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Germany Rejects Subsidies For New Energy Projects, Says Market Can Provide

Germany’s economy minister and environment minister Tuesday rejected demands for more state subsidies for the construction of new power plants and grid expansion in Germany.

“The market alone is best suited to handle a task of that size,” Energy Minister Philipp Roesler said during an energy conference in Berlin.

The ministers are developing a framework to promote alternative energy without relying on government subsidies.

“We have to combine both, an understanding for markets and political responsibility,” said Environment Minister Peter Altmaier, a senior ally of Chancellor Angela Merkel, who took over at the ministry last week.

Almost a year after Germany decided to shift away from nuclear power and sharply raise production from renewable sources, critics doubt that the move will go ahead as scheduled. The government has so far failed to present a plan for filling the gap in its future energy capacity, as the switch has proven more difficult than initially thought. Massive investment is needed to build new power plants and to strengthen and expand the power grid to be able to transfer electricity from wind turbines in the North Sea to industrial plants in southern Germany.

The alternative energy industry says the only way to ensure that companies invest in new technologies is to provide an incentive through subsidies. But traditional energy companies say such subsidies distort competition and make it expensive to invest in the best technology.

Separately, the Federal Cartel Office also called for a stronger emphasis on competition in the transformation of Germany’s energy supply, rejecting demands for further state subsidies.

“We need more competition, not less” to manage the energy transformation in the most efficient and cost effective way, said the cartel office’s president, Andreas Mundt, in a statement.

Mundt said that the government needs to urgently initiate the phase-out of subsidies for renewable energy sources–like wind farms and solar rooftop installations–to help contain the costs of supporting the nascent but rapidly expanding technologies.

He also warned that financial support for the construction or operation of conventional power plants could trigger a “subsidy race” and distort market mechanisms.

Many power utilities have called for some form of subsidies for building and running fossil-fueled power plants that are needed to complement the intermittent generation from renewable energies. The companies face an increasingly difficult task in operating fossil-fueled power plants profitably, because of the number of hours they produce power has dramatically reduced due to increased production from renewable energies.

Dow Jones Newswire, 6 June 2012