Overview of German power prices
How much of a threat is the German energy transition in terms of power prices? German environmentalists have taken a look at the matter and suspect a covert campaign to protect profits in the conventional energy sector.
German environmental organization DUH, which recently called on the government to clamp down on carbon emissions, also published a study last month (PDF in German) and this month (PDF in German) investigating the impact of the Energiewende on the power prices – both retail and industrial. I'd like to walk you through some of the charts; to enlarge them, simply click on the image.
Figure 1 in the first study is a wonderful place to begin the discussion. We repeatedly hear claims that Germany is scaring off its industry, claims that remain unsubstantiated (specific firms are almost never mentioned, those that are mentioned are going to the US because of lower gas prices, and the Energiewende does not aim to make fossil fuel cheaper). The claims make little sense in light of Germany's strong economy, which weathered the financial crisis quite well. Here, we see Germany's trade surplus, which – as the caption explains – has been the largest within the EU for years. The chart itself does not show it, but Germany's trade surplus is in fact far greater than the US's trade deficit when expressed as a percentage of gross domestic product.
You have probably already seen the charts illustrating that the renewables surcharge only makes up a fraction of the increase in retail power rates since 2000, so I will skip to Figure 6, showing the share of the pie that energy costs make up for production firms. Here, we see that energy only makes up 2.1% of total costs; the blue area is (raw) materials is at 44.6%, followed by staff costs (16.8%), consumables (11.5%), and other (17.3%). Note that "energy" includes not only electricity, but also any fuels and the heat consumed – again, low fossil fuel prices are not a goal of the energy transition. The question here is whether firms will be enticed to leave Germany to reduce a piece of the pie that is already so small. Keep in mind that electricity is only a fraction of energy in the pie slice above.
That's why Figure 9 is so interesting. It shows the share of energy costs in energy-intensive sectors. In the legend from top to bottom, we have raw iron & steel; paper; cement and gypsum; tiles and bricks; non-ferrous metals; chemicals and fertilizer; glass; foundries; ceramics; and the average of all economic sectors. Here, the figures are expressed in terms of the percentage of gross added value, and if you are wondering why so many charts about the German power sector start in the late 90s, it's because the electricity sector was liberalized that year.
Once again, we are talking about energy prices here, not just electricity, and the DUH believes – based on Figure 10 – that the price hikes in recent years are more related to increases in prices for crude oil (red line), natural gas (blue line), and hard coal (gray line).
Of course, the real question is not whether prices in Germany are rising, but whether prices in Germany are rising faster than in other countries. We can expect other countries to face similar price hikes as a result of import prices as shown in Figure 10. And indeed, the organization found that industry prices in Germany fell by 8% in 2012 year over year for industry consuming between 70 and 150 GW-hours per year. That drop is the best performance within the countries investigated, with most other countries facing higher prices, not lower. The situation was different, however, for industrial firms consuming 2 to 70 GW-hours per year; in Germany, these firms saw prices remain roughly stable from 2011 to 2012, putting Germany in the middle of the pack. But overall, Germany actually performed quite well that year – and again, now we are talking only about electricity, not energy.
As Figure 22 shows, the bottom has fallen out of the futures market on the German-Austrian power exchange, with the trendline falling from around €63 at the beginning of 2010 to around €43 for a MWh (equivalent to a kilowatt-hour price of €0.043) in mid-2013 (for power deliveries in 2016). Meanwhile, the world has been focusing on the allegedly cheap electricity in the United States, but the study shows that the trendline for NEPOOL (of the power exchange in New England) also fell from around €63 to just below €40 from 2008 to mid-2013, putting the two power exchanges at nearly the same level (New England is one of the areas where shale gas production has brought down energy prices), with the biggest difference being some tremendous occasional spikes in New England. Nonetheless, the trend lines are practically the same, so why is there all this concern about German firms allegedly leaving the country for the United States?
Figures 32 and 33 focus on the impact of electricity prices at the household level. As Renewables International previously reported, the average German household only spends a very small share of its budget on electricity; the study puts the figure at 2.34%. Likewise, as we have also previously reported, power bills are still smaller than expenses for heating oil and gasoline for the average German household; the study found that monthly expenses at the filling station have risen from €89 to €112, with heating oil expenses increasing during the same timeframe from €69 to €99. In contrast, power bills (with the renewables surcharge separately reported as the green bar atop the red section) having risen from €56 in 2006 to €84 in the first quarter of 2013.
So why the concern about rising power prices as opposed to rising fossil fuel prices? Partly because Germany's Big Four utilities raked in the cash until 2011, when Chancellor Merkel shut down eight of the country's 17 nuclear plants, and have since engaged in campaigns to focus public attention on rising power prices. But as the DUH’s second study released this month shows, power prices mainly rose up until 2011 because these firms were increasing their profits, not because of renewables. Figure 3 shows that the profits of these four corporations nearly doubled collectively from 2002 to 2010, and they only began to struggle recently.
In the end, the DUH concludes, in lieu of actual reasons to be concerned, that the concern being voiced about Germany's energy transition is "covert battle against the Energiewende," with the primary goal being "eroding public acceptance." (Craig Morris)