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Germany plans to hide the rising cost of the renewable energy transition

Alex Reichmuth, Schweizer Nebelspalte

The subsidies for promoting renewable energy are getting out of hand in Germany. Now the coalition government is resorting to a trick: it is using the federal budget to cover the horrific costs. The financial effects of the energy transition are thus less visible.

In Switzerland, people always look to Germany with a certain amount of interest. The so-called energy transition that is taking place there is in many ways similar to the plans that our country also wants to implement. Germany plans to shut down the remaining six nuclear power plants by the end of next year and also to phase out coal-fired power generation by 2038. The huge electricity gap that arises in this way is to be filled with alternative energy, mainly solar and wind power. The renovation is already in full swing.

In Switzerland, after the decision to phase out nuclear power, a large part of the electricity will also come from solar and wind power plants. However, the Swiss energy transition is progressing much more slowly, so that the German energy transition – depending on your point of view – serves as a role model or a deterrent.

Neither wind nor solar power are currently marketable. Therefore their production has to be subsidised with a lot of money. The operators of wind turbines and solar systems receive a fixed price for the electricity that they feed into the grid for 20 years after the installation of a system. In Germany this is regulated in the Renewable Energy Sources Act (EEG). In order to finance the subsidies, electricity customers pay a surcharge per kilowatt hour (kWh), the EEG surcharge.

The most expensive electricity in Europe

The subsidisation of renewable electricity in Germany has reached dizzying heights in recent years with around 30 billion euros annually. The EEG surcharge has increased accordingly and has now reached almost 7 euro cents per kilowatt hour. The EEG surcharge thus makes up around a quarter of the electricity price. Also because of additional surcharges, electricity in Germany has become more expensive than anywhere else in the European Union. The electricity price is 43 percent above the average for EU countries.

This puts many private individuals with small budgets in financial difficulties. A family with an average consumption of 4,000 kilowatt hours now pays over 300 euros per year for the EEG surcharge. In addition, the competitiveness of the German economy is increasingly in danger. The Federal Audit Office recently criticised the high electricity prices. These would jeopardise the social acceptance of the energy transition, he warned in a report. (look here)

The coalition government made up of CDU / CSU and SPD is therefore under pressure. It definitely wants to promote the expansion of wind and solar systems, but urgently needs to relieve electricity consumers financially. So she uses the general federal budget.

EEG surcharge is to be abolished

For this year and next, the coalition is spending billions of euros from the federal budget to lower the EEG surcharge. In 2021 this will be 6.5 euro cents per kWh and in 2022 6 euro cents per kWh. A few days ago the coalition decided that in the two following years the taxpayers should be used even more to finance the green electricity subsidies. In 2023 and 2024, the EEG surcharge will drop to below 5 euro cents per kWh.

In the medium term, the EEG surcharge should even be completely abolished, as Peter Altmaier (CDU) said in February from the Ministry of Economics. The billions in subsidies will be financed entirely from general funds in the future. For the coalition government, this has the advantage that it is much less visible how much money the energy transition will cost.

The money can now be spent much more loosely: with the lowering of the EEG surcharge for 2023 and 2024, the coalition also decided to “significantly” increase the tendering volume for wind and solar power planned for 2022 for a short period of time. For onshore wind, this will be increased from 2.9 gigawatts to 4.0 gigawatts, and for photovoltaics even from 1.9 gigawatts to 6.0 gigawatts.

The feed-in tariff is to expire

In Switzerland, the counterpart to the EEG levy, the charge for the cost-covering feed-in tariff (KEV), is not yet as hard on the wallet as it is in Germany. With the KEV, the producers of alternative electricity are also compensated with fixed tariffs for 20 years after the construction of a system. With the energy law adopted by the people in 2017, the KEV tax rose to 2.3 cents per kWh.

It is planned that the KEV will expire in 2023 – this means that no further systems will then be included in the financing. The KEV is then to be replaced by one-off payments for systems through competitive tenders. It remains to be seen whether this will really happen – because subsidies generally have a tendency to perpetuate themselves.

Full post (in German)