The Federal Ministry for Economic Affairs and Energy today presented key elements for "A modern regulatory framework for modern distribution grids". The core element of this modernisation initiative is the revision of the Incentive Regulation Ordinance.

Rainer Baake, State Secretary at the Federal Ministry for Economic Affairs and Energy, said: "The distribution grids are crucial to the success of the energy transition. 80% of the electricity generated from renewables are already fed into the distribution grids. As a consequence, there is a considerable need for investment, and the prerequisite for investment is a modern regulatory framework for investment. Therefore, we will revise incentive-based regulation to make it even more compatible with the energy transition. We need a rapid refinancing of investment also for distribution grids. In this context, we must of course not neglect the efficiency aspect of incentive-based regulation."

The Incentive Regulation Ordinance is the major regulatory element for electricity and gas distribution system operators. The Ordinance stipulates the cost of the operation and expansion of the energy grids that regulated grid operators may pass on to the grid users via the grid fees for a period of five years. Besides this, the Ordinance contains energy efficiency requirements for the grid operators on the basis of a comparison of their respective efficiencies. The grid operators are free to determine how they meet these efficiency requirements as long as they comply with the revenue cap. If they over-achieve the efficiency target, they are entitled to keep the additional revenues for the period of regulation.

The key elements presented today outline the priorities set for the revision of incentive-based regulation. They aim to improve investment conditions and to strengthen efficiency incentives, for instance via an efficiency bonus for investment in smart technologies.

The Federal Ministry for Economic Affairs and Energy will elaborate the draft revision of the Incentive Regulation Ordinance on the basis of these key elements. A decision in the Federal Cabinet will hopefully be taken before the summer recess.

You can find out more about current German energy policy in the fortnightly German-language Newsletter "Energiewende direkt".