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Expert on nationalization: “The power grid is predestined for investors”

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Expert on nationalization: “The power grid is predestined for investors”

In terms of area, the largest part of the German power grid belongs to the Dutch. The federal government is now signaling an interest in buying. Electricity market expert Mirko Schlossarczyk from the consulting company Enervis explains in an interview with ntv.de what this means for security of supply and the price of electricity.

ntv.de: In the middle of the energy crisis, the federal government wants to buy the part of the German power grid that previously belonged to Tennet, i.e. the Dutch state. What do you make of it?

Mirko Schlossarczyk: The power supply is a critical infrastructure, which of course has become even more relevant as a result of developments over the past twelve months. The state is increasingly trying to secure a say and influence over this infrastructure. This not only affects the energy industry, but also mobile networks, for example, as the current example of Huawei shows. However, the sale of the German Tennet network is not primarily driven by the German state, but by Tennet. This is the Dutch network operator, which itself is owned by the Dutch state. The impetus for the sales process began years ago because Tennet is not prepared to make the necessary massive investments in the German network.

Does that mean the sale to the German state makes sense?

From a market point of view, nationalization should always be questioned critically. Where the state becomes active as an entrepreneur, it usually becomes more inefficient and expensive. One of the proponents’ arguments is that planning and approval processes will speed up. I do not think so. If that were the case, we would have a problem in the system. There is a legal framework that applies to all market participants. If the rules are problematic, they must not suddenly become simpler because the state is involved.

Nevertheless, a trend towards nationalization can be seen: KfW already owns a fifth of the East German network operator 50Hertz. According to insiders, KfW is also taking a minority stake in TransnetBW. Does this have consequences for security of supply?

From the point of view of the energy industry, this makes no difference because the same rules of the game apply regardless of the owner and general market developments do not change fundamentally. But KfW prevented a Chinese group from entering 50Hertz in 2018. That was a clear signal to secure the critical infrastructure against Chinese participation. This can make sense from a security point of view. Whether it makes sense from an energy perspective remains to be seen. The transmission grid is a natural monopoly in which competition is limited, so it is highly regulated. The revenues and return on equity of the network operators are set by regulations. This makes it predestined for investors and institutional investors. The two large German transmission system operators, 50Hertz and Amprion, are also partly owned by listed companies or private investors. Therefore, from the point of view of the energy industry, it is not necessary for the state to take over.

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Does nationalization decrease or increase the risk of blackouts?

Experience has shown that the German state has very, very deep pockets. At first glance, it may seem easier to make the necessary massive investments with government money than with private money. On the other hand, state-owned companies are often accused of a certain inertia, inefficiency and lack of transparency. However, the rules and framework conditions on the energy market are the same for all market participants. Against this background, the likelihood of blackouts should not depend directly on the ownership structure of the company.

Mirko Schlossarczyk

(Photo: Enervis)

The Suedlink route planned in the Tennet network, which is intended to conduct electricity from wind energy in the north to southern Germany, has been dragging on for years. So with the German state as the owner, things wouldn’t go any faster?

No, that shouldn’t be the case, because it would mean that things would have been procrastinated. The position of a state-owned company must not give rise to a competitive advantage over another company.

That means the delay wasn’t due to Tennet’s lack of willingness to invest or anything else, but rather to approval processes, for example?

Planning, approval, legal framework, objection options – yes, and that is what the legislature wants. And the network expansion naturally also has technical aspects. The required components and materials depend on global supply chains and have been subject to massive cost increases in recent years. The German state as the owner would also have to struggle with all these problems.

A nationalization of the transmission grids does not therefore affect the price of electricity?

It shouldn’t affect the price at all because the same market rules apply regardless of the owner. Investments in the grid have an effect on grid fees, which is likely to increase consumer prices. But that’s not due to the ownership structure, since the network business is heavily regulated. On the contrary, highly efficient grid operation could even lead to falling grid charges.

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Why does the Netherlands own the largest part of the German power grid, which stretches from Schleswig-Holstein to Bavaria?

The German Tennet network is the Achilles’ heel of the energy transition, where the large lines are to be built to bring wind energy from the north to southern Germany. After the turn of the millennium, as part of the liberalization and reorganization of the electricity market, energy suppliers had to split off their networks from other business. Power generation, grid operation and trading were separated. That is why the network companies were spun off at the time. The Belgian network operator Elia, for example, has taken over 50Hertz. And the Eon network went to Tennet. Incidentally, at that time people were thinking about founding a German network company and merging the four German network operators there. However, massive taxpayer money would have had to be spent on this. Today, Tennet alone puts the investments currently required for the expansion of its German network at 15 billion euros.

So who should ideally own the German power grid?

From an economic point of view, the state was very often the worse entrepreneur in the past, and not just in the energy sector. However, as far as the critical infrastructure is concerned, there can of course be an overriding interest. In that case, security policy considerations make it important who the owner is.

As part of the Russian gas supply stop, the federal government nationalized the energy supplier Uniper and the gas trader Sefe, formerly Gazprom Germania, last year. Are there consequences for energy supply or prices?

Interestingly enough, when it comes to gas. The gas trader Trading Hub Europe (THE) has been buying large quantities of gas on behalf of the federal government since 2022 in order to secure the supply and fill the storage facilities. That may not have been quite as efficient as has now been revealed. Due to the large purchase volume, the gas market became even more scarce, which also drove up prices. This could have been solved differently. Which leads us again to the fact that the state is not the most efficient entrepreneur. Against the background of the feared lack of gas, this purchasing strategy was not entirely wrong.

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In the financial crisis, the state had a stake in Commerzbank, in the Corona crisis in Lufthansa and made a big profit with the latter. After a relatively short time, the state largely withdrew from participation. Isn’t that a successful model for the energy industry?

With Uniper and Sefe, it is difficult to foresee that the state will be able to get out quickly because their business models have changed with the Ukraine war. Normally, nationalization should only be an interim step to release a company back into the private sector when a crisis is over. In this case, the state cannot simply withdraw again. However, Uniper previously also belonged to a state, Finland, and Gazprom Germania was in Russian hands. In the energy industry, the critical infrastructure and supply structures have also grown historically. The state has always had a great interest and a number of participations. In Germany, the liberalization of the electricity market 25 years ago rightly broke this.

If nationalized, won’t our power grid be privatized so quickly?

It is different with the power grid due to its heavily regulated character and secure revenues. It is still very attractive for institutional investors such as banks, insurance companies and funds to invest there. For this reason, the private sector should continue to have a fundamental interest in the future.

Does that mean that the energy crisis resulting from the Ukraine war will not lead to a renationalisation of the energy supply?

At the moment, a lot is suddenly seen as critical infrastructure, which opens the door to the state to get involved. The idea of ​​building a hydrogen network with state participation is currently being considered. The German Energy Agency (DENA) found in a study that state participation is not necessary because there are enough private investors available and the market is now much more flexible than the state could ever be. A fundamental question is always whether things have to be financed with tax money that the market or private investors can finance better or regulate and operate more efficiently.

Christina Lohner spoke to Mirko Schlossarczyk

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