Urban Governance and the Transition of Energy Systems: Institutional Change and Shifting Energy and Climate Policies in Berlin


  • Thanks to Sabine Hofmeister, Ulrike von Schlippenbach, Bernhard Truffer, Timothy Moss and two anonymous referees for their critical and constructive comments on an earlier version of this article.

Jochen Monstadt (jochen.monstadt@web.de), Department of Utility Systems, Faculty of Spatial Planning, University of Dortmund, Dortmund 44221, Germany.



Energy systems in Germany and in all western OECD countries are currently undergoing transformations that have profound implications for their urban and regional governance, as well as for regional development in general. New technologies, regulatory regimes, management styles, marketing strategies and environmental priorities have emerged, dramatically reconfiguring patterns of governance within cities and regions. This is particularly obvious in the city region of Berlin, where utility restructuring coincides with a dramatic fiscal crisis in the city. The privatization of the energy utilities and of many public services, the opening of the regional energy markets, public and private climate protection initiatives and the emergence of new market participants are radically changing the conditions of regional governance and energy planning. However, although substantial recasting of policy issues and traditional forms of governance in the energy sector is underway in Berlin, energy management is confronted with severe institutional problems of interpolicy coordination and regional cooperation, entrepreneurial governance and contract management. Thus, this article argues in favour of new policy approaches and institutional reforms to shape the development of energy networks according to local and regional sustainability needs.


En Allemagne et dans tous les pays occidentaux de l’OCDE, les systèmes énergétiques connaissent des transformations qui affectent profondément la gouvernance urbaine et régionale, de même que l’évolution des régions en général. Nouvelles technologies, mécanismes régulateurs, styles de gestion, stratégies de marketing et priorités environnementales ont vu le jour, reconfigurant considérablement les modèles de gouvernance des villes et régions. Cette transformation est évidente dans la région métropolitaine de Berlin où la restructuration des services à la population coïncide avec une énorme crise fiscale de la municipalité. La privatisation de la distribution d’énergie et de nombreux services publics, l’ouverture des marchés régionaux de l’énergie, les initiatives publiques et privées de préservation du climat, ainsi que l’apparition de nouveaux acteurs sur les marchés ont affecté radicalement les conditions de la gouvernance régionale et la planification énergétique. Toutefois, malgré une large refonte des enjeux politiques et des formes traditionnelles de gouvernance dans le secteur énergétique, la gestion de l’énergie à Berlin est confrontée à de graves problèmes institutionnels de coordination entre politiques et de coopération régionale, de gouvernance de type entrepreneurial et d’administration des marchés. C’est pourquoi cet article préconise à la fois de nouvelles approches de politique publique et des réformes institutionnelles pour configurer l’aménagement des réseaux énergétiques en fonction des besoins en durabilité locaux et régionaux.

Introduction: urban and regional governance and energy infrastructures

Utility networks — such as energy, water, sanitation, transport and telecommunication systems — support the economic, social and environmental performance of cities and regions. They are the basic infrastructure grids that provide the fundamental conduits through which modern cities and regions operate (Marvin et al., 1999: 93). Among the most important utility sectors are electricity, gas and district heating networks. These energy networks are the prerequisite for urban and regional sustainability in three ways. Firstly, energy infrastructures have become increasingly critical for the functioning of nearly all production, services and infrastructure sectors, as well as for politics, public health and even individual social practices. The spectacular power blackouts in North America and Europe have dramatically demonstrated that failure of these systems is one of the most important vulnerabilities of modern societies. Secondly, energy systems occupy a key role in the performance of urban and regional economies: energy utilities have long been among the largest regionally based companies, employers and landowners, launching major capital investment programs for a city or region (cf. Marvin et al., 1999: 108f). The type of infrastructure network, the quality of service provided and tariff levels have major implications for the performance of local economies. Moreover, energy utilities have often established regionally based R&D facilities and have traditionally been major purchasers and promoters of technologies and skills in a regional context (ibid.) Thirdly, energy systems structure a major part of the urban material metabolism. They are among the most important ‘material mediators between nature and the city’ (Kaika and Swyngedouw, 2000: 120). Apart from the air, water and soil pollution and nuclear risks involved, energy systems are the largest emitters of greenhouse gases. They therefore represent key sectors for climate protection and the whole ecological modernization of societies.

Over the last two decades the institutional structures of energy systems have been changing radically worldwide. In Germany, there are three co-evolving trends that are dramatically altering the regional and urban governance of energy systems.

Firstly, the provision of energy services by the state (or in close association with the state) and the organization of energy systems in regional monopolies are no longer regarded as indispensable. As a consequence of the poor performance of public monopolies — their lack of productive efficiency, their failure to identify consumer demands, and their inertia in socio-technological innovation — and driven by the influence of neoliberal ideas, the European Commission has been initiating the competitive restructuring of the energy markets (cf. Héritier, 2002). Moreover, the German Federal state and the Bundesländer (the regional state authorities) have sold their shares in energy utilities and numerous municipal utilities have been, or are being, privatized (see Monstadt, 2004; Trapp, 2006). The liberalization and privatization have diminished the control of the Bundesländer and municipalities over the prices, investments and corporate policies of the utilities.

Secondly, environmental policies, especially climate policies, have accelerated the ecological modernization of energy systems in Germany and have created new market niches for ‘green’ energy industries. Climate protection has become an overarching policy priority and a host of new interventions have been developed (cf. Monstadt, 2004; Bulkeley and Betsill, 2003). In this institutionalization process all the German Bundesländer and many municipalities have installed specialized administrative jurisdictions for climate policy and have launched regional climate programs to promote energy efficiency and renewable energies (cf. Bulkeley and Kern, 2004; BMU, 2005; Kern et al., 2005).

