EU cracks down on German energy policy
The EU announced yesterday that grid fee exemptions for large German firms may constitute unfair subsidies. Overall, it's good news because these exemptions have not only distorted competition between nations, but also between large and midsize German firms – and have led to an absurd outcome in terms of efficiency.
First, a distinction should be made between two kinds of exemptions for industry, only one of which is concerned here. The exemption the EU did not mention yesterday is the one for the renewables surcharge. Energy-intensive firms that face international competition do not pay the full 5.28 cents per kilowatt-hour, but rather only 0.05 cents.
What the EU commented on yesterday is the exception to grid fees. Firms that consume more than 10 gigawatt-hours per year over at least 7,000 hours in a year do not have to pay anything for grid usage – even though they rely on the grid the most.
The policy has led not only to widespread criticism, but also to a bizarre effect in terms of energy conservation, with some firms just below the limit actually leaving on machines and artificially ramping up power production to become exempt. In other words, the policy has rewarded waste (see this report about a specific example).
Overall, the news is therefore good, but it may not come at a good time for the government, which is also under pressure to reduce the exemptions to the renewables surcharge. If the EU forces Germany to revoke exemptions to grid fees, the money may even have to be paid retroactively. If these firms then have to turn around and fork over more for renewable energy, the two changes could make quite a sudden difference in the balance sheets of the firms affected. The main problem for the German government is that the one policy change it cannot control will affect its flexibility on the one it can.
It would all help reduce the cost impact of the energy transition on consumers, but there is also a magic tipping point at which energy-intensive industry no longer sees Germany as a profitable business environment. The question is therefore where that tipping point lies. (Craig Morris)
300 million will provide some relief but not much. No leverage there.
The EU press release is here: http://europa.eu/rapid/press-release_IP-13-191_en.htm?locale=en (page includes link to the German text). The value of the grid exemption is given as €300 million in 2012. The Commission goes out of its way to recall that payments for interruptability services are not contrary to EU competition law.
Lets assume extra grid fees are X. Is X a billion? Two? If industrial users were paying their fair share according to EU standards it should then lower the cost of electricity to everyone else by X. That lowers the pressure to fix the FiT within the next few months.
Everyone it seems agrees with the idea that industrial users should share in the FiT surcharge at least to the degree they benefit. This new wrinkle could amount to a near term proxy fix. No need to twist the blade by demanding industrial users also pay their fair share of the FiT surcharge today if they promise to tomorrow. Seems like leverage.