The Monopolies Commission has proposed to the German government to abolish the existing system of strategic power plant reserves and replace it with a competitively controlled capacity market. This recommendation comes from the new 'Sector Report Energy,' which the commission, under the chairmanship of Jürgen Kühling, presented at the Federal Ministry of Economics on Monday.

This marks a change in stance for the Monopolies Commission, which previously advocated for a genuine energy market ('Energy-only market'). Kühling referred to a potential market failure due to the planned rapid expansion of renewable energies. Risks to security of supply, especially during the transition to carbon-free but weather-dependent energy forms, were highlighted by the Monopolies Commission.

In the current strategic reserve system, participating power plants are only available to the market in emergency situations and remain idle otherwise. The German government recently decided on a temporary extension of the supply reserve for the upcoming winter. In contrast, in a capacity market, which has been under discussion for years, power plants are flexible in the electricity market. In the competition-driven model proposed by the Monopolies Commission, suppliers and major consumers would pre-book their expected electricity demand. These capacities could then be selectively increased by the federal government to eliminate remaining risks to security of supply.

Kühling emphasized the crucial role of the dimension of the capacity market and the importance of minimizing the state's share – and thus the costs. The model suggested by the Monopolies Commission combines the centrally planned variants, which are already tested in EU neighboring states, with centralized and decentralized planning. In the first step, the commission would introduce a central capacity market in the electricity sector, as already tested in countries like Poland and Italy. This could be done quickly and legally compliant. In a second step, this model is intended to be combined with a decentralized capacity market, similar to the one in France. It would take into account decisions from both electricity consumers and suppliers and could prevent the construction of excessively large and expensive power plant capacities. 'We're trying to combine the best of both worlds', highlighted Kühling.

As of now, Minister Robert Habeck has not commented on the proposal. He has yet to deliver a power plant strategy, and it's uncertain whether it will be released this year. The strategy primarily revolves around the construction of new gas power plants by 2030, which are intended as a backup for wind and solar energy, and which shall operate on hydrogen in the long-term. However, there is ongoing work at the EU level on a new design for electricity markets, which Habeck must consider as well. Kühling pointed out that the Monopolies Commission's model is adaptable for other European countries. It could be problematic if there were predetermined design models in the new EU rules, he stated. The specific impact of market design reforms on electricity prices is still uncertain. Hence the Monopolies Commission did not address the issue in their new sector report.

The commission further does not regard the government's plan to extend price controls for electricity and gas in private households as reasonable. If there were a need for additional support after the existing price controls expire in December, the commission suggests that direct financial assistance would be a more suitable option than intervening in pricing mechanisms.

Kühling stated that Germany has 'emerged very well from the energy crisis.' Now, the focus is on the long-term challenges of ecological transformation. 'Especially in uncertain times, ensuring a competitively oriented energy supply should have the highest priority to alleviate burdens for households and industry,' Kühling declared in Berlin.

For the gas market, the Monopolies Commission proposes a 'Supply risk index' to identify possible future risks early and further diversification of imports. However, the commission also believes that competition in the end consumer market should be increased, and consumer willingness to switch suppliers should be improved through information campaigns. Germany's switching rate in the gas market was around 13%, placing it in the middle range among EU states.