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Cost impact

“Energiewende makes power expensive”

A new report at Der Spiegel estimates that the German renewables surcharge could increase by 20%. Increasingly, there are calls to slow down the energy transition – ironically, right at the moment when the cost impact of new renewables is going down.

According to German weekly Der Spiegel, the German government expects the renewables surcharged increase from 5.3 cents per kilowatt-hour to 6.2-6.5 cents, roughly a 20% hike. The news does not come as a surprise; Renewables International presented an overview of roughly the same price range two months ago. But the report is being used to discredit the entire energy transition as merely leading to rising prices.

The newsweekly itself contributes to the confusion with its opening sentence (as of the weekend, the article had only been published in German, not on the magazine’s English website, so I translate): “Consumers will have to brace themselves for rising power prices as a result of the energy transition.” In fact, power prices do not have to rise because one component of the price increases. As we recently reported, Austria – which is on the same power exchange as Germany – will see retail rates at its largest power provider drop by 10% this week.

You see, the cost of new renewables is no longer the main driver behind cost increases; lower wholesale prices are. A study published on August 21 by energy analysts at Energy Brainpool (PDF in German) found that 52% of an increase in the renewable surcharge to 6.1 cents would be the direct result of these lower wholesale prices. It may sound ironic for lower wholesale prices to increase another price component – in this case, the renewable surcharge – but in fact, the calculation makes sense. Indeed, it is further testimony to the willingness of renewables proponents to be transparent about the cost of the transition.

Essentially, when this calculation was designed last decade, proponents of renewables realized that all of the green electricity that would be generated (and have to be purchased) would offset conventional power production, which would in turn reduce wholesale prices. The wholesale rate is therefore subtracted from the average feed-in tariff paid for renewable electricity, and as renewables make up an ever-greater share of the pie, there is less and less to subtract. As the consultants at Energy Brainpool explain, the average wholesale price may drop from around 5.1 cents per kilowatt-hour to possibly 3.9 cents for 2013 as a whole. According Photon Magazine’s newsletter this morning, the average wholesale in July was 3.823 cents, 14 percent lower than in July 2012 (4.490 cents) and 21 percent lower than in July 2011 (4.857 cents).

 - The German renewables surcharge may grow from the left bar to the right, but only the green section is actually the cost of new renewables.
The German renewables surcharge may grow from the left bar to the right, but only the green section is actually the cost of new renewables.
Energy Brainpool

Renewables are not even the second biggest cause of the increased surcharge. That honor goes to the greatly expanded industry exemptions to the surcharge. The Social-Democrat/Green coalition under Chancellor Gerhard Schroeder wisely implemented exemptions for energy-industry that face international competition, lest these firms be driven away from Germany. But the current coalition has expanded these exceptions to three times as many companies, many of which can hardly leave the country (such as municipal transportation services).

Because these exemptions would make up 25% of an increase to 6.1 cents, merely reducing the number of exempt firms by two thirds to the original number could reduce that increase more than the cost impact of new renewables. According to Energy Brainpool, new renewables would only make up 13% of the price hike to 6.1 cents.

Hence, it seems that the surcharge itself is likely to “only” increase by 1.3 cents, whereas a 10% reduction of the retail rate as in Austria would reduce prices by twice as much – by 2.7 cents, with retail rates averaging around 27 cents in Germany. The result would be that the renewable surcharge would increase from 19% of the retail rate in 2013 to more than 25% in 2014. But retail rates overall would actually drop by 5%. What consumers would then complain?

The new surcharge for 2014 will be announced on October 15. (Craig Morris)

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3 Comments on "“Energiewende makes power expensive” "

  1. Craig Morris - 03.09.2013, 09:21 Uhr (Report comment)

    Thanks, K-F. James, onshore wind is still eligible for FITs that must be a misunderstanding. Solar above 10 MW per project is not.

  2. Karl-Friedrich Lenz - 03.09.2013, 05:18 Uhr (Report comment)

    Actually they do give a breakdown (on page 21): 0.07 cents for PV, 0.05 for onshore wind, and 0.06 for offshore wind.

  3. James Wimberley - 02.09.2013, 20:03 Uhr (Report comment)

    Brainpool don´t give a breakdown of the 13% (0.18c) of the surcharge hike due to new renewables. It would be interesting to se the split between offshore wind, rooftop solar and other technologies like geothermal and biomass that still enjoy favourable FITs. I understand onshore wind and utility solar are no longer supported through the surcharge (I know you don´t like the word ¨subsidy¨).

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