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Private versus public utilities: no overarching trend toward remunicipalization, no differences in efficiency

Press Release of May 20, 2016

DIW Berlin conducted two studies on developments in energy supply – private utilities no more efficient than public utilities – consolidation in drinking water sector offers little benefit

More and more cities and municipalities in Germany are once again taking the electricity, gas, and heating utilities into their own hands: between 2003 and 2012, the number of public utilities increased by 17 percent. Yet the number of private utilities increased by 49 percent over the same period—nearly three times as much. These are the findings of a new study conducted by the German Institute for Economic Research (DIW Berlin).

"There is a no evidence that remunicipalization is displacing private energy companies," explains Astrid Cullmann, Research Associate in the Department of Firms and Markets at DIW Berlin. Together with colleagues Maria Nieswand, Stefan Seifert, and Caroline Stiel, Cullmann evaluated newly available data on energy statistics; financial statements from public funds, institutions, and enterprises; and information from the business register. Even the corporate turnover offers no indication of a remunicipalization, and in fact, public utilities have actually lost revenue shares: in 2012 they generated only slightly more than one-quarter of sales in the energy sector, even though they made up the majority of companies. 

German Institute for Economic Research (DIW Berlin)

The German Institute for Economic Research (DIW Berlin) is one of the leading economic research institutions in Germany. Its core mandates are applied economic research and economic policy advice as well as provision of research infrastructure. As an independent non-profit institution, DIW Berlin is committed to serving the common good. The institute was founded in 1925 as Institut für Konjunkturforschung (Institute for economic cycle research). Since 1982, the Research Infrastructure SOEP (German Socio-Economic Panel Study), a long-term study, is affiliated to DIW Berlin. The institute has been headquartered in Berlin since its founding. As a member of the Leibniz Society, DIW Berlin is predominantly publicly funded.

That the number of both public and private utilities continues to rise overall is partly due to industry restructuring in the wake of the energy transition and liberalization: many new companies are being established and parts of existing companies are being outsourced in order to open up to new business fields and technologies.

No differences in efficiency between public and private utilities

In a second study, Cullmann, Nieswand, Seifert, and Stiel investigated whether private utilities operate more efficiently than do public utilities -a commonly held belief- and found that this is not actually the case.

"Our analyses show that public energy companies perform just as efficiently as private companies," says Nieswand. "This applies not only to the competitively organized electricity retail: municipal network operators also work just as efficiently as private ones do."

Critics repeatedly argue that public companies operate their networks less efficiently. "The result of our study is remarkable, because public companies differ from private ones in that they are not aiming for pure profit maximization, but rather they are also pursuing broader interests," says Stiel. For example, municipal companies usually have energy and climate policy-related goals, as well as fiscal objectives.

So does this mean that the entire energy supply should now be put into state hands? The experts point out that no direct conclusions can be drawn from their general analysis with regard to the remunicipalization plans of individual cities and towns, as remunicipalization remains an individual decision.