The Transposition of Directive 96/62/EC on the Internal Market in Electricity into Austrian Law

2001, January 1

1. Introductory Remarks

The transposition of Directive 96/62/EC (in the following "the Directive") into Austrian law was effected in two consecutive steps:

As a first step, the Austrian Electricity Industry and Organisation Act (in the following "ElWOG"; BGBl I 1998/143), which entered into force in February 1999, was designed to partially open the Austrian market to competition in line with the framework provided for in the Directive. In compliance with Art 19 of the Directive, the ElWOG entitled "eligible customers" with a consumption exceeding 40 GWh to freely choose their supplier and to request network access as of 19 February 1999. One year later, the threshold for eligible customers was reduced to 20 GWh (which corresponded to a market opening rate of 31,9 %). As of 19 February 2003, all customers with a consumption exceeding 9 GWh should be entitled to benefit from market liberalization.

Yet, the Austrian government subsequently decided to speed up the liberalization process, thereby even going beyond the requirements of the Directive. The Energy Liberalization Act – "Energieliberalisierungsgesetz" (BGBl I 2000/121; in the following "ELG") amending the ElWOG provides for the full liberalization of the Austrian electricity market as of 1 October 2001. Consequently, from this date, the Austrian market will be open to all customers irrespective of their consumption (i.e., end-users, electricity traders and electricity enterprises purchasing electricity) who will be entitled to request network access from network operators.

By such full liberalisation of the Austrian market (which brings Austria in line with countries such as England, Germany, Sweden or Finland), the government expects further energy costs reductions to the benefit of Austrian consumers, both in the business and the private area.

The competence to implement legislation in the electricity area in Austria is divided between the Federal State and the nine Austrian Provinces. While the Federal State is competent to pass the framework legislation, the Austrian Provinces enact the implementing laws on the basis of the principles provided by the Federal State. The majority of the Austrian Provinces had not yet decided upon their implementing laws to the ELG at the time of production of this article. The following is thus focussing on the framework of Austrian law as provided in federal legislation, i.e., the ElWOG (as amended by the ELG).

2. Regulation of Energy Production

According to chapter III of the Directive, Member States can choose between the introduction of an authorisation or a tendering procedure for the construction of new generating capacity. Yet, both procedures must be conducted in accordance with objective, transparent and non-discriminatory criteria.

Austria opted for the authorisation procedure (sec 12 ElWOG). Under this provision, authorisations for the establishment and operation of electric power plants must be provided on the basis of transparent, objective and non-discriminatory criteria. Details of such authorisation procedures are to be set out in the implementing laws of the Austrian Provinces.

In such implementing laws, the Austrian Provinces provided for licence requirements for the erection and operation of power plants (with the exception of small power plants for which usually no licence is required).

3. Regulation of the Transmission System

Art 7 et seq of the Directive requires the designation of a transmission system operator responsible for operating, ensuring the maintenance of, and, if necessary, developing the transmission system and its interconnectors with other systems, in order to guarantee the security of supply. The system operator shall, in particular, not discriminate between system users.

The requirements of the Directive are implemented, in particular, in the fourth chapter of the ElWOG (sec 23 et seq). In line with the Directive, the ElWOG stipulates no special licence requirements for transmission network operators.

The duties of transmission network operators comprise, in particular, the following (according to sec 23 ElWOG):

· to operate and maintain the grid in such way as to ensure its security, reliability and efficiency, having due regard to environmental protection;
· to provide for any contractual arrangements required for clearing and settlement and for data transmission in the context of energy balancing (for details see below);
· to carry out electricity transit through transmission grids as defined by the Electricity Transit Directive;
· to publish their approved General Terms and Conditions and the tariffs for grid use in accordance with applicably legislation;
· to conclude agreements on the exchange of data with other grid operators, with balance group representatives and settlements agents, as well as with other market participants (in the context of the administration of energy balancing; see below).

Operators of transmission grids have to publish their general terms and conditions which are, as well as any amendment thereto, subject to prior approval of the Elektrizitäts-Control Kommission as regulatory authority. At the request of the authority, they have to change them with a view to creating a competitive market. Furthermore, operators have to publish the tariffs for grid use (for the regulation of such tariffs see below).

4. Regulation of Distribution Operation

Articles 10 and 11 of the Directive require the designation of a distribution system operator to be responsible for operating, ensuring the maintenance of and, if necessary, developing the distribution system in a given area and its interconnectors with other systems. The system operator has to maintain a secure, reliable and efficient electricity distribution system, with due regard for the environment. It must not discriminate between system users or classes of system users, particularly in favour of its subsidiaries or shareholders.

