Who will carry the cost of the Energiewende? Manfred Ungemach and Markus Przytulski look at the different party positions on the EEG surcharges in the upcoming federal elections.

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We continue our series on the competing parties’ agendas for the upcoming federal elections by focusing on the discussion who actually should be burdened with the costs of the “Energiewende”. This includes whether and which types of customers should be exempt therefrom with regard to international competition, and whether or not the increasing costs in particular resulting from EEG surcharge, but also of the extension of the grid, should be set off by reducing the electricity tax. As we have pointed out in the first blog of this series, the cost aspect has become an increasingly controversial issue over the last two years.

Introduction

Given in particular the increasing costs of renewable energy generation, but also of grid extensions, including the costly connection of offshore wind-farms to the grid, two major problems have arisen: Firstly, how to protect the bottom third of household customers, which has suffered most from increasing energy costs over the last five years. Secondly, how to keep energy-intensive industries competitive on the world market despite increasing overall energy costs resulting from the feed-in tariffs guaranteed to existing renewable facilities for the next decade and more, and the intention of all parties to even increase the share of renewable generation, as described in our first blog of this series.

The current EEG surcharge which recovers the costs of the feed-in of renewable energies into the grid, as well as the electricity tax and increases in grid fees, may be considered to lead to social unbalance, caused by the calculation method which is not income-contingent, but consumption based. While the energy consumption of households only slightly varies based on income, relatively speaking that means that in relation to the average household income the bottom decile’s financial strain through the EEG reallocation charge will increase to 1.33% of its net income in 2013, while the top decile’s financial strain stays below 0.3%. The electricity tax is, as well, consumption based, however poses a lower financial burden, as the rate is fixed by statute and amounts to less than half of the current EEG surcharge. However, reducing or abolishing the electricity tax may pose a valid instrument to reduce the social disparity of the current situation.

In addition to that, in order to balance the competitive disadvantages for German energy intensive companies competing in the world market from the consequences of the “Energiewende” which results in increasing costs of grid extensions and the EEG, energy intensive industry branches have been partially and even entirely exempt from grid costs if they have a very steady load-shape and pay lower EEG surcharges. In 2011 the legislator broadened the prerequisites for lower EEG surcharges, allowing almost 2000 companies to take advantage of that exception, instead of around 700 which benefited before the amendment in 2011. Recently, both schemes have been attacked by the European Commission.

But also in connection to the question of social acceptability politicians have to address how they intend to make such reliefs for companies socially more acceptable, as they may lead to a system, in which the ordinary citizen pays the bills for large enterprises. However, to put the reliefs in perspective a study by the Institute of the German Economy Cologne (IW) has provided the following figures:

• After the 2011 amendment, the EEG surcharge amounted to EUR 38,50 p.a. for an average household with an annual electricity consumption of 3,500 kWh.
• Before the 2011 amendment, the charge amounted to EUR 35 for an average household.

In contrast, however, the IW states that the abolition of the reliefs would lead to a tremendous disadvantage in the global market for companies from energy intensive branches. That would endanger economic growth, investments and especially jobs and therefore be less socially acceptable as the charge relief itself. The IW also states that a draw-back from the 2011 amendment would not make sense, as the economic benefits outweigh the surcharge of EUR 3,50 a year. Even if since then the EEG surcharge nearly has doubled, this puts the current heated discussion regarding the relief in perspective.

Thus, German society and the German economy faces great challenges concerning social acceptability and their economic competitive edge in implementing the “Energiewende“. The parties present the following concepts to overcome such challenges:

CDU/CSU (Christian Democratic Union/Christian Social Union)

On the matter of the social acceptability of the “Energiewende“, especially on how to reduce consumer energy costs, CDU and CSU take different approaches, as they have failed to address this in their election program. While the CSU likes the idea of an electricity tax reduction, which was proposed by the SPD and the Green Party, the CDU does not want to lower the electricity tax, but wants to end the double taxation of electricity. Currently the sales tax is imposed on the final price of the electricity, including the basic electricity price, the EEG surcharge, concession levies, offshore liability reallocation charge, CHP reallocation charge , and others. The CDU organization for mid-sized companies suggests to only tax the basic electricity price, but no surcharges and levies.

