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Energy Remunicipalisation: How Hamburg is buying back energy grids

The Hamburg citizens voted in a referendum for the full remunicipalisation of the energy distribution grids in the city in 2013. Now, three years after the referendum, it is time to evaluate what has been achieved so far.

Published by World Future Council

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On September 22 2013, 50.9% of the Hamburg citizens voted in a referendum for the full remunicipalisation of the energy distribution grids in the city. The referendum was initiated by the citizen’s initiative ‘Our Hamburg – Our Grid’ (OHOG) and constituted the climax of an intense political controversy that lasted for more than three years. Through this vote Hamburg has received international attention and became a flagship example for remarkable civil engagement.

In the international best-seller “This Changes Everything” (2014), Naomi Klein sees the driving motive in the people’s ‘desire for local power’. Indeed it is true that under the constitution of the City of Hamburg, a successful referendum has a binding effect, which left the City government no other option than to announce the implementation of the referendum decision and to start the remunicipalisation process immediately after the vote. Now, three years after the referendum, it is time to evaluate what has been achieved so far. A series of interviews with key actors that were and, for the most part, still are involved in the remunicipalisation process shed some light on the remunicipalisation process and recent developments.

Background: The way towards the referendum

„The first E-Mail came from you“, they say about Gilbert Siegler, who started the gathering of a broad spectrum of environmental, civil and church organisations back in 2010 that would later become the citizens’ initiative “Our Hamburg – Our Grid” (OHOG). For many of the activists, such as the leading campaigner of the initiative, Wiebke Hansen, the remunicipalisation question quickly became a “matter of the heart” and proxy to tackle climate change effectively by directly achieving access to the energy sector, putting the issue into the overall context of intergenerational justice.

Privatisation of the energy grids was a decision that according to the current Senator for Environment and Energy, Jens Kerstan, had soon been severely regretted by many members across all parties and led to a “loss in political influence and the possibility to steer” within the energy sector.

The momentum was opportune. The anti-nuclear movement had just achieved a great success, mobilising 120 000 people protesting against the plans of the Federal Government to prolong the runtime of the German nuclear power plants, with the formation of a 120km long human chain between the two nuclear power plants Brunsbüttel and Krümmel. The chain also queued through the inner City of Hamburg, this event and the upcoming expiry of the concession agreements provided a fertile ground for the activists in the city to merge into the initiative that would three years later achieve the great success of winning the referendum on the remunicipalisation of the energy distribution grid.

At the end of the 1990s and beginning of the 20th century, the City of Hamburg privatised its energy distribution grids of electricity, gas and district heating – a decision that according to the current Senator for Environment and Energy, Jens Kerstan, had soon been severely regretted by many members across all parties and led to a “loss in political influence and the possibility to steer” within the energy sector.

However, despite this realisation the Senate led by the Social Democratic Party (SPD) under First Mayor Olaf Schloz were merely willing to buy back a blocking minority of 25.1% from the private energy utilities E.ON and Vattenfall owning the energy distribution grids in 2011. While Olaf Scholz and the City Government believed that this deal would allow sufficient control over the private network operators, OHOG, energy experts and even SPD members were not convinced that 25.1% are enough to achieve a proactive and progressive energy policy for Hamburg, including a decisive implementation of the Energiewende and an active engagement in climate mitigation by shifting towards renewable energies.

Instead the citizens’ initiative’s referendum text stipulated a more ambitious goal, which is separated below into the two core targets:

 “The Hamburg Senate and City Parliament are undertaking all necessary and legitimate steps in a timely manner, in order to

  • fully remunicipalise the Hamburg electricity, district heating and gas distribution grid in 2015.
  • The mandatory target is a socially just, climate-friendly and democratically controlled energy supply from renewable sources.”

At the beginning, the citizens’ initiative received broad approval in their intention to bring the energy distribution grids back into the public hand. One reason of OHOG’s success certainly was its heterogeneous composition that reflected society at large. Another was the initiative’s unifying assumption, which was also most tangible to the majority of Hamburg’s citizens despite the complexity of the topic: energy services are a matter of the common good and must not become object to the maxim of profit maximisation.

