(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Feb 19 High German retail electricity
prices add to the burden of supporting renewable energy and
bring closer the end of outright financial support for wind and
German policymakers are seeking ways to cut household
electricity bills and address concern among voters ahead of an
election expected in September.
The country has supported renewable energy for more than a
decade, to make it cost-competitive with fossil fuels, through a
feed-in tariff paid per unit of power under its 2000 Renewable
Energy Act (Erneuerbare-Energien-Gesetz, EEG).
Presently falling wholesale power prices have exposed a flaw
in the design of the scheme that makes households the main
In the short term, policymakers have various options to cut
bills, including: eliminating an electricity tax; cutting value
added tax; halting subsidies for new renewable projects; forcing
industry to pay a larger share of the levy; or imposing
retroactive taxes on existing operators, as Spain, the Czech
Republic and Bulgaria have done.
In the medium term, the days are numbered for the feed-in
tariff which has done its job in establishing a domestic
industry while cutting renewable technology costs, reliance on
fossil fuel imports and greenhouse gas emissions.
Any cuts in support should be balanced against cuts in
bigger subsidies for fossil fuel and nuclear power.
RETAIL VERSUS WHOLESALE
Renewable technologies have contrasting cost impacts, adding
to retail prices through an EEG levy which covers the cost of
the feed-in tariff, but cutting wholesale prices because wind
and solar have near zero operating costs.
Consumers have not seen the benefit of a lower wholesale
power price partly because utilities have not fully passed this
on and because electricity generation costs only account for
about a fifth of their overall bill.
Most importantly, the EEG levy is calculated based on the
gap between the (now falling) wholesale power price and the
higher fixed feed-in tariff.
As heavy industry is largely exempt, the burden falls on
household bills, which are rising directly because of a lower
wholesale electricity price. The EEG levy this year is 5.3 euro
cents compared with 3.6 cents per kilowatt hour last year,
following year-on-year rises since 2001, data from research at
the University of Salzburg in Austria shows. (See Chart 1)
Chart 1: (slide 20) goo.gl/WqV3R
Chart 2: goo.gl/Cu84R
Chart 3: (slide 128) goo.gl/ee6xe
Chart 4: (slide 69) goo.gl/ee6xe
Chart 5: (slide 11) goo.gl/IOpm1
Chart 6: (slide 131) goo.gl/ee6xe
Residential power prices across the 27 member states of the
European Union illustrate the problem.
Average German household prices were the second highest in
the European Union behind Denmark as of November 2012, at 0.26
euros per kilowatt hour compared with an unweighted EU average
of 0.17 euros, according to Europe's Energy Portal, a private
The higher price reflected taxes and charges levied on
households, which were also second only to Denmark, in absolute
and percentage terms, according to Eurostat data.
Charges comprised 45 percent of German household bills,
compared with 4.7 percent in bottom-placed Britain, as of the
second half of 2011, the latest Eurostat period available.
Charges under Germany's renewable energy act aggregated
across all electricity consumers leapt in 2011, to 13.5 billion
euros from 8.3 billion euros the year before, according to the
utility RWE (Chart 3). That followed a sharp rise in
installed solar power. (Chart 4)
The EEG levy this year will for the first time exceed
value-added tax (VAT), as the largest non-market levy on
electricity bills. (Chart 5)
Summarising non-market charges as of last April, VAT
accounted for 16 percent of retail power prices, followed by the
EEG levy (14 percent); an electricity tax (8 percent); a
concession fee paid to municipalities (7 percent); and a charge
under the combined heat and power act (0.6 percent). (Chart 6)
On the bright side, rises in German household power prices
are below the EU average, both in percent and absolute terms,
Eurostat data show.
One option to ease bills is to cut the electricity tax
introduced in April 1999 under an "ecological tax reform",
alongside taxes on transport fuels, natural gas and heating
These were intended to promote energy efficiency and
operated in tandem with higher payments into the public pension
scheme to remain revenue neutral.
The electricity tax would appear to be a natural candidate
for elimination in place of the now much higher EEG levy, given
recent rises in electricity bills and the fact the renewable
energy levy is itself an environmental measure.
The political hurdles to agree tax cuts in an election year
during relative austerity appear too high, however, especially
given an opposition majority in the upper house of parliament.
There are limited short-term options for tweaking the EEG
levy, which is calculated as the difference between the fixed
feed-in tariff paid to operators and a reference wholesale power
price, and is distributed between electricity consumers.
The most obvious option is to overturn levy exemptions for
industrial consumers, recently extended, and in turn freeze the
charge on households.
In contrast to household bills, German industrial power
prices are below the EU average, Eurostat data shows.
In the medium term, there are alternatives to the feed-in
For example, effective support could remain through giving
renewables continued priority access to the grid, while desired
growth could be maintained by requiring utilities to supply a
certain portion of renewable power.
(Reporting by Gerard Wynn; Editing by Anthony Barker)