Thirdly, innovative technologies of power generation, system control and energy end-use have become competitive. The existing centralized supply structure is gradually being supplemented by decentralized systems of heat and power generation, network supply and energy storage (Monstadt, 2003). These co-evolving transformation processes have led to new market structures, essential changes in the framework for innovation and in the functions and institutional structures of state involvement. Considering the cumulative effects of these developments for both the supply and the demand sides, it is not exaggerated to diagnose a ‘new logic of infrastructure provision’ (Marvin and Guy, 1997: 2027) and a ‘paradigm shift in energy policy’ (Helm, 2005: 14). These developments are having a major impact on the planning, supervisory and provider functions of local and regional authorities in Germany.

Despite their significance for urban and regional sustainability the utility sectors have attracted little attention in the debate on urban and regional policy and planning in Germany and elsewhere. As Marvin et al. (1999: 93) point out, in the debates on urban and regional development and regional infrastructure policy, the delivery of utility services still seems to be taken for granted and to be left to engineers, network operators and (supra-)national utility regulators (see also Hommels, 2005: 325). Consequently, there has been little research on the urban and regional impacts of utility restructuring and the changing environment for urban and regional governance. This is surprising since the supply of network-based services has traditionally been a major responsibility of local and regional governments, and therefore an indicator of their capacity to implement public policies (Coutard et al., 2005: 11f) The German municipalities and Bundesländer in particular have traditionally played a key role, not only in the regulation and provision of utility services, but also in the promotion of socio-technical innovations in the energy sector. However, the transformation of utilities policies at the subnational level has, paradoxically, mostly been ignored in the German debate on the governance of the utility sectors (cf. Sturm et al., 2002; Eberlein and Grande, 2005; Coen and Héritier, 2006). Most social science research has focused on regulatory issues at a national or European level that surround the liberalization of utility markets and the privatization of public utilities, or on efficient environmental policy instruments and institutions at the national, European or global level. Although new challenges to multi-level governance are stressed in the scientific debate, the transformation of local and regional governance has until now remained underexposed. Only in the UK, and to some extent also in France, has research already been done on the interplay between utility restructuring and regional and urban development (Marvin et al., 1999; Offner, 2000; Graham and Marvin, 2001; Guy et al. 2001; Coutard, 2002). The hypotheses presented there, however, focus on the aggravation of spatial disparities and not so much on governance issues. Moreover, the research theses cannot be applied directly to the specific conditions of policy-making in a federal system like the German one, where local and regional authorities have an important role in energy governance.

The objective of this article is thus to analyse the regional impacts of this transformation process and to assess the evolving forms of regional governance of energy systems. The question is: how does the restructuring affect the functions of regional energy and climate policies? Does this process indicate a discharge of public duties, or rather a transformation of the regulatory functions and institutional structures at the local or regional policy level? In what ways can local and regional authorities still affect the patterns of energy provision and consumption in a sustainable way? These questions are addressed in an empirical case study of energy restructuring in Berlin. The reasons for this case selection are threefold. Firstly, the dynamics of competition are generally higher in city regions like Berlin, as many energy companies focus their commercial activities spatially on lucrative regions characterized by a high density of demand (cf. Graham and Marvin, 2001). Secondly, cities are not only the major pollutants and emitters of greenhouse gases but are also the centres of innovation (Cooke et al., 2002; Coutard et al. 2005: 10) and environmental solutions. Due to agglomeration advantages like the high density of R&D institutions, the proximity to governmental functions in the German capital and an easier access to information flows and international networks, Berlin has privileged locational factors for innovative companies. This is particularly true as the city of Berlin enjoys the status of a Bundesland, with corresponding governance resources that other cities do not have. Thirdly, Berlin has taken over the leading role among the German federal states and cities in the privatization of former public utilities and in the delegation of public services to private companies. These privatization policies have compounded commercialization and the establishment of new market participants in the energy sector.

The case study starts with a description of the situation until the mid-1990s. Since then, the restructuring of energy systems and the dramatic fiscal crisis of the city have altered the governance structures. New policy approaches to shape the development of energy networks according to local and regional sustainability needs have been argued for. Consequently the urban and regional governance of energy systems is challenged by new institutional problems of inter-policy coordination, cooperation in a regional context and private sector involvement.

The status quo pre-1989 and the early restructuring of energy systems in Berlin

Until the beginning of the 1990s, energy supply in Berlin was shaped by the particular geographical and political situation of the divided city. The electricity, gas and district heating networks were split at the end of the 1940s and the city’s electricity and gas utilities Bewag and GASAG were each spatially divided into independent utilities. The electricity and gas networks in the western part of the city were separated from the national grids and energy demand was met in a semi-autonomous system on the basis of inner-city power plants and city gas (produced from coal). In East Berlin electricity and gas supply and district heating were controlled by a single integrated state utility, the Energiekombinat Berlin. The resource basis consisted above all of brown coal for heat and power generation (and individual heating), and the efficiency of power generation and energy end-use was extremely low.

In West Berlin it was primarily the responsibility of the Senate Department for the Economy to guarantee security of supply by controlling the prices and investments of Bewag and GASAG. Beyond these formal regulatory competencies the department had ownership supervision over the public utilities. However, the political influence derived from these regulatory and ownership competencies should not be overestimated. The close relationships allowed the exploitation of the utilities for political objectives to a certain extent, but in return the Senate had to accept inflated energy prices. The utilities supported the structural and energy policies by their regional investments, by employing an upsized workforce and by expanding combined heat and power generation (CHP) and district heating. But they defied political attempts to promote demand-side management, renewable energies and decentralized CHP.

While an efficient environmental policy in the energy sector tended to be absent in Eastern Germany, and the energy system was one of the most polluting worldwide (cf. Mez et al., 1992), in West Berlin a systematic clean air policy has been institutionalized since the 1970s. However, until the 1990s the activities of environmental policy remained largely limited to the implementation of the emission standards of the Federal Emission Control Act. The Senate environmental department could hardly influence the efficiency and sustainability of energy supply, except by financial support programs and subsidies promoting decentralized CHP, renewable energy technologies and energy efficiency.

