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Merkel Taken On by Kraft as Power Costs Open Second Crisis Front

Hannelore Kraft, Germany’s most powerful Social Democratic state leader, called on Angela Merkel to use tax revenue to cut electricity costs for consumers, raising pressure on the chancellor before talks in Berlin.

Kraft, the SPD prime minister of North Rhine-Westphalia, Germany’s most populous state, called for a 25 percent reduction in power taxes to lower consumer bills by 1.6 billion euros ($2.1 billion). The proposal runs counter to an alternative plan set out by Merkel’s Christian Democratic-led government.

Rising electricity costs and a resurgence of the euro-area crisis in Cyprus have been thrust to the forefront of Germany’s political agenda six months before federal elections. With Merkel seeking a third term on Sept. 22, she is under pressure to strike a compromise with state leaders at an energy summit in the Chancellery today. Merkel is due to hold a press conference with the regional premiers at 4:30 p.m. Berlin time.

“We’re looking to relieve our citizens,” Kraft, whom polls have suggested challenges Merkel in popularity, said in an interview with broadcaster ARD. The expansion of renewable power has helped Finance Minister Wolfgang Schaeuble reap “windfall profits” in additional tax income “and those can be deployed to lighten the burden on citizens,” she said.

Economy Minister Philipp Roesler and Environment Minister Peter Altmaier last month proposed reducing subsidies for both existing and new renewable sites and allowing fewer exceptions for energy-intensive companies. They estimated the measures would save consumers 1.86 billion euros next year.

Bundesrat Block

State leaders, who can block the proposals in the opposition-controlled upper house, have said the government’s plan to cut funding for renewable plants would deter investors. Kraft said the government had already dropped its plans to lower subsidies for existing clean-energy generators as a result of SPD pressure, and her plans would be fairer to industry.

While looking to ease the cost to consumers, “we’re also saying very clearly that we’re not standing by when industry jobs are threatened,” said Kraft, whose state is home to EON SE (EOAN), Germany’s largest utility, and steelmaker ThyssenKrupp AG.

Merkel is working to prevent a voter backlash after costs for Germany’s clean-energy expansion spiralled as the government strives to more than triple the share of renewables in the power mix by 2050 while phasing out nuclear generation. Consumers in Europe’s biggest economy have seen power bills climb after a fee they pay for renewables jumped 47 percent to a record 5.28 euro cents a kilowatt-hour on Jan. 1.

The Environment Ministry wants to have legislation to limit power-price increases before the summer recess. Merkel and state leaders would have to agree by the end of next month at the latest to meet that deadline, Dominik Geissler, a spokesman for the ministry, told reporters in Berlin yesterday.

An agreement between Merkel and state leaders “is possible, but for that the government has to move,” Kraft said.

To contact the reporter on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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