Member States may require the distribution system operator, when feeding-in, to give priority to generating installations using renewable energy sources or waste or producing combined heat and power. They may also impose on distribution companies an obligation to supply customers in a given area. The tariff for such supplies may be regulated, for instance to ensure equal treatment of the customers concerned.

The Austrian transposition of these requirements of the Directive can be found in secs 26 et seq ElWOG. Contrary to the operation of transmission networks, the operation of distribution networks requires a licence pursuant to sec 26 ElWOG, subject to the specific requirements set forth in the implementing electricity laws of the Austrian provinces.

The ElWOG provides for the right ? without prejudice to the provisions on direct lines or to any already existing grid connections ? of the operator of a distribution grid to connect his grid to any final customer and any producer within the area covered by his grid (with the exception of customers receiving electricity energy at a supply voltage level above 110 kV).

The obligations of operators of distribution grids (as set out in sec 29 ElWOG) comprise, inter alia, the following:

· Publication of general terms and conditions and conclusion, under these terms and conditions, private-law agreements with final customers and producers, providing for their connection to the grid (general obligation to connect);
· granting customers as well as producers access to their grid under general Terms and Conditions approved by the regulator (Elektrizitäts-Control-Kommission) and at set tariffs for grid use;
· publication of their approved general terms and conditions and the tariffs for grid use set;
· certain obligations under the organisation of energy balancing (see below).

Sec 37 ElWOG requires the electricity laws of the federal provinces to regulate certain circumstances resulting in the termination of a license for a distribution network (revocation, waiver, dissolution of the enterprise or bankruptcy). A license may be called by the authority as a result of non-compliance with obligations of network operators or with the orders of the competent authority designed to remove situations of non-compliance. In case of mergers, acquisitions, and other corporate combinations, licenses necessary for the continuation of the business vest in the successor so that such corporate restructurings do not affect the licenses.

5. Regulation of Electricity Trading and Wholesaling

Electricity traders and wholesalers are recognized as market participants by the ElWOG. According to sec 43 ElWOG, they are entitled, as of 1 October 2001, to request network access from network operators. Traders are also entitled to demand access to the grid on behalf of their customers.

The ElWOG does not require a specific energy licence for trading activities in Austria. Cross-border electricity trade in Austria from abroad will most likely not require a trade licence under the Austrian Industrial Code (Gewerbeordnung – "GewO"), neither. If, however, an electricity trader establishes a subsidiary or other business establishment in Austria for the purpose of electricity trade, a trade licence would be required.

Electricity traders are subject to the following obligations under Austrian electricity law (sec 45 ElWOG):

· Pursuant to sec 45 para 1, in the context of energy balancing, electricity traders (and other parties supplying electricity to final customers) are obliged to conclude agreements on the exchange of data with the manager of the balance group whose members they supply, with the grid operator to whose grid the respective customer is connected and with the competent settlement agent (i.e, the balance group coordinator; for details on the administration of energy balancing see below).
· Electricity traders who have their seat in Austria further have to prove (by means of hydropower certificates) that 8 % of the electric energy they supply to final customers is generated by domestic small-scale hydropower plants (for details, see the section on renewable energies). Energy traders who pursue their trading activities in Austria from abroad (i.e., without a business establishment in Austria), are not subject to this obligation.
· All electricity traders (regardless of their business seat) and other parties supplying final customers in Austria are required to show the respective proportions of the different primary energy sources used to generate the electric energy supplied by them on final customers´ electricity bills ("electricity labeling"; for details see the section on renewable energies).

6. Network Access

a) Terms and Conditions of Network Access
From the different alternatives for regulation of network access as provided for in Art 16 et seq of the Directive, Austria opted for a regulated third party access system.

According to sec 15 and 43 ElWOG, network operators are under an obligation to grant end users, traders and electricity undertakings purchasing energy access to their networks. Whether also electricity producers are themselves (and not only via their customers) entitled to grant network access is not entirely clear from the wording of the Act. Yet, since according to Art 20 of the Directive, also independent producers are to be entitled to request access, the respective provisions of the ElWOG have to be interpreted accordingly.

Terms and conditions of grid access are subject to the General Terms and Conditions of the network operators to be published and to be approved by the regulator (Elektrizitäts-Control Kommission). The tariffs payable for utilization of a grid are determined by the regulator (Elektriziäts-Control Kommission; see sec 25 ElWOG). Such tariffs shall be composed of:

· A grid utilization charge,
· a grid provision charge,
· a charge for grid losses,
· a charge for system services,
· a metering charge,
· a charge for admission to the grid, as well as
· a charge for international transactions, where applicable.

