Escalating Power Costs Raise Pressure For Reforms

BMI View: How to tackle the issue of rising electricity prices, whilst at the same time continuing to follow the country's ambitious energy agenda, will be one of the key challenges of Angela Merkel's new governm ent. Therefore, the announcement by German grid operator TansnetBW, that the surcharge consumers pay for renewable energy will increase by 18% in 2014 , is likely to further fuel the debate surrounding both household and industrial power prices and reinforce the need to reform the current format of the EEG (the German Renewable Energy Act).

German grid operator TransnetBW announced in mid October that the surcharge imposed on consumers to fund the country's renewable energy expansion will be increased by roughly 18% to EUR6.24 from 2014, up from the current level of EUR5.28. This is not the first time the surcharge has increased; in fact since 2009 the charge has risen fivefold. We have long-warned that the costs of Germany's Energiewende (the ambitious energy u-turn from nuclear power to renewable energy) are likely to surge substantially as the country strives to derive 80% of its electricity from renewable energy sources by 2050, 35% by 2020; and the debate as to how these costs will be managed has risen up the political agenda in recent months (see, 'Renewables On The Up, But Who Will Pay?', May 7 and 'Energiewende To Dominate Pre-election Debate', June 5).

German household electricity prices are the third highest in the EU, partly due to the subsidies offered to renewable energy developers, and although large industrial users are mostly exempt from the surcharge, industrial electricity prices are the fifth highest in the EU. This has led many industry-players and members of the German government to voice concerns over the economic competitiveness of the country's major industries.

German Prices Surging
End User Power Prices For Households (LHS) and Industrial Consumers (RHS), EUR/kWh, Reference Month May 2013

As such, there have been numerous calls for reform to the present format of the Erneuerbare-Energien-Gesetz, or Renewable Energy Act (EGG) and we believe that the EEG is unlikely to survive in its current form regardless of the composition of the coalition that forms a government in Germany (see, 'Election Primer: The Competing Dynamics Of Power', September 18).

In fact, high electricity prices and reduced competitiveness is a concern not just confined to Germany, but across the wider region . This was evidenced during the recent EU energy summit, when an EU official stated that energy talks would be undertaken 'through the lens of prices rather than climate concerns' . According to the UK Department of Energy and Climate Change (DECC), the average price of domestic electricity for EU-15 countries was double that of the US in 2012, with prices in Germany nearly three times higher.

Costly EU
Average National Electricity Price (US cents/kWh), By Country

We have been witnessing a gradual shift within the EU energy policy from an environmental to economic stance, with a surge in coal-fired generation and waning commitment towards carbon emission and renewable energy targets (see, 'Coal Comeback Continues', June 19) . As such, we maintain our belief that the EU energy mix is currently stuck between political asp irations and economic realities, a situation that is unlikely to be resolved over the short-medium term.

This article is tagged to:
Sector: Power, Renewables
Geography: Germany

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