In 1989 the restructuring of the established energy system began, owing to the change of government in West Berlin, where a red-green coalition was installed with the mission statement of ecological urban restructuring. Consequently, the competencies of environmental policy in the energy sector were significantly extended, not least in view of global warming and the rise of climate politics at the national and international level. An Energy Task Force was established within the environmental department in order to promote more efficient power plants, to increase the share of renewable energy resources and to enhance demand-side management. The Task Force was commissioned to establish comprehensive plans at regular intervals and to coordinate energy-related policies. The Berlin Energy Agency was set up as a consultant, promoter and manager of projects in energy contracting, sustainable buildings, innovative energy technologies, etc. Furthermore, an energy law was adopted defining an institutional framework for energy planning.

At the beginning of the 1990s the political priorities for ecological modernization were increasingly swamped by new requirements due to the fall of the Berlin Wall in 1989 and the subsequent reunification of the divided city. Thus, prerequisites had to be created to reunite the two institutionally and technically completely divided energy supply systems of the city. The technical assets in East Berlin, especially the power plants and leaking gas networks, had to be renovated or replaced; the integration of the Energiekombinat into Bewag and GASAG had to be organized; and a comprehensive energy concept had to be developed for the entire city. For East Berlin the challenge was to introduce private economy structures, environmental regulations, new tariff and account systems and western reliability and safety standards.

During the subsequent years an energy programme was developed to reconcile the integration and restoration of the energy infrastructures in the reunified city with the initiatives for ecological modernization. In 1994 the Energiekonzept Berlin was passed by the Senate targeting a 25% reduction in CO2 emissions by 2010. The strategies defined in this programme were to be realized particularly by extensive subsidies and economic activities by the city government. Altogether the energy programme budgeted for public investments amounting to € 110m per annum to support a broad range of measures for the promotion of climate protection, energy efficiency and innovative technologies. One year later the Senate resolved to commit Bewag to pay fixed, cost-covering prices for solar electricity and to launch a Solar Energy Act creating obligations for the installation of solar thermal collectors for household and office use.

The transition of Berlin’s energy system

Until the middle of the 1990s energy policy in Berlin was based essentially on two main pillars: first, a close ownership relationship and corporative arrangements between the city government and the regional monopolists; and, second, generous public subsidies for the ecological modernization of energy infrastructures. Moreover, the Senate formally had the power to regulate the utilities’ energy investments and prices. But although the strict regulation of investments and the corporate policies in line with environmental policy issues was announced several times by the Senate, it was never, in fact, put into practice.

A radical change started from the mid-1990s. Since then traditional forms of governance by the ‘positive state’ in the energy sector — characterized by distributive policies and a very active economic role by the city government in energy management, climate protection and the provision of public services — have been dismantled.1 The reason for this change in regional governance is threefold: Firstly, the city government launched an extensive privatization initiative. Secondly, the regional energy sector experienced a fundamental restructuring in the course of the liberalization of European energy markets. Thirdly, improved market conditions opened up new possibilities for innovative small and medium sized enterprises (SMEs).

The fiscal crisis and the privatization of utilities and public services

Due to the general euphoria of the post-wall-fall era and the accelerated growth in Berlin at the beginning of the 1990s, urban and infrastructure planning were based on the assumption of stable economic and demographic growth and steady inland revenue for the city-state. However, the great hope of becoming a major ‘service metropolis’ and headquarter city had to give way to broad disillusionment at the latest by the mid-1990s (Krätke, 2004: 513). From 1991 to 2001, Berlin’s traditional industries lost 58% of the former industrial workforce; the parallel increase in ‘service sector’ jobs could in no way compensate for this (ibid.: 512). The tremendous loss of jobs caused a dramatic decrease in inland revenue, which coincided with a radical cutback in the Berlin-specific subsidies from the Federal government.

It became increasingly apparent that the financial collapse of the city-state could only be avoided by a hard shift in fiscal policy. Consequently, from the mid-1990s onwards, public spending was radically curtailed. It became one of the dominant policy objectives to reduce the economic activities of the city-state and the range of public shareholdings in the regional economy. The policy shift towards privatization started with the sale of the majority public shareholding in Bewag in 1997 and in GASAG in 1998 to consortiums of transnational energy concerns. The fiscal policy shift also covered the partial privatization of the city’s water utility, the privatization of land, buildings and public housing enterprises, etc. In the years 1997 to 2000 the privatization revenues in Berlin amounted to € 7.2b (Berlin Finance Senator Kurth in Abgh.-Drs. 14/17: 928). Even though it was very controversial to use the entire privatization revenues for debt service and budget consolidation, the advocates of a public innovation and environmental fund, to be financed by a part of those revenues, were not successful. Only € 20m of the revenues were reinvested in a regional innovation fund.

In order to provide for public interests the purchasers of Bewag and GASAG were bound to contractual agreements stipulating regional investments and standards of public services and environmental protection. For example, they committed themselves to keep the utilities’ headquarters in Berlin, to guarantee a certain level of employment and to invest in a regional centre for telecommunication and other ventures in Berlin. Further, they agreed to finance projects in the field of renewable energies and the efficient use of energy. However, the Senate has never evaluated the performance of the privatization contracts systematically and the promises of regional investments, job creation and the promotion of environmental projects have only partially been fulfilled (cf. Monstadt, 2004: 328–36).

Aside from the sale of public utilities, the shift in fiscal policy increasingly affected the implementation of the energy concept and the public funding of energy and environmental projects. Wherever it seemed possible, administrative activities were delegated to the private sector and public funding was reduced in favour of the activation of private investments. Accordingly, the regulatory measures to promote solar energy in Berlin were revised in the light of the high costs to the regional economy and especially to the public budget. Instead of committing Bewag to pay cost-covering prices for solar electricity, or legally obliging building owners to install solar thermal collectors, the Senate concluded voluntary agreements with Bewag and the regional housing industry. A cooperation contract between Bewag and the Senate pledged the initiation of a regional support program for green electricity by the utility with private investments of € 20.5m. Furthermore, voluntary agreements between the housing industry and the Senate of Berlin stipulated financial and institutional support for solar thermal energy and for the efficient use of energy. However, the success of these voluntary agreements was controversial as they failed to achieve the quantitative contractual targets for the promotion of solar technologies and energy efficiency.