Tariffs for system use shall be calculated in a manner reflecting the actual costs (average costs to be assumed for a comparable, rationally operated enterprise). They shall conform to the principle of equal treatment of all systems users. The Elektrizitäts-Control Kommission already determined such system use tariffs in an ordinance of September 1999. This ordinance was, however, reversed with effect as of 30 June 2001 by the constitutional court in June 2000 for lack of sufficient determined legal basis in statutory law. The regulator has not yet enacted a new ordinance.
b) Denial of Network Access
According to sec 20 ElWOG, network access may be denied for the following reasons:

· Extraordinary grid conditions (disruptions of operations);
· insufficient grid capacity (as provided for an Art 17 para 5 of the Directive);
· if grid access is requested for electricity supplies to a customers who is not deemed to be an eligible customer in the grid from which these supplies are effected or are to be effected (reciprocity requirement in accordance with Art 19 para 5 of the Directive);
· if electricity from certain eco-sources would otherwise be marginalized although such "protected" plants comply with market prices. However, such protected producers have to reasonably endeavour to sell electricity produced by them to third parties.

The fourth of the above?mentioned grounds for access denial is primarily designed to protect electricity production from Austrian hydro?electric power plants. It may have potentially far-reaching implications especially in summer when electricity supply in Austria originating from hydro?electric power plants is almost 100 per cent. This ground for network denial requires the power plants concerned to operate in an efficient manner in that it considers network denial to be an ultimate means of protection which only applies if all reasonable possibilities to sell electricity thus produced on the European internal market at market prices have been made use of. This ground of access denial is based on Art 8 para 3 and Art 11 para 3 of the Directive which, however, only relate to access denial vis-à-vis producers (and not end customers or traders). The scope of the respective provision under Austrian law will thus have to be limited accordingly.

According to section 19 ElWOG, the electricity statutes of the Federal Provinces have to provide for a certain priority of network access in case of capacity shortages, based on the following principles:

· Top priority for transport of electricity based on existing contractual obligations and contractual obligations replacing such existing contracts;
· subsequent priority for transports for the supply of customers with electricity generated in hydro?electric power plants;
· subsequent priority for electricity transits in terms of the EC?Electricity Transit Directive;
· the remaining capacity is to be split among the remaining parties entitled to network access in proportion to the respective power input.

Disputes regarding the legality of refusal of grid access are to be decided by the Elektrizitäts-Control GmbH (unless the matter falls within the competence of the Cartel Court). Both parties to the dispute are entitled to bring the matter before the civil law courts within 4 weeks from the regulator´s decision.

7. Regulatory Functions and Competition Aspects

The full liberalization of the Austrian electricity market as of 1 October 2001 (as provided for in the ELG) was complemented by a re-organization of the regulatory authorities supervising the sector. While the Federal Ministry of Economy and Labour remains to be competent to enact certain directives and to supervise the new authorities, the major regulatory functions are carried out by the newly established Elektrizitäts-Control-Kommission and the Elektrizitäts-Control GmbH.

The Elektrizitäts-Control-Kommission shall be comprised of 3 members to be appointed by the federal government. One of these members shall be drawn from among the judiciary. The members of the Elektrizitäts-Control-Kommission shall not be bound by any instructions by the Ministry in discharging their functions.

The independence of the Elektrizitäts-Control-Kommission was deemed to be necessary, since it is designed to fulfill important regulatory functions which comprise the following:

· Approval of the General Terms and Conditions of the network operators for granting access to their transmission and distribution networks;
· determination of tariffs for network use and other tariffs, according to a procedure to be set by the Federal Ministry of Economy and Labour;
· ruling on the justification of refusal of network access pursuant of sec 20 ElWOG;
· settlement of disputes between market participants in the area of network access and involving the settlement of imbalances.

Decisions of the Electricity-Control-Commission are not subject to administrative remedies and can only be challenged before the Higher Administrative and the Constitutional Court.

The second regulatory authority, the Elektrizitäts-Control-GmbH shall perform all functions assigned to the regulatory authority in the ElWOG (and related acts of legislation), unless such functions are expressly assigned to the Elektrizitäts-Control-Kommission. It shall further act as "executive body" of the Elektrizitäts-Control-Kommission and is, in this context, bound by the instructions of the latter.

