03.09.2012
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The German energy transition

Debate about cost

In the debate about the cost of renewable electricity in Germany, the renewables sector and the governmental authorities are taking a closer look at the matter – and coming up with much different findings.

In November, Germany's four transit grid operators (the country has around 900 distributor grid operators) will once again determine the surcharge passed on to retail consumers to cover the cost of renewable electricity. The "EEG surcharge" (EEG is the German abbreviation for the Renewable Energy Act) is essentially the result of the cost of all feed-in tariffs minus the price of electricity on the power exchange; media reports estimate that this surcharge could rise by nearly 50 percent next year to more than five cents per kilowatt-hour. For large power firms like RWE and Vattenfall, the reason is obvious: the energy transition is not a free lunch, as they repeatedly tell German media. Vattenfall estimates that consumers face an additional 150 billion euros in costs by 2020.

Admittedly, the retail power rate in Germany (which is not set by the government, but rather by the market; any household in Germany can switch to any power provider) has risen by around 20 percent since 2007. But an analysis by Germany's Network Agency, which regulates gas networks and power grids, also recently found that the profits of power firms rose during that time from a profit margin of 1.1 to 8.2 percent. The Agency says that the net rate for power could have even dropped since 2009 had power firms passed on the lower cost of wholesale power to consumers; but unfortunately, only the factors that increased prices were passed on.

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Photo: Picture Allianz

In 2012, prices on the power exchange are even lower. The main reason is the large share of renewable power, which is largely offsetting more expensive conventional plants only switched on to cover peak demand. Power providers benefit from these lower prices and could pass them on to consumers.

But there is no sign that this will happen. Instead, politicians such as Economic Minister Philipp Rösler want to put an end to renewables to keep prices in check. As he puts it on his party's website, "Tens of billions in subsidies are going to renewables, and every power customer has to pay the bill. We have to put an end to this." Rösler and his colleague, Environmental Minister Peter Altmaier, therefore plan to reform the EEG this fall.

From 1970 to 2012, 54 billion euros in subsidies went to renewable energy according to a study recently published by Green Budget Germany ("Was Strom wirklich kostet"). But during the same timeframe, the study found that 430 billion euros in subsidies was devoted to coal and nuclear power. Rösler's FDP was in power for 21 of those 42 years of subsidies.

What's more, that 430 billion euros of subsidies for conventional power is equivalent to 10.2 cents per kilowatt-hour; the current 3.59 cents paid for renewable power pales in comparison. Indeed, the EEG surcharge would even be an estimated 0.6 cents cheaper if so many industry firms were not largely exempt from the surcharge; two weeks ago, the Greens discovered that the number of firms that do not pay the full EEG surcharge increased by 250 percent in the first half of 2012 alone. Instead of putting an end to this practice – after all, industry firms are already directly benefiting from lower wholesale prices – the exemptions are to be expanded even further. The Network Agency says it is "concerned" about the trend.

Rösler and Altmaier have both said they oppose restructuring who pays what for the EEG surcharge. They point out that 800,000 people are employed at energy-intensive companies. Apparently, they are not worried about the 350,000 jobs that depend on the EEG. (Denny Gille / Craig Morris)

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2 Comments on "Debate about cost "

  1. Filip - 28.10.2013, 13:08 Uhr (Report comment)

    Where can you find the analysis done by Germany's Network Agency ? I looked at their website but couldn't find it. Please email me if possible: franck.filip@gmail.com
    Thanks!

  2. Herve - 03.01.2013, 18:41 Uhr (Report comment)

    Whatever clever can be the economic acrobatics in present paper can be, plain facts remain: encouraged EEG are and will remain far more expensive than traditional energy, are erraticly available - never wind during cold weather periods - which is the death pennalty for power sources. Why such barriers will steadily remain? Because they are set by laws of Physics againt which political declarations are futilities: * The best wind plant needs far more materials (concrete, steel, copper) per produced KWh than any other traditionnal plant, because the best wind is too slow: In a steam turbine, gas flow runs over 1200km/hour! * Electricity cannot be stored in large volumes and never will be: To feed a nation'grid, even optimized, from erratic sources, requires about 3-month consumption stored. The only way is electrochemical cells. Supposing the ideal cell be developed today, using materials at 100% of their possibilities, means that more than 2 tons of very dangerous chemicals should be installed in every Home.... This is a physical limitation. Sorry, the beautiful, courageous german EEG will fail, Physics ignore politicians.

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