Germany debates form of renewables support as levy rises

The surcharge will rise from 6.354 cents per kilowatt-hour (ct/kWh) to 6.88 ct/kWh next year, German grid operators announced on Friday. Each autumn, they set the price of the surcharge for the coming year, as determined by the Renewable Energy Act (EEG).

The surcharge will be below earlier experts estimates of over 7 ct/kWh, because existing savings on Germany's 'green energy account' would be used to finance renewable development in the election year 2017, an article in the FAZ said this week.

The EEG-surcharge covers the difference between the wholesale market price for power on the electricity exchange and the higher fixed remuneration rate for renewable energies. It is paid by consumers with their power bill.

When also taking into account sinking wholesale electricity prices on the one hand and rising grid fees on the other, consumers would on average have to pay 3 percent more (30 euros/year/four-person household) for their electricity, according to a press release by price comparison website Verivox.

Using renewables such as solar and wind to cover an ever-larger share of Germany’s power demand is key to the Energiewende – the country’s strategy to decarbonise the economy and phase-out nuclear energy. Renewables are now Germany’s biggest source of electricity. But there have been concerns over the cost of the energy transition. (See CLEW factsheets on household and industry power prices).

Cost of the Energiewende

The EEG surcharge is often used as a price-tag for the Energiewende, which critics say is inappropriate. They argue that the surcharge was strongly influenced by wholesale power prices and did neither reflect many cost savings and benefits elsewhere nor other costs of the energy transition policy.

Because of the makeup of the surcharge, falling wholesale power prices lead to an increase of the levy to be paid by final consumers. At the same time, electricity suppliers benefit from lower costs on the power markets. “The low wholesale power prices should be passed on to the electricity customers,” said Hermann Falk of German Renewable Energy Federation (BEE).

In the end, the interplay between the EEG-surcharge and wholesale power prices could balance out the cost for the final consumer, according to the federal economy ministry. “Average final consumer prices […] have gone down slightly since 2014. This is despite a strong renewables development,” said state secretary Rainer Baake in a press release. He called on consumers to compare electricity prices of the various suppliers.

State secretary Baake said the government had managed to reverse the trend of rising cost with a number of measures including its reform of the Renewable Energy Act earlier this year.

With the aim to reduce the cost for the consumers, the changed legislation limits how much new renewable capacity can be built each year and introduces an auction-based system to largely replace feed-in tariffs for renewables.

The reform has been heatedly debated as many environmentalists and renewables groups fear the new mechanism will slow the Energiewende and shut out smaller projects owned by citizens.

Think tank Agora Energiewende* published an analysis of recent changes to policy on Friday, saying that Germany looked set to miss its climate and renewables targets without further efforts.

Increasing talk about reforming the renewables support system

During the perennial cost debate, business lobby groups and renewables associations weighed in with proposals for reforming the support system for renewable energies. The Association of Energy Market Innovators (bne) suggested to base the EEG-surcharge not only on electricity consumption, but also on final energy consumption in the heating and transport sectors. Business lobby group Initiative Neue Soziale Marktwirtschaft (INSM) said the levy should be abolished and the system replaced by a quota determining how much of utilities’ power must be renewable.

Ilse Aigner and Garrelt Duin, the state economy ministers of Bavaria and North Rhine-Westphalia (NRW) respectively, jointly proposed permanently capping the Renewable Energy Act (EEG) surcharge for power consumers at 6.5 cents per kilowatt hour (ct/kWh). Setting up a federal fund, initially covered via loans, would distribute the renewables support cost over several years. It would be used until about 2028, when levy revenues exceeded the payments to renewable facility operators and could be used to repay the loans.

Green top politician Robert Habeck went on the record with a proposal of a government-administered fund, financed through reformed energy tax payments, mainly to deal with high payments pledged in the early stages of the Energiewende.

Eva Bulling-Schröter, Member of the Left Party in the German Bundestag, said the cost of the development of renewables was not the real issue, the problem was the “one-sided burden on private households”. These could be relieved considerably if “unjustified surcharge-exemptions for energy intensive industries” were cancelled.

Social Democrat member of parliament, Bernd Westphal, said at an event of the Federation of German Industries (BDI) in Berlin that a new financing model was needed. However, a reform of the renewables support system before the federal elections in the autumn of 2017 is unlikely. “This is a huge task – for the next legislative period.”

Many of the recent proposals to reform renewables support in Germany only led to a redistribution of the cost to other sectors like heat and transport, to future generations or the federal budget, Stefan Kapferer, head of utilities lobby German Association of Energy and Water Industries (BDEW), said in a press release. “This would be the wrong way. Cost efficient development should be the focus.”

For background, read the CLEW factsheet Balancing the books: Germany's "green energy account" and the recent CLEW article Renewable energy levy set to rise in 2017 – think tank.

*Like the Clean Energy Wire, Agora Energiewende is a project funded by Stiftung Mercator and the European Climate Foundation.