The most important tasks of the Elektrizitäts-Control GmbH are:

· Monitoring compliance with competition rules of the market participants, in particular with regard to the equal treatment of market participants by monopolists;
· supervision of the unbundling process;
· monitoring of compliance with the provisions concerning the purchase of eco-power and of electric energy from small-scale hydro power stations.

In the context of its supervisory functions (in particular as regards compliance with competition rules), the Elektrizitäts-Control GmbH is competent to take any measures necessary to put an end to any infringements it identifies and to restore compliance with the law. This competence of the authority as laid down in statutory law has been criticized as being very broad and unspecified. In particular, it must be considered that other than the Elektrizitäts-Control Kommission, the Elektrizitäts-Control GmbH is not independent, but bound by instructions of the Federal Ministry of Economy and Labour. The provision thus seems to open the possibility for the Ministry to influence market conditions. However, any decisions by the Elektrizitäts-Control GmbH are subject to appeal to the independent Elektrizitäts-Control Kommission so that supervision of measures taken by the Elektrizitäts-Control GmbH by an independent body is guaranteed.

8. Public Service Obligations

The ElWOG in its original version of 1998 provided for far reaching public service obligations and corresponding rights of Austrian electricity providers, legally based on Art 3 para 3 of the Directive and, more generally, on Art 86 Abs 2 of the EC-Treaty (which, in principle, exempts undertakings which are entrusted with services of common economic interest from the application of the competition rules of the EC-Treaty).

In particular, electricity undertakings were subject to a duty (but also to the corresponding right) to connect their networks with customers and to supply them with electricity at their general terms and conditions as well as prices.

Yet, with the enactment of the ELG amending the ElWOG, the Austrian electricity market will be fully liberalized from 1 October 2001. According to the legislature, in a fully liberalized market, however, it is no necessary to provide for a general obligation to supply electricity. Such duty to supply shall be replaced by the market itself, since every customer will be free to choose his electricity supplier. Other than, for instance, in the telecommunications sector, the EC legislator did not oblige the Member States to provide for a "universal service" at an affordable price to be provided for by (one or more) market dominant operators in a liberalized market.

Consequently, from 1 October 2001, Austrian electricity undertakings, and, in particular, network operators, are no longer under an obligation to supply their network users (i.e., customers, suppliers and traders) with electricity. Yet, also in a fully liberalized market, the provision of network services remains to be a "natural monopoly". The ElWOG in its amended version thus subjects the grid operators to a number of duties and responsibilities designed to safeguard the functioning of the liberalized market. In particular, this applies to the duty of the grid operators to connect their network to network users under the general terms and conditions and prices approved by the regulator.

Public service obligations of network operators are set out in sec 4 ElWOG. They comprise the following:

· Non discrimination and equal treatment of all customers and system users of a network;
· obligation to conclude private-law agreements with network users for their connection to the network (general obligation to connect) according to published General Terms and Conditions (Sec 29 subpara 2 ElWOG);
· setting up and maintenance of an adequate network infrastructure to ensure domestic electricity supply and the performance of obligations under public international law;
· performance of any obligations provided by law in the general economic interest;
· purchase of electricity from generating plants using renewable energy sources.

The duty to grant access to network users is complemented by a corresponding right of a distribution network operator to connect end-users within its network area to its network (sec 27 ElWOG).

9. Eligibility – Full Liberalisation of the Austrian Electricity Market

a) Full Liberalisation of the Austrian Electricity Market
As already outlined above in the introductory remarks, the Austrian legislator decided to fully liberalize the Austrian electricity market from 1 October 2001.

The ElWOG in its original version provided for a gradual opening-up of the Austrian electricity market in line with the Directive. In a first step, customers with a yearly consumption of more than 40 GWh were qualified as eligible (i.e., were entitled to choose their supplier and to request network access) from 9 February 1999. One year later, this threshold was decreased to 20 GWh. From 19 February 2003, all customers consuming more than 9 GWh should have obtained access to the open market. Furthermore, operators of distribution grids (who were at the same time operators of transmission grids), were qualified as eligible customers from 19 February 1999. Other distribution grid operators would have only gradually attained eligibility.

