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German Electricity Bills Shoot Up with Liberalization

Translated Saturday 7 July 2007, by Jonathan Pierrel

Germany. On 1 July, the final step towards deregulation will cause electricity bills to increase up to 34% for domestic users.

German households, whose electricity bills are already particularly steep, will notice their bills will increase even more from 1 July with the definitive opening of the market, in line with European directives adopted in Brussels. Ahead of its Europeans partners since the deregulation process started in 1998, Germany is once more a ‘forerunner’ by sweeping away regulated prices and leaving the market-place unfettered by fixed pricing. Depending on which providers consumers choose, price-increases varying between 5% and 34% are expected.

On 1 July, the German Federal Government legislation, which allowed the Ministry of Finance of every Land (region) to have the power to regulate any price increase of electricity, ended. Big operators, among them the four mammoth companies (RWE, EON, ENBW and Vatenfall) which share the market in the different Länder can now freely decide on prices. This sector, privatized a long time ago, is under their control because they made agreements on “non-aggressive” tariff rates or locations and they have already been running an effective oligopoly for several years. For a couple with one child, the monthly electricity bill had already increased of about 26% since 2006, according to the calculations of consumers’ associations.

In 2006, the ‘big four’ having recorded a dramatic increase in their profits, creating major controversy about why electricity is so expensive. In an attempt to defuse the issue, the minister of finance, Michael Glos, publicly asked his compatriots to change their providers to move “towards the cheapest.” Which is to say: towards the lowest bidders regarding increases. This is, as one would expect, according to the big providers’ agreements, is betting on a wild horse.

The effects of this liberalisation process in Germany should be watched very closely in France. It is a striking warning of what is awaiting consumers in France, a country still one step behind: total deregulation.

Other lessons have to be learnt from this price increase in Germany. Because it is not only the “perverse” consequence of the “openness” of the electricity market. A serious drop in investments has lately been noticed in Germany. They have decreased by 26% since 1998 and more than 65,000 jobs have been lost. This major step backwards is the consequence of a short term financial perspective that leads electricity companies to maximize annual financial results. It is caused by the freeze of nuclear-plant construction programmes, decided by successive authorities.

All this is putting Germany in a delicate situation. A specialist from Wuppertal Institute warns: “Electricity shortages could occur from 2010-2015.”

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