Another main element was the abandonment of an administrative energy-saving system announced in the 1994 energy concept, which was intended to overcome the typical barriers to profitable energy efficiency management in public buildings (e.g. cameralistic accountancy, information gaps, transaction costs; see Monstadt, 2004: 142). Instead, a large-scale energy-performance-contracting project, the Berlin Energy Efficiency Partnership, was initiated. Between 1995 and 2005 the energy management of about 500 public buildings was assigned to private contractors. It is the responsibility of these Energy Efficiency Partners to provide technical know-how, to ensure that adequate investments are made in the buildings and thus to guarantee the energy savings. The remuneration of the energy service companies is directly tied to the energy savings achieved. As a result of this private initiative, € 40.4m have already been invested in energy-saving measures. The guaranteed cost savings to the Land of Berlin amounted to approx. € 2.4m per annum by the year 2004 (cf. http://www.berliner-e-agentur.de). Additionally, in 1999 the Senate took the initiative to contract out energy data management and energy purchase on liberalized markets. A private energy service company was assigned to develop a professional energy database of the 6,000 public buildings in Berlin. By bundling public energy purchases it was possible to use the market power of the Land Berlin for discounts and for ecological standards and to call internationally for tenders for the energy supply.

Recapitulating these processes of privatization and outsourcing, the city government is gradually withdrawing from its involvement in the production and financing of energy services and socio-technical innovation in favour of private forms of service provision. Increasingly, public services in energy management, regional marketing, technology policy, etc. have been delegated to the private sector. The quality of public services, the promotion of energy technologies and the ecological modernization of energy systems were intended to be ensured by public-private contracts, by voluntary agreements, etc. In several cases, however, the private actors did not comply with these agreements without being penalized or at least being committed to compensating measures. At the time of writing, systematic control of private sector performance has still not been institutionalized.

The opening of the regional energy market and the restructuring of the utilities

As a consequence of the liberalization of European energy markets, the institutional setting in the regional energy sector has been altered radically and Bewag and — to a minor degree — GASAG have redefined their business priorities and practices: both utility companies have been encouraged by the new competitive pressures to increase the profitability of their business activities (for details see Monstadt and Schlippenbach, 2005: 33–44). Efficiency potentials were especially envisaged in staff cuts: between 1996 and 2004 the Bewag’s workforce was cut by 56% and that of GASAG by more than 70%. Additionally, Bewag has begun to reduce dramatically its own regional investments in technical assets, in regionally based R&D facilities and in environmental protection. While Bewag invested on average € 425m per annum in technical assets between 1993 and 1997, the investments were continuously reduced to € 64m in 2003/2004. Parallel to this, its corporate expenses for environmental protection, for corporate R&D activities and for energy and environmental services for private households were curtailed. The decrease in investments was nearly as severe in the growth market of gas supply. Although GASAG extended the gas network for the supply of new customers, intensified its activities in heat sales and developed a network of compressed natural gas filling stations in Berlin, its overall investments have declined since the second half of the 1990s from € 116m in 1995 to € 24m in 2004.

The restructuring of Bewag was accelerated considerably in 2001, when its new private shareholders resold their shares. The purchaser, the Swedish state-owned energy concern Vattenfall, which had previously taken over the two largest East German energy companies and Hamburg’s energy utility, founded Vattenfall Europe. The concern operates along the entire value chain in the energy sector and became one of the top three energy utilities in Germany. Bewag was fully integrated into the new concern and had to give up its autonomy. Besides the activities of the holding company, only the operational business of the former Bewag is still managed in Berlin. The strategic management, however, is organized in the different business units (mining and generation, heat, transmission, distribution, sales), which are located in Hamburg, Saxony and Brandenburg. Furthermore, important decisions concerning corporate policy are taken at the Swedish headquarters. In contrast to this, GASAG concentrated its business activities on the regional market and consolidated its market position by taking over municipal utilities in neighbouring supply areas in Brandenburg.

The liberalization of energy markets and the takeover of Bewag have significantly altered the conditions for urban and regional governance. It is not only the fact that various supraregional utilities and new market participants are offering their services in Berlin that can hardly be affected by the Berlin Senate. Also, the former regulatory control of infrastructure investments and energy prices has been abolished or at least diminished. Urban and regional policies have to cope with utilities rethinking their corporate strategies, making full use of the scope for rationalization, and reassessing their infrastructure investments according to profitability. The former public utilities are becoming less attached to their traditional economic territories. Especially in the electricity sector, the economic radius of the utility has been extended to the whole northeast German region. Consequently, the close relationship between the Berlin Senate and Bewag has been loosening significantly. Since 2003 the Senate has even terminated the supply contract with Vattenfall Europe and supraregional companies now supply the public buildings in Berlin. Decision-making on the corporate policy and the investments of Vattenfall Europe are increasingly beyond the territorial power of the Berlin Senate. In contrast to this, GASAG continues to be a regionally embedded company with a strong interest in regional business development. Due to congruent commercial and political interests — the extension of the gas networks — the cooperation between the Senate and the utility was even intensified to develop decentralized CHP stations etc.

New environmental policies and market niches for ‘ecopreneurs’

One of the main characteristics of the regional energy market had long been the monopoly of Bewag and GASAG in all business areas. Thus, the success of regional environmental policies in the energy sector was primarily dependent on the compliance and intrinsic motivation of these two monopolists. The problem was that they showed considerable inertia in opening up new markets for energy efficiency services, for the decentralized generation of electricity and heating, and for environmental technologies. In many cases political initiatives for ecological modernization failed because of the economic interests of the utilities and their limited governability by the regional supervisory authorities.