However, the ElWOG as amended by the ELG now provides for full liberalisation of the Austrian electricity market with effect from 1 October 2001: All users (i.e., end-users, suppliers and electricity traders) are entitled, as of 1 October 2001, to conclude contracts with producers, electricity dealers and electricity undertakings on their supply of electric energy with a view to covering their own needs and to demand access to the grid with regard to these amounts of electricity. Electricity undertakings may demand access to the grid on behalf of their customers.
b) Organisation of the Fully Liberalised Market – Balancing Energy
The full liberalisation of the Austrian market required the introduction of an entirely new system for the distribution and settlement/clearing of balancing energy, i.e., the difference between the amount of energy scheduled by a specific user or group of users and the amount actually purchased or supplied in a defined settlement period. When implementing this new system, the Austrian legislator followed the example of the Scandinavian countries (Norway, Sweden and Finland). The new structure can be outlined as follows:
(i) Control Zones ("Regelzonen") of the transmission network

The ElWOG (as amended by the ELG) provides for the division of the Austrian transmission network into three "control zones", i.e., East-Austria, Tyrol and Vorarlberg. Such control zones are managed by major network operators, the so-called control zone managers ("Regelzonenführer"). They will be responsible, inter alia, for the raising and administration of balancing energy ("Ausgleichsenergie") together with the balance group coordinators (see below), the measuring of electricity volumes which are transmitted within the zone and from one zone to another and the transfer of the respective data to the balance group coordinator and the network operators (for settlement purposes; see below).
(ii) Implementation of a balance group system

For the purpose of raising and settlement of balancing energy, producers and electricity traders, respectively, and their respective customers will constitute virtual "balance groups" ("Bilanzgruppe"), i.e., a virtual group of suppliers and customers within which the amounts of electricity procured (scheduled purchase volume, feed-in) and supplied (scheduled supply volume, feed-out) are balanced. Every balance group forwards schedules of electricity consumption of its members to the control zone managers, which in turn provide such requested energy. Any deviations between the nominated electricity demand and the eventual consumption by the respective customers shall first be settled within the respective balance group. The remaining imbalances not adjusted within a balance group are to be settled between the different balance groups based on the following principles:

Each balance group must transfer its electricity consumption schedules for the next day to the control zone managers and a "balance group coordinator" ("Bilanzgruppenkoordinator") who is to be appointed by the Ministry for Economics and Labour. The balance group coordinator assesses the imbalances between the scheduled and eventually consumed electricity of a balance group (on the basis of the consumption data to be provided by the network operators). The balance group coordinator also determines the prices to be paid by the respective balance groups for any consumed balancing energy to the control zone managers (who actually provide balancing energy). Such price shall be determined on the basis of a market-oriented model to be approved by the regulator. The price shall be continuously adjusted to market conditions.

Every balance group must nominate a "balance group representative" ("Bilanzgruppenverantwortlicher"), who shall have a key function in the system and shall be responsible, inter alia, for the administration of the group, the forwarding of the respective consumption schedules to the control zone managers, the transfer of the necessary data to the network operators and the balance group coordinator, the payment of the prices for the balancing energy consumed to the control zone managers as well as the settlement within the balance group. The ElWOG is quiet on the question which entities will act as balance group representation and leaves this issue to contractual agreements between a producer or trader, respectively, with its customers. It is envisaged and very likely, however, that every producer and electricity trader, respectively, will constitute its own balance group together with its customers and that such producer or trader, respectively, will also act as balance group representative.

Pursuant to secs 46 and 47 ElWOG, the detailed duties of balance group representatives comprise the following:

· Preparing schedules of the next day´s demand of its balance group due to announced nominations of its larger end-users and due to well-known measurements/readings ("Lastprofile") of small customers as relevant parameters;
· transmission of technical relevant schedules to the manager of the respective control zone for the purpose of physical and technical control as well as transmission of these schedules to the clearing houses for the purpose of clearing and settlement of imbalances;
· conclusion of agreements concerning electricity reserves as well as providing its balance group members which were assigned to them by the electricity control authority;
· notification of certain production and consumption dates for technical purposes;
· notification of production and demand schedules of large customers and suppliers according to defined rules for technical purposes;
· payment of fees to the balance group co-ordinators;
· payment of fees for balance energy to the managers of the control zones as well as settlement of these fees to the members of the balance group;
· conclusion of contracts with balance group co-ordinators, network operators and balance group members concerning the exchange of dates;
· maintaining lists of balance group members;
· transmission of data to the balance group co-ordinators, the network operators and the balance group members;
· preparing schedules between balance groups and to notify them to the balance group co-ordinator;
· providing balance energy to the balance group members;
· in case of a change of a balance group member to another balance group or to another supplier, data relating to this member have to be transmitted to the new balance group or to the new supplier.

The implementing electricity Acts of the nine Austrian Provinces will have to stipulate that balance group representatives have to prove their professional qualifications with respect to legal, administrative and commercial capabilities as well as their financial background.