Yet, until the Election Day the outcome of the referendum was uncertain mainly due to the massive opposition forming up against OHOG, led by the political parties of SPD, the Christian Democratic Union (CDU) and the Liberal Party (FDP) and numerous organisations of trade and industry, such as the Chamber of Commerce, and of course the energy utilities Vattenfall and E.ON themselves. This led to a clear asymmetry in power and resources between the Yes and No campaign in the run up to the referendum. Manfred Braasch, managing director of Friends of the Earth Germany (BUND) in Hamburg and one of the leading lights of OHOG estimates the ratio of available resources with 1:100: “So we had one Euro and they at least a hundred to place respective ads, print material, etc.” Another former member of OHOG, Dirk Seifert, illustratively recollects that each member of the citizens’ initiative was becoming “increasingly nervous […], since you walk through Hamburg and see with what public advertising force these companies [Vattenfall and E.ON] can cover the whole city […]. The evening the votes were counted was nerve-racking […] but in the end we could relax and had won.”

Implementation of the referendum and status quo

Target 1) was tackled directly after the referendum decision. Representatives of the City Government immediately started to negotiate the re-purchase conditions of the energy distribution networks with the suppliers Vattenfall and E.ON.

In February 2014, Vattenfall and the City of Hamburg reached an agreement over the purchase of the 27,000 kilometre long electricity distribution grid for the total price of 550 million Euros. The transition from shifting Vattenfall shares into municipal ownership was eventually completed in April 2016 by maintaining the entire workforce. This also proofed the concerns of the workers union IG Metall before the referendum as groundless. The IG Metall, according to its First Representative Ina Morgenroth, positioned itself against the remunicipalisation as pursued by OHOG, expecting political commitments to not put employment at stake that nobody could give. In the first year, the electricity grid operation generated a total benefit of 34.5 million Euros for the city. Essential restructuring and investments let the benefits sink towards around 6 million Euros in 2015. In this context, the numbers of 2016 can be awaited eagerly to allow a more accurate assessment whether the remunicipalisation of the electricity grid also generates the expected monetary benefits for Hamburg. The negotiations over the gas distribution grid between E.ON and the City of Hamburg dragged on until December 2014. Eventually, both parties came to an agreement that would allow the city a repurchase of the gas grids in 2018 for a total price of 355.4 million Euros.

In general, the constitution of this new instrument for democratic control of the energy distribution grid is seen as an unprecedented innovation, giving Hamburg a unique opportunity to make questions of energy policy subject to a wide-ranging debate throughout society.

What remains uncertain is the remunicipalisation of the district heating distribution network that provides about 440.000 residential units with heat and is the most energy intensive and valuable energy distribution grid. Similar to the gas distribution grid, the City Government merely negotiated a purchase option for the year 2019 with Vattenfall. Due to the constitutional level of a referendum decision its implementation should merely be a matter of political decency. However, there are uncertainties regarding a repurchase of district heating, since members of Hamburg’s political sphere are already looking for a way out to avoid the expensive repurchase of the district heating grid for a fixed minimum purchase price of 950 million Euro, arguing that such a financial risk is incompatible with the budgetary regulations of the Hamburg City State. Yet, the former members of the initiative OHOG remain confident that a remunicipalisation will eventually be carried out by the City Government, since the political risk of defying the people’s decision is too high. Furthermore, essential practicalities still require clarification and foresight even though the City does not own the district heating grid yet. This mainly refers to the question of how to substitute an old coal power plant in Hamburg’s west with renewable sources to fulfil target 1)’s requirements of the referendum decision. So far, the power plant still provides a great share of the city’s heating demand through cogeneration of heat and electricity from coal. Clean alternatives for heat production from renewable sources are still explored by Hamburg’s State Ministry for the Environment and Energy in feasibility analyses and until now decisions are still pending.

In general, the constitution of this new instrument for democratic control of the energy distribution grid is seen as an unprecedented innovation, giving Hamburg a unique opportunity to make questions of energy policy subject to a wide-ranging debate throughout society.

Target 2) certainly constituted an even greater challenge for the City Government, as it requires a clear definition of what is meant by the stipulation of a ‘socially just, climate-friendly and democratically controlled energy supply from renewable energies’. Particularly the question whether to interpret ‘democratic control’ literally – as a direct control mechanism – or merely as an instrument for a consultative involvement, necessitated intensive discussions. The consultations on this question was facilitated by the Environmental Committee of the Hamburg City Parliament and carried out under the participation of a broad range of stakeholders, including representatives from environmental organisations, business and industry as well as employee representatives.