Due to the innovational lethargy of the regional utilities and the inefficiency of the traditional regulatory system, environmental policy in Berlin has increasingly focused on the promotion of innovative SMEs specializing in the production and use of environmental technologies, in the ecological supply of electricity and heating, and in environmental services. These ‘ecopreneurs’ (Schaper 2002) have become indispensable promoters of industrial transformation and an ambitious climate policy. Initially, the public promotion of green energy markets consisted of R&D programmes, loan/funding schemes and job creation schemes. In the course of the budget crisis this public funding was drastically cut down. However, thanks not only to the climate policy reforms at the national and European level2 and the increasing demand for, and competitiveness of, innovative energy technologies and services, but also to the professionalization of the ecopreneurs, the latter have succeeded in tapping new markets and increasing their turnovers and employment levels significantly. Ecopreneurship in the Berlin energy sector is concentrated above all in the CHP, solar and energy services industry (cf. Monstadt, 2004: 363–90; Senat von Berlin, 2003).

Since the 1980s several SMEs in the field of CHP have established themselves in Berlin. Due to the dense settlement structure, the locational factors in Berlin are favourable for these companies. Similarly, owing to the fiscal crisis, the regional promotion of CHP shifted from the subsidization of individual projects and companies towards the definition of urban planning regulations for the extension of CHP supply in development areas and the development of quality standards for the outsourcing of decentralized CHP generation in housing estates. However, the regional CHP market came under pressure due to the liberalization of energy markets. Since then, the extension of decentralized CHP has largely come to a standstill. The further growth of the regional CHP industry has been limited to individual projects in installation contracting and the extension of micro CHP, which profit from a special bonus for electricity fed into the grid defined by national energy legislation for the promotion of CHP in 2002.

The mix of regional and national promotion programmes with the Renewable Energy Acts of 2000 and 2004 have noticeably stimulated the growth of the renewable energy industry in Germany.3 Among renewables, the unexploited roof and facade surfaces in Berlin offer a huge potential for the use of photovoltaic and solar thermal collectors and thus ideal conditions for the retail trade, for installation, for solar architecture and for technology-related services. Additionally, the high density of universities, research institutes and knowledge-transfer organizations in the field of solar research creates an optimal environment for R&D activities and spin-off companies. Since the mid-1990s, energy policy in Berlin has been shifting towards principally cost-neutral instruments, such as voluntary agreements with the utilities and the housing industry to stimulate the demand for solar technologies. More recently, the Senate defined a solar electricity quota for the supply of public buildings, concluded a supply contract with a green electricity trader, and offered the roofs of public buildings free of charge to investors in solar collectors. Accordingly, the photovoltaic and solar thermal collector surface grew rapidly (cf. http://www.solarkataster.de) accompanied by positive effects on regional turnovers, employment rates and the number of companies in the solar industry (see Monstadt, 2004: 348). Furthermore, the political support for a dialogue forum for solar technologies and the funding of technology parks and a regional competence centre for sustainable energies should provide for improved cooperation between research and commercial practice and for a better self-organization of both R&D activities and ecopreneurship. As a result, several factories for solar technologies are located in Berlin. However, despite the locational advantages for the solar industry in Berlin and the growth rates, the number of installed solar thermal and photovoltaic collectors is still below average compared to other German cities. Furthermore, Berlin has been unable to attract investment in production facilities for solar technology to the same extent as many other German regions.

In the energy services industry both turnovers and workforces have increased significantly during the last decade.4 The main driver for this growth has been the massive budgetary crisis in Berlin and the outstanding costs of the energy supply of public buildings. In order to guarantee investments in energy savings the Senate delegated the energy management of public buildings to private companies. The Senate, together with leading energy service companies, developed practical guidelines, specimen contracts and quality standards for the outsourcing of energy services. This standardization made it easier to attract other customer groups in Berlin, e.g. industrial enterprises, housing associations etc. Additionally, the Senate delegated marketing and informational services to private service companies, which organize regional business dialogues, energy newsletters etc. on its behalf. In sum, the energy services market has developed progressively during the last decade and is characterized by the competition of matured companies, a considerable functional differentiation, an increasing standardization of services and a growing market transparency for customers. Especially in the field of energy services for public buildings, Berlin has become a market leader in a national and European context.

The growing economic and ecological importance of ecopreneurs has challenged traditional forms of governance in Berlin. The rise of the ecopreneurs indicates a step towards private self-regulation in climate protection and technological innovation. The ecopreneurs offer a creativity potential for the diffusion of new technologies and for opening up regional markets for energy efficiency and renewable energies. Nevertheless, the growth of green energy markets still requires considerable public support in order to optimize the locational factors and to stimulate the demand for sustainable energy products, technologies and services. In view of shrinking public funding resources, the priorities of environmental policy have shifted towards regional marketing, the development of quality standards for potential customers and the promotion of regional networks for information, cooperation and communication.

The decline of traditional forms of urban and regional governance

The analysis of evolving forms of governance in Berlin indicates that local and regional governments are less and less able to claim to regulate all the relevant economic and social relationships in the energy sector within their territories. Reinforced by the current processes of liberalization and privatization, the ambition of territorial sovereignty is increasingly undermined (cf. Offner, 2000: 177).5 The reasons for this are threefold. Firstly, the former regulatory functions of the German Bundesländer in the control of infrastructure investments and energy prices have been abolished or at least diminished. Also, the regulatory influence of public ownership is decreasing. This is not only because many public utilities have been privatized during the last decade. Even the remaining municipal utilities are under pressure for a competitive restructuring and can only consider those local and regional policy issues that are compatible with their commercial interests (cf. Edeling et al. 2004). Moreover, the utilities are increasing their activities beyond the territorial scope of local and regional political power. Secondly, the operational functions of the Bundesländer and municipalities in the provision of energy services are declining and the close ownership relationships between public authorities and the utilities are eroding. In the majority of cases they no longer directly operate energy utilities, nor do they have a stake in green energy suppliers or provide energy services themselves. Instead, most of the operational functions are delegated to the private sector. Thirdly, German local and regional governments can no longer accomplish extensive financing functions for the provision of energy services and for the ecological modernization of energy systems. Due to the severe fiscal crisis of all Bundesländer and many municipalities, energy policy is increasingly dependent on the activation of private capital.