10. Costs of Transfer to Competition – "Stranded Costs"

According to sec 69 ElWOG, unprofitable investments and legal transactions of electricity undertakings can be compensated by state subsidies, if the viability of the undertaking concerned is jeopardized due to loss of revenue as a result of these investments having become unprofitable in the course of the opening of the market. In addition, such unprofitable investments must have been recognized by the EC-Commission in accordance with Art 88 of the EC-Treaty. The detailed conditions of such subsidies are laid down in an ordinance of the Ministry of Economy and Labour (BGBl II 1999/52).

This ordinance provides that such subsidies are to be fully born by the customers who shall pay their contributions to the respective network operators (who in turn forward these payments to the regulator for distribution to the operators concerned). Subsidies will be granted only to the extent to which this is absolutely necessary to ensure the viability of the undertaking in questions.

According to sec 69 para 5 ElWOG, operating subsidies shall in any case be granted for Austrian domestic brown coal firing. The Austrian government further envisages to grant compensations to a number of hydro power plant. The overall amount of stranded costs as determined by the government is ATS 8.7 billion. The government already notified this amount to the EC Commission under Art 87 para 3c which has not yet decided thereupon.

Operating subsidies may be granted no later than until 31 December 2009.

11. Transitory Regime

Under Art 24 of the Directive, Member States in which commitments or guarantees of operations given before the entry into force of the Directive may not be honoured due to the liberalisation of the market may apply for a transitional regime which may be granted by the Commission, taking into account, amongst other things, the size of the system concerned, the level of interconnection of the system and the structure of its electricity industry.

Austria originally applied, on the basis of Art 24 of the Directive, for a transition period for certain production sites, in particular hydropower stations. In July 1999, however, the EC-Commission decided that the notified schemes could not be considered as a transitional regime in the sense of Art 24 of the Directive, but would have to be examined under the Community State Aid Rules. The government subsequently notified these matters under Art 88 of the EC Treaty in January 1999 (see above point 10).

12. Regulation of Renewable Energies

a) The Market for Renewable Energies in Austria
The Austrian energy policy is based on the principles of environmental compatibility and promotion of renewable energy sources. Environmental concerns have played a dominant role in Austrian energy policy-making for at least two decades. As a result, Austria has recently succeeded in substantially reducing SOX and NOX emissions. The level of CO² per capita is also quite low compared with IEA averages. In light of the Kyoto Protocol, the Austrian Government undertook to reduce CO² emissions by 20 % in 2005 from its 1988 level. The scenarios to achieve this target are quite different. On the one hand, a higher taxation on gas and electricity was introduced in June 2000 (doubling the former taxation up to currently ATS 20,64 + 20 % VAT) and on the other hand, regulatory instruments such as buying obligations of network operators regarding alternative energies, “labelling” of energy supplied to end-consumers, fixed price schemes for renewable energies as well as research and incentive programs for renewable energies have been introduced.

Renewable sources of energy currently constitute 27 % of Austria’s energy consumption (e.g. hydropower, biomass, solar and wind energy, etc.). The level of exploitation of renewable energy sources varies significantly among the different sources.

The most important renewable sources of energy are hydropower with a share of 13.4 % of the total energy supply and biomass with about 13 %. Overall, hydropower accounts for about 70 % of domestic power production. In summer, all of Austria´s electricity can theoretically be supplied by hydropower whereas biomass sources like fuelwood, wood chips, bark, sawdust, straw or biogas make up nearly half of the total consumption of renewable energies throughout the year.

Austria is a relative newcomer in the production of energy from wind. Wind power is considered a practicable supplementary form of alternative energy production as two thirds of the wind circulation in Austria occur during winter when water availability is at its lowest and power demand is at its highest. It is particularly during this time that wind power stations could replace thermal power stations, thus helping to reduce electricity imports. Yet, before further developing Austria´s wind power potential, it must be considered that Austria is a landlocked country and wind speeds are lower than in coastal regions. Wind incidence makes power output subject to considerable fluctuation.

Geothermal energy and energy from waste, the latter not considered as renewable energy source deserving promotion according to the ElWOG, are increasing as sources of energy. In respect of solar thermal installations, Austria, quite surprisingly, ranks in the second place after Greece.

