Small number, large effect: the productivity factor for energy networks in Germany
The German Federal Network Agency (Bundesnetzagentur) is currently determining the productivity factor X for electricity and gas networks. This factor ensures that regulated networks are compensated for their efficiently incurred costs.
Under the German incentive regulation for energy networks, the allowed level of operators’ revenue is significantly determined by a productivity factor, the so-called general X-factor (or Xgen). Together with retail price index (RPI), this factor fulfils the task of mimicking competition, and the initial revenue level is escalated annually by RPI-X. The RPI-X term ensures that gains from technological progress and changing input prices are passed to final network customers via lower prices for network services.
Germany’s utility association BDEW (Bundesverband der Energie- und Wasserwirtschaft) asked Oxera to calculate the correct value of X. In the report prepared for submission as part of the regulatory consultation, Oxera:
- reviewed the regulator’s 2006 approach;
- developed a state-of-the-art methodology and found that, for the third regulatory period, the factor is not distinguishable from 0%;
- reviewed the methodologies put forward by the regulator’s consultant.