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Germany: Taking the Lead in Electricity and Gas

Fortnightly Magazine - January 15 2000

members of the government coalition are calling for the early retirement and decommissioning of nuclear power plants. The industry would like to allow the plants to complete their scheduled operating licenses and possibly even allow for life extensions along the patterns of U.S. regulations. The nuclear issue also includes a dispute over the taxation provisions for nuclear decommissioning and handling of nuclear waste. Employees at nuclear plants have demonstrated against the potential loss of the 40,000 jobs associated with this sector.

Fallout: Price Wars and Brand

Initiatives

How have these events affected the German energy market?

As has been the experience in other countries, the German industrial sector experienced a first round of price decreases even before liberalization was effected in 1998. Corporate customers have received discounts of 30 percent to 40 percent without even switching suppliers. The new German electricity suppliers have now taken to challenging their continental competitors across German borders. An October announcement indicated that Germany's RWE had taken a Swedish paper mill customer in France from Electricite de France by offering a price 25 percent below the EdF tariff.

Residential customers also saw real price breaks in 1999 with the advent of retail competition and aggressive media campaigns urging customers to switch suppliers. Comparisons of the average German residential price of 0.31 deutsche mark (DM) per kilowatt-hour in 1998 with and some other German-wide suppliers yields a 39 percent decrease in prices for some customer segments. For instance, the new "Yello Strom," or "yellow power" brand, was first offered at 0.19 DM per kilowatt-hour.

Traditional electric suppliers have established marketing subsidiaries following templates created by the competitive long-distance telephone industry. Clever marketing names and campaigns have established new energy brand names such as Yello Strom, a subsidiary of Energie Baden-Wurttemberg; Electra Direkt, a subsidiary of Preussen Elektra; and Avanza, RWE's brand. Media campaigns of the electricity suppliers include television, print, billboard and radio advertising with messages aimed at competitor claims and slogans.

The German electricity market also is experiencing innovative new electricity pricing plans such as Mainova's "green" plan for purchase of electricity generated from renewable sources, along with the company's "classic" and "plus" plans for low- and high-usage customers. In September, Preussen Elektra launched a two-tariff offering called "singles" and "family," which was among the cheapest in Germany at the time. The "singles" tariff was a flat rate pricing of 1 DM per day up to an annual consumption of 1,111 kWh, with no additional customer charge. Consumption over the base is billed at 0.259 DM per kilowatt-hour. The "family" plan is based on a monthly customer charge of 13.9 DM and 0.219 per kilowatt-hour. The echo of U.S. long-distance marketing plans for "family and friends" and "5 cents a minute, any time, any place" clearly rings within the German marketing community.

Additional competitive pressure in the electricity supply sector also comes from non-traditional energy providers. The largest German mail order catalog company, Quelle, announced plans in September to market electricity using its national customer base and well-known, respected brand name. An October announcement indicated that German