Germans on the brink of power price precipice

Soaring renewable energy costs set to stoke German energy debate
Financial Times
Chris Bryant (in Frankfurt)
15 October 2013

The cumulative total that German consumers have spent subsidising green energy is set to pass €100bn next year, a symbolic mark that could fuel further political debate about the country’s costly energy transition to renewables.

The rising cost of Germany’s energy transition from nuclear and fossil fuels to renewables is set be one of the top items on a new German government’s agenda.

Germany aims to raise the percentage of renewables in its electricity mix to 35 per cent by 2020 and 80 per cent by 2050 – from 23 per cent last year.

Germany’s four network operators revealed on Tuesday that the annual cost to support German renewable energy feed-in tariffs is set to rise to €23.6bn in 2014, from €20.4bn this year.

The surcharge added to German electricity bills to cover the cost of renewables is set to increase 18 per cent to a record high of 6.24 cents per kilowatt hour, the network operators said.

According to a Financial Times calculation the cost of subsidising feed-in tariffs under Germany’s EEG renewables law will therefore have increased to some €109bn since 2000, when the EEG law was introduced. The calculation is based on data provided by the BDEW association of energy and water industries.

Following Angela Merkel’s resounding election victory in September, any decision about the make-up of a future coalition could have a big impact on whether Germany decides to reform its renewable energy law. There is growing concern among Germans that solar and wind subsidies are raising German electricity costs, threatening industrial competitiveness and making life tougher for the working poor.

But Germans are embracing renewable energy far more quickly than policy makers envisaged. The infrastructure investment required to transport all this electricity has not been able to keep pace with this and there is a debate about whether Germany is incentivising renewable energy in the most efficient way.

The present scheme provides consumers with fixed payments for the power they generate via solar panels on their homes over a 20 year period.

The EEG renewable energy levy represents the difference between the market price of the electricity produced and the tariffs promised to generators of renewable electricity. The recent decline in wholesale electricity prices has therefore caused the levy to increase.

Although none of Germany’s major parties wishes to roll back the country’s energy transition, the Greens are much more vociferous proponents of subsidising solar and wind power expansion.

Ms Merkel has revealed little about her own thoughts on how Germany’ energy transition should be funded in future.

Environmentalists complain that part of the reason why the burden of subsidy costs on ordinary consumers has risen so much is that energy-intensive companies are exempted from paying them.

Renewables subsidies are only one of several levies and taxes that mean German consumers are not feeling the benefit of a drop in wholesale electricity prices

The World Wildlife Fund also notes that when compared to the size of German gross domestic product, the annual cost of renewable subsidies is a rather small price to pay to help avert the costly risk of climate change.

However, the Federation of German Industries (BDI) says Berlin must reform renewable energy subsidies or risk a loss of competitiveness and further offshoring to locations where energy is cheaper. “Companies are already starting to lower investments,” warned Markus Kerber, BDI director-general.

Meanwhile, German utilities are preparing for a sharp drop in profitability because the big increase in renewable power generation means their fossil power stations are not required except during winter and in peak load periods.

Although environmentalists argue that traditional energy companies should have moved more swiftly to develop renewables, the utilities complain that their fossil power stations are still needed to maintain the stability of the grid.
Financial Times

Over the last couple of years – with their Southern neighbours struggling to stave off economic collapse – the Germans have had to carry the financial can for the whole of Europe.

In that respect, Germany has clearly been the “strong man” of Europe, but – with its energy policy in chaos – it won’t be for very much longer.