn’t see trading limits as the “most efficient and effective solution,” Bettina Ometzberger, a spokeswoman at E-Control in Vienna, said by e-mail.
Without unlimited access to cheap electricity from Germany, Austrian households and companies may have to pay an extra €300 million a year in power costs, according to an estimate by consultants Frontier Economics and Consentec, which also see Austrian wholesale prices rising about 15 percent on a split.
More than €200 billion of contracts for delivery into the German-Austrian market were traded on exchanges and through brokers last year, making it Europe’s biggest electricity market, and making it the benchmark price for power in the region.
Utilities are already trying to include clauses in customer contracts that pass on any extra costs that arise from a market breakup, according to Rene Stadler, head of energy at Mondi in Vienna. The split runs counter to European Union’s vision of a single power market, with improved cross-border connections, better integration of renewable supplies and investment in energy infrastructure.

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