As a result of these limitations the public tasks and control practices of regional and local energy policies have to be reconsidered and redefined. One of the main consequences is that under the new framework of privatized and liberalized utility markets crucial regulatory functions have shifted to the national or European policy level. On liberalized energy markets regional and local policies can at best make a marginal contribution to the regulation of economic efficiency and the security of supply. Nowadays regulatory bodies at the national and European policy level share the responsibility for the efficient functioning of energy markets. This ‘market-making regulation’ includes setting and implementing principles and market rules, supervising company mergers and takeovers and ensuring discrimination-free access to the energy networks. Besides, it is — particularly on liberalized energy markets — beyond question that the regulation of climate protection vitally depends on ‘market-correcting regulations’ by national and supranational policy, especially by market-based instruments like emission-trading systems, eco-taxes etc. and by legislation in favour of renewable energies and energy efficiency.

Emerging policy issues and the transition to urban governance of energy systems

Despite the decline of the traditional regulatory regime, the current transition does not invalidate reflection on the urban and regional governance of energy systems. Although the transition of energy systems is an important source of difficulties in governability, their regulation — under new forms — is essential for urban and regional sustainability (cf. Offner, 2000: 177). The argument is that within the multi-level system of energy-related policies the regional and urban level still has an indispensable function, as the conditions for enhancing socio-technological innovation cannot be planned and implemented solely by the nation state or the EU. Since processes of economic restructuring and innovation vary from region to region, decentralized policies are more suited to activating and developing endogenous potentials than policies at other levels (cf. Benz et al., 2000; Heeg, 2001). Their task is not so much to influence markets by means of prices or legislation but to compensate for gaps in national and European regulation, to facilitate compliance with regulations and to take adequate account of local specificities, problems and endogenous innovation potentials as well as to combine solutions to environmental problems with economic benefits (cf. Monstadt, 2004). Here, urban and regional energy policies may constitute excellent governance tools for territories and to do so, public authorities possess a great many levers which remain intact (cf. Offner, 2000: 177). The case study indicates four main issues of regional and urban governance that might also be relevant for other city regions in Germany and beyond (cf. also Table 1).

Table 1.  The transition of urban and regional governance in the energy sector
 Traditional Modes of GovernanceEmerging Modes of Governance
Public influence on urban/regional utility companies• Control of prices and investments by regulatory authorities of the Bundesländer
• Ownership control of the corporate policies of the utilities
• Coordination in closely coupled networks of public regulators/owners and utilities
• Developing a dialogue on common interests and conducting negotiations
• Developing common public-private initiatives and regional projects
• Fluid, project-oriented forms of cooperation
Provision of relevant energy services• Public provision of energy services
• Public subsidies
• Private provision of energy services
• Contractual management
• Public supervision of private achievements
Promotion of socio-technical innovations• Regulatory/ownership influence on the innovation activities of the utilities
• Loan/funding schemes for ecopreneurs and for (R&D) projects, incentive programs
• Development of locational factors and economic support infrastructures for ecopreneurs
• Promotion of regional innovation networks, regional marketing
• Development of quality standards for new energy services
Energy management in public buildings• Fragmented organization of energy supply in each administrative body
• No professional energy efficiency management
• Professionalization of public energy purchase, data and efficiency management
• Use of consumer power for discounts and the enforcement of ecological standards
Regional policy approach• Far-reaching regulatory, operational and financing functions of public authorities• Coordination of private service provision (promotion of self-regulation, supervision of private sector outcomes, policy moderation)

Firstly, even in liberalized and privatized markets the former regional energy monopolists continue to play a crucial strategic role for the development of cities and regions. These utilities have privileged power, financial resources, information, knowledge and skills to influence economic growth, socio-technical innovation and ecological modernization. In the case of Berlin, these influences have not yet been widely exploited and are poorly linked to public debates about the future of urban and regional governance. Up to now only the commercial interests of GASAG in extending the gas and heating networks have been linked to wider economic and environmental policy issues and only here have joint public-private initiatives been taken. In contrast, Vattenfall Europe is virtually no longer involved in the regional policy network, and the dialogue between the Senate and the utility has nearly come to a standstill. Neither have the voluntary agreements been evaluated systematically and renewed according to new regional demands, nor have new regional development initiatives been taken in collaboration with the utility. In contrast to these developments Marvin et al. (1999: 154) point out that ‘local policy makers and planners . . . must open up negotiations with utilities and their regulators to untangle the specific social, economic and environmental implications of competitive service provision. . . . Policy makers and planners must learn how, in collaboration with utility companies, they can mutually shape and reinforce particular network management strategies which are likely to capture benefits for the region’. In order to appreciate the importance of utility services to sustainable urban and regional development, the organization of policy dialogues and negotiations with the utilities on regional investment and the initiation of public-private projects are increasingly important issues for energy governance in Berlin.

A second issue relates to the delegation of public tasks to the private sector, be it through voluntary and contractual agreements, by means of tendering procedures or via different forms of public-private partnerships. Due to limited financial and administrative resources, policy-makers in Berlin increasingly depend on private sector participation for the promotion of renewable energies, energy management of public buildings, technology transfer, regional marketing, etc. The case study shows that the delegation of public tasks to the private sector is partially misunderstood as a discharge of public duties. In contrast to this, studies conducted on the different forms of private sector participation prove that the shift from public to private service provision brings about new regulatory tasks for a professional contractual management and for the evaluation and supervision of private sector performance by public authorities. Requirements vary here, depending on whether it is a case of outsourcing state and local government services (O’Looney, 1998), of energy service contracting (Sorrell, 2007), of voluntary agreements (Rennings et al., 1998) or of long-term private sector participation contracts (Rothenberger and Truffer, 2003). As these specific requirements have mostly been neglected in Berlin, the performance of voluntary agreements, outsourcing strategies and public-private partnerships is still suboptimal. In order to deal better with these problems of energy policy, the objectives and quality standards of private sector performance have to be defined more exactly and be legally binding, the achievements have to be monitored and evaluated more systematically and — if the private initiatives fail — regulatory countermeasures or penalties have to be taken more reliably.

