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Germany's energy dream in danger

A few days after the Fukushima nuclear disaster in March 2011, hundreds of thousands of angry citizens took to the streets — not in Japan, but all across Germany.

The meltdown 9,000km away tipped public opinion from a mere opposition to nuclear power towards a total refusal to tolerate it further.

Chancellor Angela Merkel, a canny politician, was swift to act — reversing a decision made just months earlier to extend the lifespan of Germany’s 17 nuclear power plants. Her centre-right government then decided to immediately shut down eight reactors and switch off the remaining nine between 2015 and 2022.

Merkel had effectively adopted the position taken by the Social Democrat-Green government in 2000 — to phase out nuclear power by the early 2020s. Post-Fukushima, the former nuclear enthusiast decided that the risks from atomic energy were too high, and called for the “Herculean task” of scrapping the technology.

To replace nuclear power and reach its climate goals, Berlin has set ambitious targets for renewable energy. By 2020, renewables should account for 35% of the country’s electricity demand, and by 2050 they should meet 80%. This is not an easy target considering that the world’s fourth-largest economy has 82 million citizens and a massive industrial base — yet very little hydropower.

At least the 2020 target is within reach. Last year, renewables accounted for 23% of Germany’s electricity output, and capacity continues to grow at a fast pace.

The motor for this rapid build-up is Germany’s Renewable Energy Sources Act (EEG). It was drafted by Gerhard Schröder’s “red-green” government in 2000, when renewable energy accounted for only 6.3% of the country’s electricity. Doubling that share within ten years was enshrined in law. At the time, opponents from the nuclear and coal industries — as well as Merkel’s Christian Democrats (CDU) and her current Free Democrat (FDP) coalition partners — deemed that target totally unrealistic.

The critics were proven wrong. Not only did green power grow much faster than anticipated, but Germany created a mass market for wind and solar power, helping to drive down costs on a global scale.

Thanks to the success in Germany, the EEG legislation — which includes feed-in tariffs (FITs) — has been copied by more than 60 nations, says Hans-Josef Fell, a Green member of parliament and energy expert who helped draft the act.

But despite its success in driving renewables forward, the FIT system is increasingly coming under attack. German electricity prices, already among the highest in the world, have recently shot up — due to the so-called “renewable-energy reallocation charge”, a surcharge on electricity bills to finance the gap between FITs and power prices at the European Energy Exchange in Leipzig.

The critics again come from the centre-right CDU and the free-market FDP, which only agreed to Merkel’s nuclear exit under duress. But unlike in 2000, it is now these politicians who hold power.

Last autumn, when it was realised that the surcharge was to jump 50% from 2012 to 2013 to €0.0528 ($0.071) per kWh, environment minister Peter Altmaier (CDU), left, and economics minister Philipp Rösler (FDP), said they would propose a reform of the renewables act in March 2013.

With support for such reform uncertain in Germany’s lower house, the Bundestag, Altmaier surprised the country (and his FDP partners) in late January by speeding ahead and proposing an amendment to the legislation — to impose a moratorium on the renewables surcharge for 2013 and 2014, with any subsequent annual rise being limited to 2.5%.

“The limit to burdens through additional costs from the energy turnaround has almost been reached,” Altmaier said. He added that outstanding surcharge costs from currently operational renewables plants amounted to €150bn-170bn until 2020.

To finance the freeze, Altmaier has suggested a moratorium of “a certain number of months” in the payment of FITs for new renewable plants at times when sufficient funds were not available, plus a one-off speeding-up of the planned tariff reductions. These measures could bring cost savings of up to €500m, he says.

Altmaier has also proposed a one-off reduction in FITs at existing plants for a limited period, which could save another €300m. Like plans to retrospectively change support levels elsewhere in Europe, that would prove controversial and could trigger a wave of lawsuits.

He additionally proposes that owners of renewables installations that do not export to the grid — such as homeowners with rooftop solar — would also start paying the renewables surcharge.

Perhaps more importantly, he also wants to reduce or cap the exemptions from the surcharge enjoyed by energy-intensive industries. That could save another €500m — and is the only proposal not to have been met with outright hostility from renewables groups.

He told wind executives at a Berlin debate last month that amending the system wouldn’t choke the growth of renewables, but enable more capacity to be installed with the same amount of support.

But the German Renewable Energy Foundation, BEE, says freezing the surcharge — or retroactive changes to the FITs — would put a brake on the build-up of green power.

“It would undermine the investor protection that is valid in Germany,” warns BEE president Dietmar Schütz.

For Germany’s embattled solar sector, the proposed cuts could mean a death blow, as homeowners would be less likely to buy rooftop installations.

“Altmaier’s proposal reduces the ability to plan and the reliability of investments in the energy transition,” says the German Solar Industry Association.

Wind-power companies, already suffering from shrinking markets in the US and China, have been equally horrified.