However, both, CDU and CSU, agree upon that privileges for energy intensive branches have to be maintained to guarantee a competitive German economy. CDU/CSU agree that such privileges shall not result in a passing-on of the costs of renewable energy to the public in an unsocial manner, but a model without reliefs in particular for energy intensive industries which are subject to international competition would put a lot of jobs and companies at risk.

SPD (Social Democratic Party of Germany)

While the SPD’s election program does not particularly address EEG surcharge and electricity tax, the party has endorsed an electricity tax-cut of 25%. However, the SPD wants to finance such tax-cut through the sales tax on the EEG reallocation charge, and therewith opposes the CDU’s concept of ending double-taxation in that matter. The calculation method of the EEG reallocation charge, which, according to the IW, leads to social disparity, is not dealt with in the SPD’s agenda.

The SPD agrees with the privileging of energy intensive branches, however, wants to revoke the 2011 amendment to those privileges and return to the privileging-prerequisites which had been in force before 2011.

FDP (Free Democratic Party – Liberals)

Also the 2013 election program of the Liberals is rather general as regards energy taxation, and only states that electricity taxes shall be reduced to the EU minimum levels. According to recent press coverage, the FDP proposes to reduce the electricity tax by the amount the sales tax taxes on the EEG reallocation charge. Further, the FDP clarifies that also the Länder (states) have to participate in the financial relief of the public, by installing tax incentives for increases in energy efficiency.

On the matter of EEG surcharge privileges for energy intensive branches, the Liberals uphold the concept that any reduction of such privileges would heavily endanger jobs and the well-being of concerned companies and is therefore not socially acceptable. Accordingly, the FDP wants to maintain the 2011-amendment to such privileges, as it has helped to treat medium-sized enterprises and large industrials equally. The FDP emphasizes though that only companies which face international competition are to be privileged and that this prerequisite has to be upheld consistently. Thus, its position leaves some room to adjust the exemption regime to avoid that undertakings are privileged which do not face any international competition at all.

B’90/Die Grünen (The Green Party)

The Green Party agrees upon a reduction of the electricity tax by 25% and wants, in principle, to include all energy intensive branches in the cost coverage, and only reduce the burden for companies which indeed are competing globally, and can prove that they are investing in measures to increase energy efficiency. The Greens also wish to gradually abolish the reductions in grid fees. In that regard the program points out that energy efficiency measures have been underestimated in the past, and as an example, state that the mandatory introduction of US standards for electric motors in German companies could reduce the respective electricity costs by 50%.

The issue of the non-income-contingent calculation method of the EEG reallocation charge is not being addressed by the Green Party’s agenda. However, the party requests that minimum pensions, unemployment payments, social aid and other direct payments to low-income households are adjusted much faster to the increasing energy costs.

Die Linke (The Leftist Party)

As one could expect, the Leftist Party’s concept seems to be most ambitious as regards reducing profits in the energy sector and reliefs for companies to the advantage of household customers. However, they appear to leave the door open to acknowledge the need for relief to industrials subject to global competition: They intend only to abolish “unjustified” discounts.

Electricity prices for the general public shall be set by the government, and not be subject to any profits any more. Rather, they shall be structured in a socially reasonable manner by entitling each consumer to a certain amount of electricity free of charge, and increasing prices for any excess consumption. Until such system shall be introduced, any increase in electricity prices shall be prohibited.

Conclusion

It becomes visible that the social component of the “Energiewende” is an issue in all party’s agendas, however, the parties take different approaches to solve those issues. Whereas the CDU emphasises an end to double-taxation, the other parties propose a reduction of the electricity tax. That does not mean that the other parties agree upon the funding of such reduction. The FDP proposes a state-funded tax-cut, whereas SPD and especially the Green Party want to fund the tax-cut by increasing the financial burden for companies. According to the IW that concept might endanger jobs and the well-being of companies in the energy intensive sector and accordingly might turn out to be counterproductive. However, even to the extent that there seems to be a rather broad consensus that companies which face international competition need some form of relief from EEG surcharges and other costs of the “Energiewende“, the legal challenge will be to implement a system which is not challenged by the European Commission based on state aid rules.

In the next part of the series “2013 Election Energy Party Profiles”, the parties’ positions on energy infrastructure investments, in particular grid extension, storage and implementation of smart grids, will be discussed.

Sources: CDU/CSU, SPD, FDP, B’90/Die Grünen, Die Linke

This article by Manfred Ungemach and Markus Przytulski first appeared as part two of a multi-part series on German Energy Blog.