The Incentive Regulation Ordinance exists to create competition in the monopoly sectors of electricity and gas supply, the grids, powerlines and pipelines. The Ordinance ensures that consumers benefit from fair grid fees and that the prices paid by final consumers do not exceed the operators' real costs due to the monopoly.

The grid fees account for about 25 percent of the electricity price to be paid by private households and around 20 percent of the gas price.

Pursuant to the Incentive Regulation Ordinance, there are ceilings for the revenues of grid operators based on a nation-wide comparison of efficiencies. The group of the best companies in the group being compared serves as the benchmark for the efficiency requirements. Grid operators who over-achieve their efficiency target are allowed to keep the difference as profits. This is an incentive for them to work as economically as possible.

Revision of the Incentive Regulation Ordinance

The revised Incentive Regulation Ordinance (in German) entered into force on 14 September 2016 to ensure that the grid expansion – including the integration of renewable energies – can advance rapidly and in a cost-effective manner.

The revision aims to create a balance between stable, investment-friendly rules and appropriate grid fees.

  • The first element of the revision is the creation of a better investment environment by accepting the network operators' actual investment costs. This means that individual investment costs are taken into account instead of flat rates.
  • Efficiency incentives are the second important element. The system of comparing the efficiency of grid operators has been a real success story. In order to improve the practical implementation of this system, the powers of the Federal Network Agency have been expanded. In addition to this, grid operators that are particularly efficient will be rewarded with a financial bonus. This helps spur the use of efficient and innovative solutions and keep grid charges for consumers low.
  • Improving the transparency is the third element. New publication obligations make the decisions taken by the regulatory authorities and the grid operators' costs and profits more visible.

The revision has been based on a report evaluating the Incentive Regulation Ordinance and proposals for its development that were submitted by the Federal Network Agency in January 2015.

Reform of the grid fee structure by revising the Energy Industry Act (Act on the Modernisation of the Grid Fee Structure)

On 30 June 2017, the Bundestag adopted the Act on the Modernisation of the Grid Fee Structure (in German). The Federal Ministry for Economic Affairs and Energy had submitted the draft Act. On the one hand, the Act creates the basis for the gradual harmonisation of the transmission grid fees throughout Germany. In April 2018, the Federal Cabinet adopted the relevant Ordinance and submitted it to the Bundesrat for approval. On the other hand, the Act slows down the rise in the "avoided grid fees". For this purpose, the calculation basis for the avoided grid fees will be frozen at the 2016 level, and the cost of connecting offshore wind farms and of underground cables for the transmission grid will be deducted. Furthermore, avoided grid fees for volatile electricity generation installations (wind and solar energy) will be reduced gradually in three stages from 2018 to 2020 and paid for controllable electricity generation installations only if they are connected to the power grid by 31 December 2022. This will help to reduce regional disparities in grid fees and thus in electricity prices for final customers.

'Avoided grid fees' are payments for distributed feed-in that are funded by the grid costs. Avoided grid fees had been introduced assuming that locally generated electricity is consumed at the local level – without having to use a higher-voltage structure and thus reducing the overall grid costs. But this assumption is increasingly proving to be false: rather, wind and solar power has to be transported from the north to the centres of consumption in the south and west, and this requires the use of grids. As a nation-wide average, around 10 percent of the grid fees, and in individual areas even more than 20 percent, are accounted for by avoided grid fees.