What electricity really costs

Green Budget Germany (FÖS), an environmental taxation organization, published an update of its study on the true cost of power in January. Craig Morris investigates.

Coal and wind

It is common knowledge that coal power is dirtier than renewable energy. The fact that it has received more subsidies is less known. (Photo by missresincup, CC BY-NC 2.0)

One of our most popular charts is the following:

Fossil and nuclear have received by far more subsidies than renewablesIt is based on a study from 2012 (PDF) done by Green Budget Germany, a think tank we reference frequently. That study has been updated (PDF in German), but the authors say there are no plans for a translation. I therefore decided to translate three of the charts myself, and they require some explanation.

First, we see below that the costs basically remain unchanged for the various sources, with the exception of renewables. Over just the past few years, the amount invested in green electricity rose from 67 to 102 billion euros. Their chart breaks down these items into the various components.

State Aid for energy in Germany 1970-2014For renewables, the main cost item is feed-in tariffs. Because I always argue that feed-in tariffs are not subsidies, this item led to some confusion when I tried to explain the chart. The German authors say they used “a wide definition” of the term “subsidies.”

The section labeled “provisions” only applies to nuclear. Here, we are talking about money officially set aside by the firms that operate nuclear plants for waste disposal, including the plants themselves. The problem is that this money was not actually set aside; under German law, the companies were free to reinvest these “provisions,” and they did. The companies wrote down these provisions (so they cost taxpayers something) but reinvested the money. German energy expert Felix Matthes has complained (in German), for instance, about how Vattenfall invested its nuclear provisions in eastern German lignite. If Germany has a coal phaseout, these assets will become worthless, so the firm will lack the funds it needs to phase out nuclear. And of course, none of this is directly passed on to ratepayers as a surcharge on electricity, so it does not impact power bills. The impact is hidden.

Kickbacks from emissions trading are the big exception here, in contrast, as they do affect power prices directly. Nonetheless, this impact does not appear as a surcharge reported separately. Here, the authors include the free certificates for hard coal and lignite along with the resulting increase in the wholesale power price for nuclear and renewables to compete with.

Tax incentives and financial aid are easier to understand. Most of the financial aid for hard coal, for instance, was special funding to make domestic German hard coal competitive with imports of both coal and oil. For lignite, the main form of subsidy is the exemption from groundwater usage fees, which the authors conservatively put at 1.3 cents per kilowatt-hour. And again, this amount does not appear on your power bill anywhere.

The figures are availablein the full version of the study in German, which is 132 pages long (PDF). The numbers used in the charts above are adjusted for inflation, but the researchers also give the nominal figures in the Annex. When I first tried to explain these charts to people who couldn’t read German, the main assertion was that the adjustments required made the entire comparison a bit unbelievable. For instance, people wanted to know how much electricity you get for the subsidies. Green Budget Germany provides the following chart on that:

Specific state aid for energy per kilowatt-hour 1970-2014 in GermanyIn a way, the chart is great to use against renewables; after all, it seems to show that the average cost of renewables is rising and much more expensive than all sources of conventional energy. That interpretation is, however, a misreading; feed-in tariffs include the generation cost as well, which would have to be added to all the other sources.

Various assumptions and calculations were criticized. Yet, the authors were quite meticulous. For instance, they made distinctions between the share of subsidies that went to the electricity sector and to other sectors. Only 73.2 percent of the subsidies for lignite are attributable to power production, compared to only 57 percent of the subsidies for hard coal. Nonetheless, I’m not sure the authors are all that concerned about whether, say, the actual hidden surcharge they calculated is slightly higher or lower. In fact, I think the following chart reveals that they are flexible by around 10 percent – the estimate for total external costs and all state aid is given as an average within quite a wide range.

Real Surcharge for renewable power vs. hidden surcharge for conventionalThe point is that the subsidies for conventional energy are clearly 50 percent higher than the renewable energy surcharge. Even more importantly, we actually do have a roughly fair attribution of the cost of renewable energy in the form of the renewable energy surcharge. In contrast, the items that constitute subsidies/externalities for conventional energy are not listed on German power bills. They are hidden, “which leaves the impression that renewables are the only power generation technology that cannot compete on a free market without subsidies,” the authors explain.

Craig Morris (@PPchef) is the lead author of German Energy Transition. He directs Petite Planète and writes every workday for Renewables International.


Craig Morris

Craig Morris (@PPchef) is the lead author of Global Energy Transition. He is co-author of Energy Democracy, the first history of Germany’s Energiewende, and is currently Senior Fellow at the IASS.

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