As regards small hydropower, about 1,690 small plants are connected to the grid of regional utilities, representing approximately 9 % of the total annual national hydropower capacity. Another 4,000 to 5,000 small stations exist which are not connected to the public grid. Austria´s small-scale hydropower stations are characterised by their decentralised location, the investment of private capital and the objective of satisfying the immediate energy needs of private or industrial users. According to estimates of the Austrian Association for the Promotion of Small Power Stations, 40 to 45 % of the potential for small hydropower plants has been exploited to date, leaving approximately 4,000 GWh per year still to be developed. Since 1997, investment grants of 25 % have been available for the reactivation of defunct stations and the extension of operating ones, and in some cases also for the construction of new installations with a capacity of up to 500 kW. The idea is to stimulate efforts for further reducing CO2 emissions.

Although the Austrian government has allocated grants amounting to ATS 240 million to support the development of renewable energy sources in the past 3 years, additional incentives are considered necessary to make it economically attractive to install and operate renewable energy sources.

Even though the use of renewable energy, in fact, has doubled over the past 20 years, renewable energy technologies still face certain difficulties in “taking off” in marketing terms. Under the prevailing economic conditions, a serious obstacle for the greater use of certain renewables has been the cost associated with their exploitation. The use of renewables, in many cases, is hampered by higher capital costs than those relating to conventional fuel or gas cycles. Another significant obstacle, as with most innovative technologies, is the lack of confidence from investors, governments and users, the lack of knowledge about the technical and economic potential and a general resistance to change and new ideas.

To counteract these obstacles and facilitate the development of new energy technologies, a new policy strategy was implemented by way of amending the ElWOG.
b) The new Austrian legal framework for Renewable Energies
To further promote renewable energies is one of the major principles governing the envisaged amendment to the ElWOG. The respective provisions go far beyond what is required by the Directive. In particular, the draft new Act provides for the following measures:

(i) Buying Obligation of Electricity from Renewable Energy Sources

The Act (sec 32 ElWOG) obliges electricity distributors to obtain a certain portion of electricity from renewable energy sources (with the exception of hydropower), i.e., from solid or fluid domestic biomass, biogas, deposit- or sewer-gas, geothermic energy and wind as well as solar energy. The amount of electricity to be acquired from such sources by distributors ranges from 1 % in the period from 1 October 2001 to 30 September 2003, 2 % from 1 October 2003 to 30 September 2005, 3 % from 1 October 2005 to 30 September 2007 and 4 % from 1 October 2007, calculated from the aggregate amount of electricity consumed by the end users connected to the network of the distributor concerned.

This buying obligation of the distribution network operators is supervised by the regulator Elektrizitäts-Control GmbH. In case the proceeds resulting from the sale of this alternative energy do not meet the costs of the buying obligation, network operators are entitled to claim for the difference between these amounts. These additional expenditures are to be financed by a surcharge to the system use tariff which has to be determined by the governor of the respective federal province (beginning with 1 January 2002).

(ii) Promotion of Small-Scale Hydropower Energy

The new Act is further designated to promote "small" hydropower energy (i.e., hydropower plants with a bottleneck production of not more than 10 MW). Operators of such small hydropower plants shall be entitled to issue certificates to their customers evidencing the amount of energy delivered. Electricity traders shall be under the obligation to obtain 8 % (sec 45 para 2 ElWOG) of their traded electricity from small hydropower plants. A trader failing to furnish proof thereof by producing the respective certificates to the regulator must pay an equalization levy to a fund designated to promote renewable energy facilities. In addition, end-users acquiring electricity from traders which do not hold the necessary amount of certificates must themselves produce evidence that they obtained at least 8 % of their power consumption from small hydropower plants (sec 43 para 3 ElWOG).

It is interesting to note that energy stemming from "big" hydropower plants is not promoted under the Act, the reason being that, at present, approximately 70 % of electricity produced in Austria already comes from hydropower plants.

(iii) Electricity "labelling"

In order to enable consumers to recognize the sources of electricity they buy, the supplier is obliged to identify such sources in its invoices issued to the end-user (“labelling”; see sec 45 ElWOG). Furthermore, labelling shall enable consumers to influence the future energy production and supply situation according to customer demand. In practice, the origin of the energy supplied to the end-users will be evidenced by certificates issued from reknown certification institutes, conclusive statements of source by audited and published annual accounts (according to the mix of the supply and delivery portfolio of the respective electricity trader or supplier) or the actual and published UCTE country production mix. In case of electricity supply via an electricity exchange the relevant country production mix of the registered seat of the electricity exchange is decisive.