Thirdly, a main task for regional and urban policy-makers is to professionalize the promotion of new market participants in the field of renewable energies, energy services and innovative technologies. The opening up of these economic markets is not only important for successful environmental policy, but is also gaining in importance for the quality of infrastructure services and as a factor in interregional competition. Even though these ecopreneurs have thus far only been able to tap niche markets in Berlin, their contribution to environmental innovation and their growing turnovers and employment levels demonstrate considerable potential. In Berlin, the environmental department in particular has been attempting to improve the locational factors for ecopreneurs by establishing economic support infrastructures, promoting regional innovation networks, developing quality standards, supplying information and training, and by regional marketing. Despite this positive development, government support for ecopreneurs and the opening up of new technology and service markets in Berlin is still perceived to be solely the responsibility of environmental policy. So far, their promotion has been little integrated into economic and structural policies and into other policy fields. Moreover, energy, technology and structural policies are still not coordinated between the Senate of Berlin and the government of the surrounding Bundesland Brandenburg. In contrast to this, the improvement of locational factors for ecopreneurs requires an integrated regional strategy overarching several policy sectors and territorial borders.

Fourthly, the liberalization of energy markets and the development of energy service markets have opened up new windows for optimizing energy efficiency and purchase management in the public sector. In Berlin the diffusion of innovative contracting models was driven by the budgetary crisis and has contributed to higher energy efficiency in public buildings, to a reduction of energy costs and greenhouse gas emissions and thus to the location of innovative energy service companies. However, the Energy Efficiency Partnership could not meet earlier expectations and the policy target to contract out energy management of 30% of the public buildings by 2002 could not be reached. Thus, the further development of practical guidelines, specimen contracts and quality standards for the outsourcing of energy services seems to be necessary to professionalize and to diffuse energy contracting. Similarly, the centralization of public energy data and purchase management needs further improvement. Although its professionalization has allowed considerable discounts and the definition of ecological standards, the market power of the city could be better exploited as a public resource for negotiations with the regional utilities on environmental commitments and on regional investments.

If the changing issues of urban and regional governance are seen together, public authorities in Berlin and in many German cities and regions are confronted with new tasks in the governance of energy systems, which so far have at best been met partially. Due to the erosion of their regulatory power and their operational and financial functions, the scope for traditional forms of intervention and public service provision is circumscribed. In order to meet the climate and public service goals of cities and regions in a liberalized and privatized environment, public authorities have to probe new forms of governance. Their challenge is more and more to shape private infrastructure provision through increased cooperative, contractual and market-oriented forms of governance. Structural policies for the promotion of innovation and business development and of improved regional locational factors for ecopreneurs play a role here, as does the supervision of the outcomes of private-sector participation, the negotiation of voluntary and contractual agreements and the warranty of compliance with them.

Challenges for the recasting of energy policy and the planning regime

The case study demonstrates that although substantial recasting of policy issues and traditional forms of urban governance in the energy sector is underway, public authorities are confronted with severe coordination problems. The more urban and regional energy policy moves away from the traditional regulatory and public ownership model, in which energy planning took place almost bilaterally between the single supervisory authority and the regional monopolist, and the more shifts take place towards tackling energy problems in an integrated manner across different policy fields and territorial boundaries and in cooperation with numerous private actors, the more institutional problems of policy-making are likely to appear.

One of the main problems is that the need for policy integration has increased considerably, since the management of energy efficiency in numerous demand sectors and the promotion of a renewable and more efficient energy supply have become overarching policy priorities. Correlating with this need to integrate energy and climate policy issues into other policy fields, new problems of horizontal coordination have become apparent in Berlin. Even if the formal competencies for energy planning are with the Energy Task Force in the Environmental Department, the main institutional resources to implement the issues of sustainable energy management are compartmentalized in different departments such as economic policy, financial policy, housing and building policy, research policy, etc. These policy fields have in many cases competing objectives to, and different priorities from, energy and climate policy and they compete for power rather than cooperate to tackle energy and climate policy issues. For example, the promotion of ecopreneurs is still perceived to be exclusively the responsibility of environmental policy. It is not yet closely linked to policy initiatives for regional business development, for the promotion of R&D activities, for energy management in public buildings etc. Thus, the economic and ecological potentials of a comprehensive market development strategy have not been fully achieved so far. In order to perform such cross-sectoral energy and climate policy tasks more successfully in the future, institutional reforms become prerequisite. These reforms encompass an empowerment of energy planning authorities via the extension of their formal competencies and their financial and personal resources, but also the improvement of inter-policy coordination via the establishment of inter-ministerial working groups.

Secondly, the need for regional cooperation in energy policy across territorial boundaries has grown considerably during the last decade. On the one hand this is because the former public utility companies are operating beyond the territorial scope of the city government. Hence, political influence on the utilities’ policy could be exerted more efficiently if coordinated with the energy policy of the neighboring Land Brandenburg. On the other hand, structural policy strategies for the promotion of innovation and business development in the energy sector are more efficient if they are based on functional economic spaces in a regional context (cf. Benz et al., 2000; Heeg, 2001). Such new forms of regional governance can serve the further economic development and competitiveness of a region as well as supporting social and environmental innovation. However, energy and climate policies in Berlin and Brandenburg continue so far to be focused on their own respective territories, strictly separated from each other, and they scarcely reflect the economic and functional interdependencies in the region. The challenge is therefore to come to an agreement on common political aims and strategies via the establishment of inter-Länder coordinating bodies, and to expand the project-oriented cooperation of the two Länder in the promotion of socio-technological innovation.

