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War On Subsidies: Brussels May Kill Germany’s Green Energy Revolution

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Frank Dohmen, Christoph Pauly and Gerald Traufetter, Spiegel Online

As part of Germany’s switch to renewables, industry has been exempt from paying higher prices associated with solar and wind energy. The European Commission, however, believes the practice distorts competition on the Continent. Huge penalties could be in store.

The audience was small and exclusive, which helps explain why little has emerged thus far of what European Energy Commissioner Günther Oettinger said at the Hotel Stanhope in Brussels on May 6. It was enough to cause something of a stir among his listeners.

For the European Commission and for Competition Commissioner Joaquín Almunia, Oettinger said during a dinner event, it is clear that price concessions for energy-intensive companies in Germany amount to an inadmissible subsidy. In the best-case scenario, he said, the Commission would ban such subsidies. But, he added, the worst case could see Brussels demanding that such companies pay back the money they had saved as a result of the discounts they have received.Competitors and neighboring countries had filed an official complaint about these benefits with the European Commission, prompting the EU competition authority to launch an investigation. The German commissioner had sought to assure industry representatives that the process was only just beginning and the outcome remained unclear.

That, though, seems to only have been partly accurate, which helps explain the current agitation. The scenario Oettinger outlined at the Brussels dinner is a horrifying one for parts of German industry and for the government in Berlin. The prospect of having to repay several billion euros is certainly a daunting one. Even worse, though, is that the competitiveness of entire industrial sectors would be put at risk. Also at stake is the Renewable Energies Act (EEG), a central component of Berlin’s shift away from nuclear power and toward green energy, also known as the Energiewende.

Since 2000, Germany has used the EEG to promote the expansion of renewable forms of energy. To ensure that the construction ofexpensive solar and wind farms is worthwhile for private individuals and investors, they receive a guarantee that the electricity they produce will be purchased at a fixed price for a period of several years.

Graphic: Climbing European energy prices.

Alternate Reality

The costs of start-up financing for green energy and the compensation for expansion of the power grid are added to customers’ electricity bills in the form of a special tax. The entire subsidy system is supposed to come to an end when green energy becomes competitive. That, at least, is the theory.

But the reality is different. No longer can one simply describe the tax as a way to get renewable energies off the ground. Indeed, following Berlin’s decision two years ago to shelve nuclear energy and accelerate the expansion of renewables, the EEG has become a giant redistribution machine.

Owners of wind and solar farms were paid about €14 billion ($18 billion) last year alone. This is the difference between the guaranteed EEG price and the proceeds actually achieved on the market for the electricity they fed into the grid. Experts with the Institute of Energy Economics at the University of Cologne estimate that consumers will have to pay more than €100 billion by 2022 for renewable energy facilities that have already been installed. Of the 28 cents household customers pay per kilowatt-hour of electricity today, 5.28 cents already applies to the EEG levy, and that figure is growing. […]

But as costs have risen, what was once a reasonable tool has become a farce. Because the German government lowered the limit at which a company is considered energy-intensive from 10 gigawatt-hours a year to only 1 gigawatt-hour a year, large corporations are now not the only ones to enjoy the exemption. Discount markets, furniture stores and retail chains have combined the electricity consumption of their branches nationwide to qualify and submit exemption applications.

The number of company sites with an EEG exemption has jumped from 979 in 2012 to the current figure of 2,245. According to a parliamentary inquiry made by the Green Party, applications for exemptions from grid charges more than doubled, from 1,600 in 2011 to 3,400 in 2012. This has allowed companies and larger corporations to save close to €5 billion.

Consumer advocates, Greens and small and mid-sized business owners unanimously complain that small companies and household customers are expected to make up the difference. “They are the ones ultimately footing the bill,” says Höhn.

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