If the measures become law, they would increase an existing insecurity for investment decisions, REpower chief executive Andreas Nauen tells Recharge. “It would put further pressure on us as a wind turbine manufacturer, and with that also [put pressure] on our German locations,” he warned.

After the rapid build-up over the past decade, the renewables sector is already a considerable employer in Germany. Messe Husum, an organiser of conferences and job fairs for renewables, estimates that the industry already employs about 382,000 people.

Altmaier’s proposals have triggered insecurity among manufacturers, banks and financial investors alike, Jürgen Zeschky, chief executive at German turbine manufacturer Nordex, tells Recharge. “Financial investors attach great importance to reliability. If something is called into question retroactively, of course they get nervous,” he says, adding that financial investors have already raised the issue with him.

Zeschky hopes Germany will find a more intelligent solution than the US, where a steep decline in wind installations is expected this year due to the late extension of the production tax credit.

Turbine maker Enercon, Germany’s secretive market leader, took the unusual step of issuing a statement warning of a need to examine the true cause of the rise in the renewables surcharge.

“The build-up of onshore wind energy hardly can be called a decisive driver of the increase in the renewable-energy reallocation charge in recent times,” said Enercon managing director Hans-Dieter Kettwig.

The Enercon statement does not specify what it considers to be the decisive factor, but officials from German wind companies often privately claim that PV, not wind, is the main cost driver in the country’s FIT system.

PV accounts for more than half of the surcharge relating directly to the FIT, with biomass responsible for a quarter and wind less than 10%, according to BEE calculations.

Yet a closer look at Germany’s highly complex electricity pricing system reveals that costs relating to renewable-energy production only account for less than half of the surcharge. The remainder derives from other factors — most prominently from additional costs to compensate for energy-intensive companies’ exemption from the surcharge. Early last year, under pressure from heavy industries, Merkel’s government greatly increased the number of exempt companies.

The surcharge is also being swelled this year to compensate for an incorrect estimate of the size of the supplement last year. Plus, there is a growing distortion resulting from the “merit-order effect” in Germany’s electricity pricing system.

Renewable power enters the electricity market with priority, at a production cost of almost zero. On days of plentiful sun and wind, that has the effect of pushing power from the most expensive energy sources out of the spot market at the Leipzig exchange, and actually bringing down overall prices. But while industrial buyers can swoop to profit from cheap prices at the exchange, households and small businesses cannot buy their power on the spot market.

At the same time, the renewables surcharge has to compensate for the difference between FITs and the reduced spot-market electricity price. So, lower power prices due to renewables have the paradoxical effect of driving up the surcharge, and inflating bills for consumers. Renewables groups complain that Altmaier’s proposals do not address these systematic errors — and ignore the hidden costs of conventional power, such as environmental damage and nuclear-waste storage.

The environment minister has been a long-time supporter of renewables, and has repeatedly compared the efforts needed in the energy transition to those of Germany’s reunification after 1990. So why did he come up with a series of apparently ill-thought-out measures?

In part, he may have been trying to appease economics minister Rösler, below, who has lobbied for far more drastic steps, such as capping the build-up of renewables or abolishing FITs entirely.

T

hat strategy didn’t work out too well. Rösler quickly demanded harsher cuts, complaining about “grave excess support” for wind power.

After some arm-twisting, the two ministers came up with a joint proposal last month that added even more hardship for renewables.

The new proposal set a moratorium on FIT payments to new plants for their first five months of operation, and lowered FITs for new wind installations from €0.09/kWh to €0.08 and scrapped an FIT bonus for repowering.

In addition, the men propose a one-off 1.5% reduction in FITs for existing plants from 2014 — in addition to the gradual reductions already set by legislation.

Altmaier also swallowed Rösler’s demand for an obligation for most new plants to sell their electricity directly to clients or at the electricity exchange, rather than to the grid. Although producers get compensation for the difference between the market price and the FITs, this will drive marketing and administration costs up, the German wind-energy association, BWE, complains.

Altmaier has one eye on upcoming federal elections in September for the Bundestag, the lower house that determines most legislation and elects the chancellor. Until then, the Social Democrat and Green opposition is likely to try to delay any legislation using its newly acquired majority in Germany’s upper house, the Bundesrat, which is made up of representatives of Germany’s states.

If the opposition parties were to succeed in blocking Altmaier’s proposals in the Bundesrat before September, he could blame them for not being sensitive to the concerns of poorer Germans hit by rising electricity bills. However, in recent opinion polls, two thirds of Germans said they were still willing to accept higher costs in order to make the energy transition work. Although that could change as customers get used to receiving higher bills (electricity prices jumped in January).

Merkel is yet to reveal her views on the debate in public. Recent surveys show that social issues are still top electoral concerns — and, so far, the Social Democrats and Greens are seen as more competent in that area. So the power-price discussion could suit the chancellor well if she can simplify the complex nature of the surcharge and successfully argue in favour of Altmaier’s plans.

But one thing is clear. For the German renewables sector, this electoral year could prove to be crucial.

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