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Germany Sets Out Plan To Rein In Surging Green Energy Costs

Henning Gloystein and Christoph Steitz, Reuters

German parties have agreed to limit the growth of renewables and reform controversial incentives for the sector by next summer in a move to slow the rise in electricity costs for households and give big utilities more time to adapt their business models.

Chancellor Angela Merkel’s conservatives and the centre-left Social Democrats (SPD) clinched a coalition deal early on Wednesday that puts Germany on track to have a new government in place by Christmas.

One of their top priorities will be a reform of the renewable energy law (EEG), which has sent costs for consumers soaring because of generous incentives for solar and wind power.

The subsidies are largely paid for by households, whose bills have almost doubled to an average of 300 euros ($410) per megawatt-hour (MWh) over the past decade and are now the second-highest in Europe behind bills in Denmark, according to Moody’s Investors Service.

For utilities, the subsidy-fuelled renewable boom has eroded wholesale power prices, reduced revenues and forced the closure of several fossil-fuelled power stations.

“The coalition aims for a fast and fundamental reform of the Renewable Energy Law and plans to submit a draft by Easter 2014, with the goal of passing it by summer 2014 in order to a create a reliable energy policy framework,” the coalition contract said.

The agreement stops short of promising a reduction in utility bills.

But it says a new government will gradually reduce subsidies for all renewable technologies and completely scrap some grants. From 2018, grants will be handed out through competitive tender offers, which will be based on a 400 megawatt photovoltaic pilot tender scheme to be launched in 2016.

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