Merkel vows to rein in renewable subsidies

BERLIN - German Chancellor Angela Merkel promised on Wednesday to scale back Germany's generous system of subsidies to the renewables sector if she is re-elected in September, a move that would reduce the costs of her green revolution on consumers.

Merkel's policy to wean Europe's biggest power market off fossil fuels and to embrace renewables has led to a boom in green energy sources, but ballooning costs have led to calls for cuts to feed-in tariffs and for industry to pay more.

"Dealing with the renewable energy reform is the most urgent of the energy topics, in my view," Merkel told a conference of the BDEW utility industry group.

Energy prices are likely to become a hot election topic as consumers have been hit by surcharges which pay for the energy shift. Due in part to fears that German industry will become uncompetitive if it has to pay too much for energy, many firms have enjoyed exemptions from some of charges, raising the bill for households.

"I want a renewable energy law amendment in which feed-in tariffs are not given up, that is an incentive to push things forward, but it will be necessary for those who get support for renewable energy to participate more in grid expansion, energy supply, storage and similar things," Merkel said.

She also reiterated her priorities of power supply security, affordability and a focus on climate protection.

But Merkel, who polls show is likely to win a third term albeit possibly with a different coalition partner, gave few details of her plans.

The conservative chancellor may have to abandon her current partner, the pro-business Free Democrats (FDP) and form a 'grand coalition' with the opposition Social Democrats (SPD) who traditionally support the coal industry but who with the Greens originally started Germany's nuclear phaseout.

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Any reform to the renewable energy law and its system of subsidies are a political balancing act as energy policy pits the entrenched interests of a strong green lobby with influential German industry and the electorate.

The head of the BDEW made clear how essential reforms are, saying the problems are well known and that the government had spent long enough thinking about the issues.

"The expectations are clear: in the autumn there must be action. There is no period of grace for the new government," said BDEW head Hildegard Mueller.

"The foundation for all this must be a basic, decisive and comprehensive reform of support for renewable energy," she said.

Merkel pointed to some areas where more progress had to be made.

Delays in the planned expansion of the transmission grid had to be cleared, she said, adding that northern German states should boost wind power capacity as they are best suited while supply to southern states must be guaranteed at the same time.

She also addressed the issue of gas plants which have been pushed out of the market partly because of the collapse of the EU's CO2 emissions certificate market which has helped coal plants to produce power with higher emissions more cheaply.

"That can't be right" said Merkel, adding something had to be done to ensure gas plants could work more profitably.

Merkel said that something had to be done about the EU's emissions trading scheme, the 27-member bloc's main tool to fight climate change, but she did not specify what. The European Commission has proposed holding back some certificates to try to prop up prices, but so far has not got its plans through.

The cabinet on Wednesday passed a new law helping Germany to avoid power outages in winter during its transformation process up to 2017. This empowers the energy regulator to steer the reserve-building process but many BDEW delegates fear there is already too much state in the market.