Thirdly, the need for the mobilization of private initiatives and for public-private partnerships has increased significantly and the provision of public services has in many cases been delegated to the private sector. With respect to this, the Environmental Department in Berlin has extended its cooperation with ecopreneurs and their professional associations and has provided institutional support for their private self-organization in different ways. However, the continual improvement of regional locational conditions for ecopreneurs via the promotion of regional networks for information, cooperation and communication and the opening up of new markets via the development of quality standards and regional marketing strategies will continue to be key challenges for regional policy. Whereas these public-private partnerships with ecopreneurs, whose economic interests are highly compatible with energy and climate policy issues, have contributed to regional sustainability, it has rarely been possible to commit either the energy utilities or regional housing companies and other industries to economic and environmental policy objectives. Their compliance with voluntary agreements and other contractual arrangements could in many cases not be ensured, and the electricity utility in particular has been reluctant to contribute to regional energy projects. Apart from entrepreneurial governance arrangements between regional policy and ecopreneurs, institutional reforms are thus indispensable to commit those economic actors who do not profit economically from a higher level of climate protection to regional sustainability objectives. Here, the motivation of firms to show a greater regional commitment must be increased through policy dialogues, public-private partnerships and other cooperative arrangements, and the negotiation and monitoring of contracts must be distinctly professionalized. There are structural limits to the possibilities of regional politics here, however, and its performance is highly dependent on national and European regulations providing for economic incentives to invest in energy efficiency and renewable energies.

Recapitulating, the current transition of energy systems challenges regional and local authorities not only in terms of a redefinition of policy priorities and instruments but also in terms of new requirements for the reform of the urban energy policy and planning regime. Traditional institutions to provide for public services have become ineffective on liberalized or privatized energy markets or insufficient to comply with the new public responsibilities of climate protection. Thus, the recasting of energy policies requires a substantial institutional shift in the framework within which these policies are defined and coordinated across policy fields and territorial boundaries and within which private initiatives are activated and investments in climate protection and public service provision are made. However, the case study shows that, although some reforms of the urban planning regime are underway, the traditional public institutions for the regulation, operation and financing of energy systems could not easily be rendered into or replaced by new regulatory, planning and enabling institutions of inter-policy coordination and regional cooperation, entrepreneurial governance and contract management. Urban governance of energy systems in Berlin is characterized by what Hajer (2003: 175) terms an ‘institutional void’: a lack of generally accepted rules, procedural norms and organizational capacities guiding policy-making to protect the public interest.


We can conclude that the recent restructuring of energy systems radically changes the issues and institutional conditions of urban and regional governance. In this transformation process the traditional regulatory resources based on public ownership, the public provision of many energy services, and state control over the energy prices and infrastructure investments are eroding. However, the case study exposes that the plausible presumption that the roll-back of these traditional regulatory, operative and financing functions of public authorities is to be equated with a general loss of significance for urban and regional policy or with a discharge of public duties has proven premature and wrong. The empirical finding, substantiated for national and European politics by numerous authors (Majone, 1997; Héritier, 2002; Eberlein and Grande, 2005), that privatization and liberalization do not lead to deregulation in terms of rolling back public responsibilities, but frequently require the reform of state institutions and an increase of governmental activities also applies to the urban and regional policy level. What has changed are the main tasks of urban and regional policy and the way in which public responsibilities for energy supply are (or should be) exercised.

Thus, there are arguments in favour of the reconsideration and redefinition of urban and regional energy policies in order to shape the sustainable development of energy networks. Energy policy is increasingly challenged by new requirements like activating new regional investments and project initiatives in cooperation with the utilities, enforcing voluntary and contractual agreements, professionalizing the promotion of ecopreneurs and optimizing the energy management of public buildings. However, the problem is that owing to the fundamental transition of energy systems it is impossible to build on approved policy concepts, problem-solving techniques or established institutional solutions. Moreover, the institutional resources to shape a sustainable transformation of regional energy systems are distributed across a multitude of policy fields and private stakeholders, and across territorial boundaries. As a consequence, new and partially unresolved governance problems of inter-policy coordination, regional cooperation and of private sector participation in policy planning and implementation emerge. In apparent contradiction to the public discourse on ‘deregulation’, the current shift from the regulatory, operative and financing role of regional and local authorities towards new cooperative, market-oriented and enabling forms of governance entails considerable coordination costs. New institutional arrangements have to be set up that promote the growth of ecopreneurs, that coordinate and negotiate energy and climate policy issues with a multitude of public and private actors and that supervise the outcome of the private sector. At least in a transition period, where efficient policy approaches and institutional solutions have to be developed and tested, the transaction costs for regional and local governments are even rising.

These problems have to be tackled first of all at a regional level and call for new urban management strategies, for an intensified exchange of experience between public authorities and for more comparative research on urban and regional energy and climate policies, the analysis of best practices and the restrictions facing urban and regional policies. Besides, urban and regional policy-making problems are inadequately reflected by national and European regulation. Thus far there is no clear guidance from national or European government on the role of local and regional bodies (see also Fleming and Webber, 2004: 770). National regulations committing regional and local authorities to organize energy and climate programs on a regular basis, defining key issues and procedural minimum standards are still absent. But even if urban and regional energy and climate policies were consistently optimized in this sense, the structural limits to regional strategies would show themselves where the external costs are insufficiently internalized through national and European regulations and the market stimuli for sustainable energy investments are still inadequate.


  • 1

    The distinction between the ‘positive’ and the ‘regulatory’ state was introduced into the academic debate by Harold Seidman and Robert Gilmour (1986). The rise of a ‘regulatory state’, which was particularly identified at the European policy level (Majone, 1997; Eberlein and Grande, 2005), was seen as a fundamental change in the way the state conducts its business ‘by providing services without producing them’.

  • 2

    Those reforms include ecological taxes reform, a Renewable Energy Act, obligations to purchase specific non-carbon technologies, energy efficiency standards, emissions-trading schemes and subsidies.

  • 3

    In Germany in 2005 about 170,000 persons were employed in the renewable energy industry — about 100,000 more than in 1998. Its business volume reached about € 16.4b in 2005 (BMU, 2006: 19).

  • 4

    Energy services include a variety of activities such as energy analysis and audits, energy management, project design and implementation, maintenance and operation, monitoring and evaluation of savings, property management, and energy and equipment supply (see Bertoldi et al., 2006: 1821).

  • 5

    In fact, it was also impossible to realize this ambition in the traditional regulatory regime, which proved inefficient with regard to tackling exorbitant energy prices and fostering technological and institutional innovation, environmental protection and service orientation.