German Power Premium Most Since ’98 Tests Voters: Energy MarketsJulia Mengewein and Stefan Nicola
Germany’s drive to increase renewable energy sources has created the biggest discrepancy between consumer and producer power prices in 15 years, turning the cost of electricity into a political battleground before the Sept. 22 national election.
Because of taxes and charges that subsidize the country’s 550 billion-euro ($734 billion) plan to expand solar and wind power, residential bills are more than twice the amount that utilities pay to deliver the electricity, according to Berlin-based lobby group BDEW. Costs are 68 percent higher than in 1998, leaving Germans paying more for their power than any other nation in the European Union except Cyprus and Denmark, EU data show.
Chancellor Angela Merkel, fighting for a third term in this weekend’s vote, says changing the renewables law that governs how much consumers pay in subsidies is her first priority. The Social Democratic Party, her chief opposition, wants to streamline efforts to reform the law and make the switch more cost-efficient. Europe’s biggest economy aims to source at least 35 percent of its power from mainly solar and wind by 2020, a project that is sapping profit at gas- and coal-fired stations.
“This situation puts us in a dilemma,” Constantin Alsheimer, chief executive officer at Mainova AG, Frankfurt’s biggest utility, said Sept. 13 by e-mail. “On the one hand we are hardly making any money with our fossil plants; on the other hand our private customers are burdened with higher prices.”
In the first four months of the year, German households paid on average 28.73 euro cents per kilowatt-hour, double the 14.32 euro cents it cost to generate, transport and sell the power, according to BDEW, the acronym for Bundesverband der Energie-und Wasserwirtschaft. In 1998, consumers paid 17.11 euro cents, with the premium accounting for as little as 4.2 euro cents. One kilowatt-hour is enough power to watch television for about 10 hours, according to Niestetal, Germany-based SMA Solar Technology AG.
Merkel may not get a majority for her preferred coalition, according to yesterday’s weekly Stern/RTL poll. Her Christian Democratic Party will attract 39 percent of the vote and its Free Democratic partner 5 percent, according to the survey of 2,502 people from Sept. 10 through Sept. 16. The Social Democrats hold 25 percent and their Green party allies are on 9 percent, the poll showed. The most likely coalition options are a grand coalition of CDU/CSU and SPD, or a CDU/CSU coalition with the Greens, Stern said.
Germany’s 13-year-old renewable energy act, known as EEG, is designed to increase the share of electricity from green sources to 80 percent by 2050, from about 23 percent now.
Under the EEG, the government guarantees above-market prices for wind, biomass and solar power generators. The spread between the fixed cost paid to clean-energy producers, which get priority access to the grid, and the market price is made up by a charge added to every household bill.
This year’s renewables fee is 5.28 euro cents a kilowatt-hour, up 47 percent from last year, according to the country’s grid operators. That may rise to 6.1 euro cents next year, according to a study by Energy Brainpool GmbH, a Berlin-based power-analysis firm, and commissioned by the Green party.
German households paid on average 26.4 euro cents for a kilowatt-hour of electricity last year, according to data from Eurostat in Luxembourg. That’s more than double the 11.95 U.S. cents a kilowatt-hour that U.S. consumers paid in the 12 months through June, according to the country’s Energy Information Administration.
“If you want to talk about electricity, I can only say that it has become a luxury,” said Cosimo Madeo, 47, the manager of an Italian ice cream shop in Frankfurt for 16 years. “Our power bill has gone up massively over the past years. If prices continue to rise like this, power will soon be more expensive than the rent.”
For Efe Yildis, who runs a tailor store in a residential area of Frankfurt, rising power costs are hurting her expansion from a smaller site she ran for 19 years.
“Now that I have a slightly bigger space and am also offering ironing services, I pay 80 euros per month because the industrial iron uses a lot of power,” Yildis, 53, who paid about 25 euros a month at her previous location, said in a Sept. 13 interview. “I have been struggling ever since I opened this new shop six months ago.”
The number of households whose power was cut off in the state of Hesse, where the euro-area’s financial capital Frankfurt is located, jumped 12 percent last year, according to Verbraucherzentrale Hessen, a consumer protection group.
“This is a social time bomb and we need to find a way to relieve households that are financially weak,” Elisabeth Benecke, a spokeswoman for the group, said Sept. 13 by e-mail from Frankfurt.
While 82 percent of Germans support the targets of the energy switch, more than half say rising prices are the main downside, according to a Forsa poll of 1,227 people taken from June 10 to June 20 cited by the Federation of German Consumer Organizations.
“Consumers see rising energy prices as by far the biggest disadvantage of the energy switch,” Niels-Soennik Schnoor, a renewables analyst at the federation in Berlin, said by phone.
While consumer bills soared, wholesale prices slumped 60 percent from their 2008 peak along with fuel costs, according to broker data compiled by Bloomberg. German power demand last year fell to its lowest since 2003, according to AG Energiebilanzen e.V., an association of energy lobbies and research institutes.
Power for 2014 delivery in Germany, a regional benchmark, closed today at 39.35 euros a megawatt-hour, after reaching a record low 36.05 euros on Aug. 6, broker data show. The year-ahead contract traded at 90.90 euros in July 2008.
All major parties agree Germany’s clean-energy law must be changed, though there’s no consensus on how.
Merkel told the Bundestag, Germany’s lower house of parliament in Berlin, on Sept. 3 that tackling the jump in prices and changing the EEG law will be her first priority if she wins the election.
Renewables aren’t occupying a niche anymore “but are part of the overall generation mix,” she said. “That leads to entirely new problems.”
Germany needs more competition among renewable sources and a system where owners of clean energy plants sell power when it’s needed rather than rake in state aid through 20-year feed-in tariffs, Economy Minister Philipp Roesler said July 24 in an interview. He leads the Free Democrats, Merkel’s current junior coalition partner.
The Green Party is seeking more ambitious European Union climate targets to help boost the cost of carbon emissions and to ditch coal stations in favor of cleaner gas plants, Juergen Trittin, the party’s co-leader, said in a May interview.
“The widening spread between low wholesale prices and high consumer end prices is a major problem for any new German government,” Will Pearson, the London-based director for global energy & natural resources at Eurasia Group, said yesterday by phone. “Managing the capital costs of renewable energy, which is driving up consumer prices, is a key issue that has to be addressed.”
German consumers will pay more than 20 billion euros a year to fund the “Energiewende,” or the shift to renewable power, regardless of the outcome of elections, according to Bloomberg New Energy Finance.
Subsidies are fixed for 20 years and even if a newly elected government changes future support levels for wind and solar generation, the bill will be more than 20 billion euros annually through 2030, Anna Czajkowska, an analyst for clean energy policy at BNEF in London, said yesterday in a report.
Falling wholesale power prices have cut profit at gas-fired plants, leading utilities to rely more on coal-fired stations, which emits about twice as much carbon dioxide.
The switch increased emissions at German utilities and factories by 0.4 percent to 452 million metric tons last year, the most since 2008, data compiled by Bloomberg show.
Even after saving about 200 euros a month on power bills by switching supplier to Suewag Energie AG from Mainova, Madeo, the ice-cream maker, says rising costs may jeopardize his dream of one day leaving Germany to grow old in his native Italy.
“I turn 48 in October,” he said. “In the future, I want to be at home in Italy, sit by the beach in Calabria, watch the seagulls and sip my espresso. But, honestly, I am not sure if I am going to make it.”