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German Industry Calls for Renewables Policy Reform

Germany’s industry federation has released a proposal for reform of the nation’s renewable energy strategy, calling for it to be enacted in the new government’s first 100 days.

Key to the trade body’s plan are strategies for abolishing the feed-in tariff (FIT) for renewable energy and instead allowing market mechanisms to determine its price, procuring more reserve power capacity, and more closely matching German renewable energy policy with EU policies.

Renewable energy policy reform has been a growing issue in Germany, but has essentially been on hold in the runup to the election.

The Cost of the Energy Transition

Chief among the Bundesverband der Deutschen Industrie's (BDI) concerns are the costs associated with the Energiewende. The BDI says the FiT is simply too expensive, claiming that costs for industry and consumers have already exceeded critical limits and are endangering competitiveness. “The EEG [Germany's renewable energy law], with its guaranteed feed-in tariffs and priority access for renewable energy, can’t support the needs of a power generation market with supply and demand structures. High system costs are the result,” the group said in its proposal. 

German consumers and businesses pay a so-called EEG surcharge to support the nation's goal of meeting 80 percent of its energy needs with renewables by 2050. BDEW, the energy and water trade association, has predicted that these costs will increase this year from €14.1 billion to €20.4 billion.

While German households pay among the highest electricity rates in the EU (and rates are set to rise again in 2014), industry is also feeling the bite despite EEG surcharge exemptions, worth about €4 billion, for energy-intensive sectors. The exemptions were originally intended for a small number of companies, but current estimates of the number of exempted businesses range from around 1700 to 4000, leading to public protest within Germany and an ongoing investigation by Europe’s antitrust regulator.

“The EEG system was carefully structured to keep German industry competitive,” said Dr Matthias Lang, a partner at law firm Bird & Bird in Düsseldorf and chief author of the German Energy Blog. “The German population wants renewable energy, but at the same time they still want their Mercedes to be built here. That’s why we see certain exemptions, and their commercial relevance has dramatically increased over the years because of considerable increases in the EEG surcharge and grid fees.”

Removing the exemptions for industry will make the costs of the Energiewende bite even harder, and could have major implications for renewable energy support policies, Lang said. “If you take one pillar away – if all exemptions go, either for reasons of politics or European law,” he said, “then the whole system is in danger and this is going to be one big challenge. If this element of the renewable energy support system that still has industry interests at heart is no longer workable, then this may create a major problem for renewable energy support as a whole.”

Aligning With Europe

The BDI’s proposal to align German renewable energy policy more closely with European policies rests on infrastructure and regulatory concerns. Germany’s having outpaced the rest of Europe in implementing renewable energy isn’t necessarily a good thing, Lang said. “The European target is 20 percent by 2020; if you have 30 percent it’s not that you’re necessarily better – you’re not complying with the targets. If a nation is creating problems for everyone else because it’s doing more than the targets, then it may not be in line with European requirements,” he said.

In its investigation the European Commission “will look hard at what Germany is actually doing, and I suspect that we will actually see some criticism from Brussels,” he continued. “It’s about how our energy policy fits into Europe’s. If we create grid extension issues here, maybe it would be better to have the grid built in France, Belgium, the Czech Republic, etc.,” he said. “We have cross-border issues now because of differing environmental law regimes in different countries, which create issues for German industry – that’s why the BDI is interested. What we do needs to fit into the European scale because German companies sit on both sides of the border.”   

Election Results Are Key

Chancellor Angela Merkel, re-elected on Sunday for a third term, has indicated that renewable energy policy reform is in the works, but to date has offered no details on how it will be achieved. Her party has said it wants to make renewable energy competitive on the free market without further government support; it also wants renewable power generators to assume more responsibility for energy security. What kind of policy reform takes place will now depend on which parties participate in an eventual coalition government, with the centre-left Social Democrats and the Green Party both in the running.

Once a government is formed, Lang said, there will be “a really lengthy discussion about how [policy reform] is going to work. The winning coalition parties will have to make some hard decisions about the renewable energy support system. It will not be easy for either party to make these choices.” Contributing to the discussion will be new EEG surcharge figures, to be released on 15 October.

“I can’t tell you where this is going to go,” Lang said. “Merkel said two years ago that the EEG surcharge was not going to rise above €3.4 cents; next year it may be twice as much,” he continued. “We will have a new price tag for the surcharge in October; at the same time the new government will have to make up its mind where to drive the EEG system.”

It is possible, Lang said, that the new government “will have an initial quick-shot reaction to deal just with certain elements” of policy reform. “We’ve seen in the past that a new government comes up with a first reaction, and then something that takes longer,” he said. “Substantial reform will take longer.”

Lead image:  Renewable energies and sign with the German words 'energy change', via Shutterstock

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