Ultimately, in February 2016, energy senator Jens Kerstan announced the formation of an Energy Advisory Board, which was integrated in the Energy Agency at the City’s Departmental Authority for the Environment and Energy. Members of this new Board include a broad range of 20 representatives from society, science, business, industry and most importantly all local grid companies, also including Vattenfall and E.ON, which still remain main shareholders of the district heating and gas distribution grid until the purchase options has been exercised. The board meets at least twice a year and already in 2016 there have been meetings in April, June and September, as well as an internal meeting in July. Each official meeting of the Energy Advisory Board is open to the public, giving citizens the opportunity to ask questions or to bring forward written proposals.

In general, the constitution of this new instrument for democratic control of the energy distribution grid is seen as an unprecedented innovation, giving Hamburg a unique opportunity to make questions of energy policy subject to a wide-ranging debate throughout society. However, the main challenge remains in form of the actual influence the Advisory Board should have on grid-related decision-making. While some members seek direct rights to also co-determine corporate decisions of the city-owned energy distribution grid company ‘Hamburg Energienetze GmbH’ (HEG), other members of the board merely want to limit the influence of the board to an advisory function. This basically constitutes a continuum that requires a well-balanced compromise in order to avoid the board becoming a toothless tiger or inefficient committee, slowing down the remunicipalisation process through limiting the HEG’s ability and pace in operative actions.

Remunicipalisation as essential element of the Energiewende

The major question, not only in Hamburg, certainly is to what extent a municipally managed energy distribution grids can contribute to a successful implementation of the Energiewende. The majority of the interviewees (even two former opponents of the remunicipalisation) agree that a municipalised grid provides direct access and the ability to act in favour of shaping the Energiewende. Primarily, this refers to grid-related investment decisions or the reinvestments of profits from the grid management. Regarding these investments in the electricity distribution grid, Alexander Heieis, former chairman of the works committee at Vattenfall and now employed at Stromnetz Hamburg, the municipal electricity distribution grid company, perceives a major difference between the latter and his former employer: “If Vattenfall would have remained owner of the electricity grid […] it would have been more difficult [for Vattenfall] to carry out these investments in same way, as they are already foreseen by today.” Heieis explains this difference in pace and extent of investments with a missing understanding of the Energiewende at the management level of Vattenfall. Other interviewees see another major difference in this context, stating that a publicly-owned energy distribution grid company is detached from the maxim of utility or profit maximisation and instead perceives the performance of its task rather as a public service to the common good.

Expert reports are carried out at the moment to determine the actual potential the city provides regarding district heating. For instance, possible alternative renewable heat supply could be generated from waste incineration plants, waste wood or industrial waste heat. Nevertheless, whether Hamburg could cover its entire heat demand from renewable energy remains a major challenge and needs decisive political action.

In terms of grid-specific properties, the district heating distribution grid, so far mainly running on coal, is crucial to successfully implementing the Energiewende. As natural monopoly, district heating is not obliged to the principle of unbundling, describing the separation of the network operator and energy supplier. Hence, ownership over the district heating grid means to not only own the grid, but also decide over the source of energy. In Hamburg the energy sources for the district heating are planned to be shifted towards renewables on the long term. Expert reports are carried out at the moment to determine the actual potential the city provides in this regard. For instance, possible alternative renewable heat supply could be generated from waste incineration plants, waste wood or industrial waste heat. Nevertheless, whether Hamburg could cover its entire heat demand from renewable energy remains a major challenge and needs decisive political action.

Hamburg – Quo vadis?

So far, Hamburg can be considered on track in implementing the referendum decision. However, key challenges remain unsolved. In particular, the repurchase of the district heating grid is still uncertain, but would be crucial for further implementing the Energiewende, while also decisively contributing to Hamburg meeting its climate mitigation targets in 2030. A failure in this regard would be irreversible with no possible prospect of a second attempt to repurchase the district heating distribution grid from Vattenfall in the near future, putting the Energiewende and climate protection at stake. Dirk Seifert, former member of OHOG and a representative in the Energy Advisory Board yet remains optimistic, noticing that since the referendum “the opportunities and obligations for the Hamburg Senate and City Parliament have grown tremendously, while it nevertheless remains a political struggle to ensure that these are implemented through institutions and forms of public participation […]. It is our task to push and press in this regard.”

This article was originally published by World Future Council: https://www.worldfuturecouncil.org/energy-remunicipalisation-hamburg-buys-back-energy-grids/

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