IEA sounds German RE warnings

The International Energy Agency (IEA) in its 2013 review of German energy policy has commended the country for its efforts to build a low-carbon system, but cautioned that electricity must remain affordable and warned of sudden changes to renewables support schemes.

“The fact that German electricity prices are among the highest in Europe, despite relatively low wholesale prices, must serve as a warning signal," said IEA executive director Maria van der Hoeven as she presented the report in Berlin alongside German economics state secretary Stefan Kapferer.

So far, German consumers have absorbed the costs of the country’s Energiewende, its transition away from nuclear to a power supply based on renewables, via a renewables surcharge on electricity bills .

But a debate over the social and economic impacts of the country’s renewables legislation has become more prominent as the share of green power has continued to grow alongside rising electricity prices, the IEA says.

Economics minister Philipp Rösler and his colleague in the environment ministry, Peter Altmaier, earlier this year tried to limit soaring electricity costs via harsh cuts to renewables feed-in tariffs, some of them retroactive.

However, a set of measures proposed by the two ministers was effectively blocked by German states, which are majority represented by the opposition. Any changes to the country’s energy policy now will have to wait until a new government is in place after federal elections in September.

A reform of Germany’s Renewable Energy Act, or EEG, is still necessary and will have to be on the agenda of the new government, state secretary Kapferer stressed.

“The German government should maintain its policy course based on a predictable and stable regulatory framework while actively seeking means to reduce the costs,” the IEA’s van der Hoeven recommended. “Sudden changes can undermine investor confidence and will drive up costs in the long term: Any form of retroactive tariff cuts – even if applied for only a short period – must be avoided.”

The IEA added that Germany needs to develop a mechanism to ensure that costs of a rising share of renewable energy can be distributed more equitably among customer groups including households and small businesses, and calls for market-based approaches.

Currently, on days of plentiful sun and wind, the pricing system in Germany’s electricity market is distorted by a complex mechanism that pushes down wholesale prices, but paradoxically drives up electricity bills for consumers via the renewable energy surcharge.

As part of an assessment of electricity market arrangements, Germany should examine the suitability of capacity markets as a transitional measure to ensure enough investment will flow into flexible gas-fired generation and cost-effective electricity storage, the IEA suggests. In a capacity market, providing ready-to-use electric power capacity is rewarded instead of purely the actually-produced electricity.

“Germany among industrial nations is in the pole position regarding to the integration into the grid of fluctuating renewable production and is doing pioneer work,” van der Hoeven said. “Internationally, so far there are no real examples of how to best set up the electricity market design in such situations.”

Thanks to its successful renewable energy legislation, Germany in the past couple of years has increased its share of green power faster than the average IEA member country, the agency said.

Renewables in 2030 are expected to generate 58% of the country’s electricity, according to government forecasts provided to the IEA review team, up from just over 20% in 2011, with the greatest increase expected to come from wind, which will account for 30.6% of total electricity in 2030, followed by biofuels at 13.3%, and solar at 9%.