The Austrian legislator hopes that the growing customer ecological awareness among consumers will increase demand from suppliers offering a higher degree of “green energy”. Surveys showed that many consumers would be willing to pay higher prices for renewable energies and to change suppliers on the basis on energy supplied.
c) Nuclear Power under Austrian Electricity Law
The new ElWOG introduced a rigorous system designed to prohibit nuclear power imports rom countries regarded "unsafe" in the context of nuclear power production (sec 13 ElWOG):

Under the previous regime of the ElWOG, electricity supply agreements with non-EC countries were subject to notification and approval by the Ministry of Economic Affairs. Only recently the Austrian government stopped imports of electricity from the nuclear power station in Temelin (Czech Republic), which started power production at the beginning of October 2000 (against fierce protest of the Austrian government).

With the new ElWOG entering into force, however, electricity imports from third countries using facilities not complying with the state of technology (in particular with respect to nuclear power) and therefore constituting a threat for life and health of humans, animals or plants shall be generally prohibited. The regulator shall be in charge of identifying these countries by way of issuing a specific ordinance.

This provision, however, has been criticized in the Austrian legal literature as failing to address the real issues: First, the new law would allow to generally prohibit electricity imports from a given country for the mere fact that one of its production sites was deemed dangerous irrespective whether electricity imported to Austria was actually produced in such facility. Second, Austria´s anti-nuclear power policy might be even undermined as one can hardly identify the origin of electricity when electricity traders are involved and "laundering of electricity" might increase if the present notification and approval requirements for individual supply agreements are lifted.
13. Dissociated Accounting ("Unbundling")
With regard to the unbundling provisions of Art 14 subpara 3 of the Directive, sec 8, sec 9 and sec 11 ElWOG subject electricity operators (and in particular integrated undertakings) to certain unbundling obligations. The objective of unbundling and transparency obligations is to avoid discrimination, cross-subsidization and distortion of competition.

Sec 8 ElWOG provides that all electricity enterprises performing network operations have to publish annual accounts in case their total electricity supply exceeds 9 GWh per year. All other electricity companies, to which this does not apply, have to keep a copy of their financial statements at the disposal of the public at their headquarters. Transactions with a consideration in excess of ATS 10 million concluded with certain affiliated enterprises are to be listed separately as supplements to the annual financial statements.

In addition to the above mentioned requirements, integrated electricity enterprises (i.e., electricity undertakings performing two or more of the functions generation and trade in electric energy, transmission of electric energy and distribution of electric energy) are required:

· to keep separate accounts with separate accounting systems for their production, transmission, supply and electricity trade activities;
· to publish balance sheets and profit and loss accounts of each accounting system as well as their respective rules of allocation;
· to keep consolidated accounts for activities external to the electricity area and to publish balance sheets and statements of operating results in this context.

Furthermore, the competent administrative agencies (including the newly established Elektrizitäts-Control GmbH) are entitled to inspect the financial statements of electricity enterprises as well as to obtain necessary information at any time upon request (Sec 10 ElWOG). This obligation was considered necessary in order to enable the competent authorities supervision and controlling activities in a liberalised market.

Austrian electricity law does not provide for a general obligation of electricity undertakings to "legally" unbundle their various electricity activities, i.e., to implement separate legal entities for production, transmission, distribution and trading activities. However, according to sec 22 ElWOG, the control zone managers (i.e., the big transmission network operators) have to transfer their transmission networks into separate network companies.

14. Outlook

With the enactment of the Energy Liberalization Act, Austria went beyond the requirements of the EC-Directive 96/62/EC on the internal market for electricity and fully liberalized the Austrian electricity market from 1 October 2001. Whether the high expectations behind such step, i.e., a further decrease of electricity prices and a subsequent "boom" for Austrian economy will be fulfilled remains to be seen. Critics argue that the high costs accruing when implementing and operating the complex administrative system necessary for the functioning of the liberalized market will prevent a significant dropping of electricity costs.

Yet, international electricity price comparisons show that present Austrian household prices range among the good medium in the European Union whilst electricity prices for industrial clients lay in the upper third of the European member states. Thus, further synergy and rationalization potentials are to be exhausted in Austria (in total price reductions in the amount of ATS 3,3 billion per year were realized up to now). Many foreign electricity companies have already entered into negotiations with companies in Austria to establish a presence in the country´s electricity market. They partly cooperate with local incumbents, in particular in supplying big industrial users. Analysts predict that Austrian operators will be forced to enter into alliances in order to be able to compete more effectively in the European market. Furthermore, it is expected that Austria´s rapid expansion into renewable energy could see it top the European league in the next future, in particular with a view to the proposed EC-directive on renewable energies.


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