During the following 10 weeks a new series of tutorials focusing on power trading will be published on CEEN. In this first tutorial the power market before the liberalization is described.
The first three tutorials will deal with the German energy industry before and after the liberalization. The topics of full supply, its characteristics as well as how they function and how they contracts for full supply came about will be discussed.
In Germany real power trading is only possible since the beginning of the 2000s.
Originally, German has been divided into four separate supply areas, each of which was supplied by one energy supply company. This monopolistic market structure had been safeguarded by demarcation agreements defined under cartel law. Those demarcation agreements and rights of way in the concession contracts had negotiated between the energy supply companies and municipal authorities.
Each of the four big energy suppliers covered the entire value chain, starting from generation to transport, distribution and ending with the retail business. The suppliers were obligated to provide so-called full supply to all energy consumers within their supply area. This market structure was also supported by politics in order to guarantee a high level of security of supply in Germany.
Consumers were only able to conclude full supply contracts with their regional energy supply company.
Full supply contracts
Full supply contracts were agreements where a fixed price for the delivered power of gas has been agreed on between the consumer and the energy supply company. This price was valid for the entire period of the contract. Full supply contracts have been concluded for a longer period of times, in most cases for several years.
For consumers such as private households a full supply contract is quite convenient, as the load profile, i.e. the constantly fluctuating demand of power within a certain period of time (e.g. a day) is always complied with. A surplus or shortage of energy is therefore not possible. Figure 1 depicts the characteristics of a full supply contract. A constant price, independent from the costs for the energy supply company and the exact delivery of power according to the load profile.
Figure 1: Characteristics of a full supply contract (Fixed price and delivery according to load profile). Source: Energy Brainpool
The energy supply company either provides the energy by generation from own power plants or is able to buy the energy externally (only possible since the liberalization). In contrast to the consumer an energy supplier under a full supply paradigm is confronted with a variety of risks.
