Regulatory debate on the move again
A new report on the NEST process has noticeably intensified the discussion about future network regulation and is increasingly putting the Federal Network Agency under pressure to act. The analysis reveals that central components of the reform project could pose considerable risks. What is particularly problematic is that network operators who are currently investing large sums in modernization, digitalization and network expansion fear disadvantages. With the publication of the study, pressure is growing on the agency to re-examine its plans and develop a system that supports the transformation of the energy sector.
1. Criticism of the planned change of method
A key point of conflict is the planned restructuring of the efficiency comparison. The previous best billing should be replaced by a cost average. However, the Frontier analysis shows that this adjustment does not adequately take structural differences between network operators into account.
Companies with older plants or difficult regional conditions could be rated lower, although their higher costs are often technically justified. Industry associations such as BDEWthe Federal Association of the Energy and Water Industry. V., therefore call for proven corrective instruments such as SFA scaling or the efficiency bonus to be continued.
Many experts also warn that such a change in method could create false incentives. If network operators have to fear being rated worse due to high modernization costs, necessary investments could be delayed. This not only affects the quality of the networks, but also the speed at which new renewable systems can be connected. Some experts therefore suggest that the efficiency comparison should be geared more towards actual performance indicators and that regional characteristics should be integrated into the calculation in order to ensure a more balanced and investment-friendly process.
2. New NEST report sparks controversy: Federal Network Agency shows willingness to adapt
The Federal Network Agency emphasizes that the process is not yet complete and readjustments remain possible. At the same time, the authority points to the rapidly increasing dynamics in the electricity system: growing feed-in volumes from renewable energies, new consumption priorities and higher requirements for network stability. Regulation must therefore remain flexible without endangering the investment power of operators.
President Klaus Müller expressed this clearly: “The dynamics of the energy transition are increasing. The power grids must be expanded and digitized more quickly. We want to be able to adapt these changes at short notice in the future without losing sight of cost efficiency.”
3. Issues in regulatory cycles, cost of capital and Xgen
The other reform components are also criticized. The planned reduction path for inefficiencies could put additional strain on companies in a phase of high investment. The realignment of the capital cost reimbursement is also viewed with skepticism because it could complicate long-term financing processes. When it comes to the productivity factor Xgen, industry players complain that it needs to be defined realistically in order to avoid distortions. In addition, several associations speak out against shorter regulatory cycles because they shorten the planning horizon for large network expansion projects.
4. Capital market sees increasing risks
A survey of 32 institutional investors shows that the uncertainties are now also noticeable on the financial market. Funds, banks and insurers doubt that the current NEST draft offers stable conditions in the long term.
Unclear return prospects, fluctuating financing costs and a lack of planning security increase the risk premiums. Analysts warn that capital could migrate to countries with more stable structures – a risk that further delays network expansion and makes it more expensive.
5. Network infrastructure as the key to transformation
The report makes clear how much the network infrastructure can become a bottleneck in the energy transition. With the growing share of renewable energies, the load on the networks increases significantly. New consumers such as heat pumps or electric cars are further strengthening this trend. High-performance, flexible and investment-friendly regulated networks are therefore essential to achieve the climate goals.
The analysis provides important information on where regulatory requirements should be revised and what risks the current draft poses. The decisions in the coming months will be decisive in determining whether the Federal Network Agency creates a regulatory model that ensures both efficiency and willingness to invest and makes the network infrastructure fit for the future.