Library filed under Impact on Economy from Germany
Power prices in Germany are among the highest in Europe, not least due to the costs arising from the launch of renewable energy sources – but many customers continue to support the country's energy transition regardless. While wholesale electricity prices on average have been in decline in recent years, surcharges, taxes, and grid fees raise the bill for Germany's private households and small businesses. However, market observers say that power costs are often not even high enough for customers to look for cheaper alternatives.
Unreliable solar and wind power in Germany cause more and higher electricity costs for the power grid.
The wholesale costs of power make up only about a fifth of the average household electricity bill in Germany. The rest is a stew of taxes, fees to finance renewable-energy investments and charges for use of the grid. That means their bills are lower than they otherwise would be, because power prices are sometimes negative, but utilities are not depositing money in customers’ bank accounts.
In the year that ended, electricity was more expensive than ever before - and at the beginning of the year prices are still rising, according to the "Handelsblatt" newspaper. The newspaper relied on a recent analysis of the consumer porta, Verivox.
The levy German power consumers pay on their electricity bills to finance the build-up of renewables (EEG surcharge) next year will jump by 8.3% to €0.0688 ($0.0758) per kilowatt hour of electricity consumed, re-igniting a heated debate on the cost of the country’s energy transition.
Because the power grid is overloaded, more wind wheels must always be limited. This costs the network operators hundreds of millions of euros.
For a year, Germans could hope for decreasing, or at least stable electricity prices. But now they know their expectations will not met. Quite the opposite: A recent analysis of price comparisons by TopTarif reveals that consumers are currently paying as much for their electricity than ever before.
The green energy transition is becoming ever more expensive for consumers. By the end of 2016 an average household will incur additional charges of approximately 540 euros. This is evident from calculations by the Institute of the German Economy in Cologne (IW Köln) seen by Welt am Sonntag.
To put an end to the often unexpected power flows from Germany — so-called loop flows — the countries are taking the matter into their own hands. Concerned about the stability of their own grids, additional costs and the ability to export their own power, the Czechs, for example, are installing devices to block the power from 2016 onwards.
But at the same time, the flood of solar and wind energy on the grid has caused wholesale electricity prices to collapse — all while retail rates have skyrocketed. But the collapse in wholesale prices are cutting into the profitability of coal and gas plant operators that don’t get the generous subsidies that green energy does.
A German energy industry association survey found that 53% of investors in power plants scheduled to come online in the next decade had frozen their involvement in the projects because of political uncertainty. “If politicians carry on as they do now then there will be no new, modern power stations. There are no incentives whatsoever for investments, despite politicians emphasising all the time that they aim to change this. It is also likely that further closures will follow.”
German taxpayers could end up spending billions of euros to help close the country's nuclear plants as current funding plans involving utilities risk falling short, a report commissioned by the government and seen by Reuters showed on Friday.
The government is working towards a way to safeguard permanent electricity supply, with cash for loss-making plants at one end of the spectrum of possible solutions and letting markets decide with price spikes in low supply periods the other. Utilities argue the latter solution could cause more mass closures and leave the market under-invested too long.
This is an error with ugly consequences. The energy revolution, as it is now applied, results in dirtier air. It ensures that Germany fails at its self-imposed climate goals. The energy revolution inadvertently promotes the use of dirty coal plants and destroys the relatively clean gas power plants. "In retrospect, it all makes sense," says Graichen.
"Germany's current path of increasingly high-cost energy will make the country less competitive in the world economy, penalize Germany in terms of jobs and industrial investment, and impose a significant cost on the overall economy and household income," warned Daniel Yergin, vice chairman of research firm IHS.
The Greens' biggest triumph came with Germany's adoption of its Energiewende, the transition to renewable energy. The policy is a long-term bonanza for Gazprom. It means that Germany will buy more and more Russian gas because it cannot depend on electricity from unreliable wind and solar to power its industries and keep the lights on.
Germany is an example of how not to do green energy. Instead the solution is to research and develop better green energy technology. A study by some of the world’s top climate economists including three Nobel Laureates for the Copenhagen Consensus Center shows that subsidising existing renewables does so little good that for every euro spent, 97 cents are wasted. However, every euro spent on green innovation could avoid €11 in long-term damages from global warming.
Germans pay the highest electricity prices in Europe. Residential electricity prices, including taxes, are 60% higher in Berlin than in London, and are 40% above the euro-zone average. Germany’s energy minister, Sigmar Gabriel, recently estimated that the push to renewables is costing Germans €24 billion euros per year in higher bills. Were this to continue, Germany risked facing a “dramatic deindustrialization,” he said.
Merkel’s Cabinet backed proposals to charge operators of new clean-energy plants 70 percent of the so-called EEG-Umlage, a fee paid by power consumers that they’re currently exempt from, according to an economy ministry document. That would translate into 4.4 euro cents (6 cents) a kilowatt-hour.
This subsidy is costly. The difference between the market price for electricity and the higher fixed price for renewables is passed on to consumers, whose bills have been rising for years. An average household now pays an extra €260 ($355) a year to subsidise renewables: the total cost of renewable subsidies in 2013 was €16 billion. Costs are also going up for companies, making them less competitive than rivals from America, where energy prices are falling thanks to the fracking boom.