* Wholesale prices at rock-bottom due low demand, renewable
* This undermines utility profits
* But householders pay record prices as state fees balloon
* Solution up to policymakers
By Vera Eckert and Christoph Steitz
BERLIN, Jan 22 Wholesale power prices in Germany
are at their lowest in more than three years, undermining the
profitability of fossil fuel power generation and trading, and
yet 40 million households pay record prices well above European
To explain this state of affairs, look no further than the
expansion of renewable energy installations, which provide
bursts of subsidised power often enough to trash market
Weather-dependent green energy is given priority on the
networks when it is available, securing thousands of private
operators healthy earnings while traditional power stations
burning coal or gas are reduced to providing reserve power.
The state, which supports green power, also benefits from -
and exacerbates - high power bills by collecting fees and taxes.
Industry analysts say this can only change if government
curbs run-away renewable subsidies and taxes and spreads their
burden more evenly.
"No one expected the rise of solar to be that strong," said
Roland Vetter, head of research at financial advisory firm CF
Partners in Frankfurt.
"(Utilities) RWE and E.ON did not take
that into account when they decided to build new power plants a
couple of years ago. They expected power prices to rise. The
truth is that they fell," he said.
The big power generators also have renewable units, but they
caught on to the trend late, so green producers are typically
householders with solar panels on their roofs.
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Delivery of round-the-clock power in the 2014 calendar year
is trading at under 43 euros a megawatt hour in the wholesale
electricity market, a contract low and the lowest price of a
year ahead contract in over three years.
The price weakness reflects the euro zone's economic malaise
and mild weather in recent years, which has curbed demand.
It also results from historically low prices of power cost
inputs such as steam coal feedstock and EU carbon rights
While benefiting from low costs for some inputs, utility
companies are also grappling with structural changes, above all
the loss of nuclear reactors after the decision to exit nuclear
energy faster than planned, and expensive gas.
Consequently, E.ON, Germany's top energy group, has said it
will not be building any more gas or coal-fired plants for the
rest of the decade. It says underused plants will likely post
losses because their investment returns were calculated on the
basis of full-time production.
Solar operators in the meantime added more than a fifth of
new capacity last year and now command 32 gigawatts (GW) of
total capacity, as much as hard coal-fired power stations.
Hard coal-fired plants, because they run constantly and not
occasionally, provided nearly 20 percent of power supply last
year, while solar installation contributed less than 5 percent.
Meanwhile, the total bill for supporting renewable energy
rose to 20 billion euros in 2012 from 17.1 billion in 2011, with
solar power costing over half the total.
This is because producers receive guaranteed payments at
prices above the market for a fixed term, shared by all
consumers. While that has encouraged the young industry's
development, it has distorted the wider market.
"We are treating ourselves to the luxury of highly
subsidised renewables while getting near to destroying existing
plants that should be setting price signals," said Erich
Schmitz, director of the coal importers lobby VDKI.
Householders consequently pay five times the cost of
production; the power spot price on wholesale exchange EEX of 6
cents a kilowatt hour contrasts with average bills of near 30
German media have made much of rising household bills, and
opposition parties are trying to put the blame on Chancellor
Angela Merkel's government before the September election.
Indeed, state fees levied to support renewables, heat and
power co-generation, offshore wind farm liabilities, and to
collect energy usage and value added taxes account for 50
percent of the price.
After production costs and government fees, there are also
the costs of transmitting and marketing power.
"It is up to politicians to reduce these power price burdens
for households," said the chairwoman of industry group BDEW,
Hildegard Mueller, defending producers in her lobby. "The part
of the price that companies can influence keeps shrinking."
Another divisive political issue is the breaks and
exemptions the government has granted to big industrial power
consumers to safeguard their competitiveness. The little guy
ultimately pays to offset such goodies.
These entail waivers for some renewable energy charges, help
with the cost of mandatory emissions trading and with network
Germany's economic rivals and the EU are unhappy about this.
"The losers of the energy strategy shift are the end
consumers, especially low-income households, and our
medium-sized companies, which happen to be creating the most
jobs," said Ulf Boege, formerly the head of Germany's cartel
office in Bonn.