German Chancellor Angela Merkel's decision to cap taxpayer subsidies for renewable energy is aimed at limiting the political fallout among voters from a surge in electricity bills due next week.

With the grid operators planning to announce an increase in the surcharge consumers pay for clean energy on Oct. 15, the government said it will extend caps on subsides for solarenergy to more technologies including wind and biomass. The plan is designed to contain the rising costs of scrapping nuclear power.

Consumers in Europe’s biggest economy face an extra 59 euros ($77) on their power bills next year as the annual adjustment to the surcharge probably will climb 47 percent, the nation’s BWE wind lobby said today. Rising energy costs are adding to pressure on Merkel’s coalition to cushion the blow by reining in public support for renewables before elections scheduled for the autumn of 2013.

“This is the stick the opposition will try to beat Merkel with,” William Pearson, an energy analyst at the Eurasia Group, said in an interview. “I expect rising power prices to be an issue for the next five years. They could turn into a real political problem if the economy stops growing.”

The proposals announced yesterday to reform the clean- energy subsidy system mark the most sweeping changes to Germany’s support mechanisms for renewables since the country adopted feed-in tariffs in 2004. Those rules granted renewable generators above-market prices for the power they produce and made Germany the world’s biggest market for solar panels.

‘Bothering’ Voters

Outlining his plans for a draft bill due next year, Environment Minister Peter Altmaier said the rise in power prices “bothers me, because it’s bothering the people.” He pledged help from the government.

“We knew from the start that the energy switch can’t be realized for free,” Altmaier told reporters. “However, I want to prevent costs that can be prevented.”

Merkel’s government, already preoccupied with tackling the debt crisis in the euro area, is struggling to justify the rising costs for consumers from her decision to phase out nuclear power and replace it with more expensive wind and solar plants. Merkel, seeking a third term, has signaled that the euro crisis and the energy overhaul will be her main campaign themes.

Support for shutting nuclear plants remains high, a TNS Emnid poll for N24 television showed yesterday. While 69 percent of voters said they’re behind the plan even with power prices rising, 81 percent said they expect the government to help alleviate the rising costs. TNS Emnid surveyed 1,000 people on Oct. 10. No margin of error was given.

Fukushima Overturn

For all the public backing, the original decision to abandon nuclear power was pioneered by the opposition Social Democratic Party and their Green allies under SPD Chancellor Gerhard Schroeder. Both parties, whose plan was overturned by Merkel in 2010 then reinstated six months later after Fukushima, accuse Altmaier of mismanaging the task.

Merkel’s SPD challenger, Peer Steinbrueck, has meanwhile boosted the SPD’s approval rates since his nomination on Oct. 1, narrowing the lead held by Merkel’s Christian Democratic bloc to between 4 percentage points and 9 points in polls.

Germany, which gets about a quarter of its power from renewables, spent about 16 billion euros on clean energy technologies in 2011, according to the country’s four grid operators. The economic crisis is hurting developers by hampering access to financing and has prompted Spain, France, Italy and the U.K. to curb incentives for the industry.

Industry Cost

The German economy is at a disadvantage because subsidy costs are spiralling out of control, said the country’s BDI industry association. Companies will probably have to pay 4 billion euros to help finance the subsidies next year, said Markus Kerber, the head of the group.

The industry’s complaints are unfair, Hermann Albers, the president of the BWE wind lobby, said today. Exemptions for energy-intensive companies, low prices on power exchanges and leftover costs from 2012 are responsible for more than half of the new fee, he told reporters in Berlin.

Without reform of the subsidy system, another 175 euros would be added to domestic power bills by 2022, according to Frauke Rogalla, who is responsible for energy policy at the Federation of German Consumer Organizations, a consumer advocacy group.

“Costs will go up in the coming years because Germany bets on expensive offshore wind and is modernizing its power transmission system,” said Pearson at the Eurasia Group. “The problem is Germany has limited options as gas is expensive and coal unpopular. Under any government, prices would rise.”

The debate over power prices is short-sighted because Germany will save 570 billion euros by 2050 if it scraps nuclear plants, the Renewable Energy Research Association, a group of clean-energy research institutes, said on Oct. 10.

“The investments made now, at the beginning, will pay off within a foreseeable time frame and have a positive economic impact,” the group said.

Copyright 2012 Bloomberg.

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