Renewables raise German retail power rate by 7 percent but lower industry prices by 18 percent
Opponents of renewables are using the increase to claim that renewables are too expensive and should be stopped, and they are suddenly concerned about the impact on the poor – even as German power firms rake in the cash. But German media and consumer advocates don't buy the logic. The calculation of the surcharge needs to be redesigned so that households do not have to subsidize industry so much.
On October 15, Germany's Network Agency announced the new surcharge to cover the cost of renewable power for 2013. As expected, the surcharge increased dramatically by 47% from 3.59 cents per kilowatt-hour to 5.28 cents. But the retail rate, which is currently around 26 cents per kilowatt-hour, will "only" increase by roughly seven percent as a result. At the same time, spot market power prices – which industry pays – are down by at least 18 percent over the past 12 months, but these lower prices are not being passed on to retail consumers. In other words, consumers are cross-financing industry to the tune of three billion euros this year alone.
The surcharge almost entirely increased for reasons only indirectly related to the actual cost of renewable power. Renewables only raised the surcharge by 0.19 cents, not 1.69 cents.
Most of the surcharge is thus an effect of the policy's design. As shown in the chart above from German renewables association AEE, other factors are responsible for the rising surcharge. The green area represents the cost of renewables; the blue area, lower spot market prices (!); the red area, industry exemptions; and the dark green area, the budget shortfall from 2012:
- Lower wholesale prices: The blue area is especially noteworthy. While everyone is focused on higher retail rates from renewables, renewable power has lowered wholesale power prices for industry by an estimated 18-20 percent over the past year. In fact, power for industry has been considerably lower in Germany than in neighboring France. Not surprisingly, Germany is attracting energy-intensive firms. Nonetheless, German industry fervently continues to express its concern about how renewables could raise prices so that people don't realize how much it is currently benefiting from renewables.
- Broad industry exemptions: The red area of "industry exemptions" also warrants an explanation. When feed-in tariffs were originally designed by a coalition government between Social Democrats and Greens, energy-intensive industry was largely exempted from the surcharge to ensure that German industry remains internationally competitive. Now, however, industry power prices are down thanks to renewables, so exempt firms benefit in two ways.
To make matters worse, Chancellor Merkel's coalition has expanded the list of firms by around 250 percent, and the list now includes firms that cannot be “scared away” by higher power prices, such as the municipal transport service in Nuremberg, Stuttgart Airport, and a golf course [UPDATE: the news that a golf course is exempt turns out to be an urban legend invented by Green politician Jürgen Trittin]. Proponents of renewables are therefore calling for industry to pay its fair share.
German media and consumer advocates get the story right
German media are also putting the increase in the surcharge into perspective. As the screenshot from a German news broadcast on Thursday (below) shows, the price of electricity only increased over the past 12 months by three percent, compared to a five percent increase in the cost of natural gas, a nine percent hike in the cost of gasoline, and a 10 percent increase in the cost of heating oil. The three percent increase in electricity prices is also fairly close to the general inflation rate of two percent in Germany over the past 12 months.
Germany is a rich country with a thriving economy (the unemployment rate is currently at its lowest level since reunification more than two decades ago), so most people can afford the surcharge, which is expected to cost the average German household with an annual consumption of 1,500 kilowatt-hours around 60 euros additionally next year – 5 euros per month. In addition, citizenry is behind more than half of investments in renewables, so Germans are largely paying this money back to themselves rather than to corporations.
Here, we begin to understand why energy consumer advocates in Germany still stand by German renewables policy. The Bund der Energieverbraucher points out that having industry pay its fair share would reduce the surcharge for consumers by around 1.5 cents, nearly the level of its increase in 2013.
Energy poverty – industry suddenly concerned
Germany's largest power provider, Eon, posted a net profit of 3.1 billion euros in the first two quarters of this year. Nonetheless, when its CEO Johannes Teyssen expressed concern this year about "energy poverty," he did not announce lower prices for his customers on welfare, but rather called on the government to protect the poor from rising power rates allegedly brought about by renewables.
Despite these profits, Eon and RWE, Germany's second largest power firm, have both announced that they plan to lay off some 11,000 people each, a step that will only increase the number of welfare recipients they claim to be concerned about.
Protecting the poor is a general concern. Unfortunately, Germany does not have any official definition of fuel poverty, nor does it keep any statistics on how many people have had their power switched off because they could not pay their bills, though one estimate put the figure at 200,000 people over the past year.
The UK speaks of "fuel poverty" when a household spends more than 10 percent of its income on water heating, lights, appliances and cooking. Germans currently only spend 2.5 percent of their household budgets on electricity on the average, with only 0.3 percent devoted to funding green power.
One way to protect the poor is obviously to have industry pay its fair share. Consumer advocates also point out that Germans can simply switch their power providers at the end of the month and select a less expensive provider. Other proposals include the right to a certain amount of power per capita each month at a low price and free energy audits (to show households how they can lower consumption).
While such ideas can be helpful, higher prices are not necessarily a bad thing, for they also provide an incentive to conserve energy and use more efficient appliances – two of the goals in Germany's energy transition. In other words, when otherwise sensible energy policy impacts the poor, social policy can step up to ensure social equity.
Renewables already cheap
As Claudia Kemfert, energy expert at German economics institute DIW, puts it, "Power prices would rise even without the switch to renewables because Germany is renewing its fleet of power plants and the price of fossil fuel continues to rise." Indeed, countries that are not switching to renewables as fast as Germany are seeing power prices rise as well. Power providers in the UK are now telling their customers to brace for a nine percent increase, and US power prices have risen by 29 percent since 2004 (see XLS spreadsheet).
A recent study by Green Budget Germany also pointed out that coal power and nuclear power have received tremendous subsidies since 1970, though they are sometimes passed on as governmental budget items to be paid for by taxpayers, not as additions to power bills. If all of those subsidies were tacked onto the retail rate, the "conventional energy surcharge" would be 10.2 cents per kilowatt-hour this year – nearly twice as much as the surcharge for renewables next year.
The main difference in the cost of conventional power and renewable power is that renewables have an identifiable price tag, whereas the cost of conventional power is spread across power bills, governmental budgets, and "external costs" (such as healthcare related to pollution).
Going forward, Germans know that renewables will continue to become cheaper, whereas prices for conventional power will only increase. Investments made now in renewable power generators that will run for two will pay for themselves even without consideration of external costs. Germany's Environmental Ministry has estimated that the switch from conventional energy to renewables will save 570 billion euros by 2050. (Craig Morris)