Last week, Germany’s four transit grid operators announced the renewable energy surcharge for 2016. The reactions to it show how confusing the whole matter has become. Craig Morris reports.
Next year, the surcharge will rise to 6.35 cents per kilowatt-hour from the current 6.17 cents (source in German). The news is being spun in every which way.
Critics are quick to point out that the surcharge has reached a new record high. Proponents of renewables emphasize that the surcharge only rose by three percent. For Energy Minister Sigmar Gabriel, the top politician handling the Energiewende, the outcome demonstrates that “we managed to stabilize the surcharge and even lower the average household power rate” (press release in German).
As someone who needs to be reelected, Gabriel can be excused for stretching the truth. His ministry lists the “binding growth corridors” as a main reason for the relative stability. Yet, neither technology is within its growth corridor of 2.4-2.6 GW. For wind, 4.7 GW was installed last year – nearly twice as much as the lower end of that corridor. In return, PV fell short of the corridor last year at 1.9 GW and has shrunk even further this year.
And while the Economics (and Energy) Ministry says it has slowed down the growth of “relatively expensive biomass,” the press release does not mention offshore wind at all – even though that is the biggest story of all in 2015. More electricity will come from the offshore wind turbines connected to the grid this year than from any single other source. The Economics Ministry is silent on the matter because, in fact, offshore wind is the most expensive renewable power source currently being promoted on a large scale in Germany. In other words, mentioning it would not fit the Ministry’s spin on the surcharge. While the Ministry is correct in saying the surcharge remained largely stable, the reasoning makes no sense – and it is not the first time Gabriel’s ministry has struggled to take credit for stable German power prices. In reality, the surcharge would not have been much different without the major policy changes of 2014.
So what are the reasons for next year’s “stable” surcharge? In practice, three things are happening to complicate the picture:
- First, lower wholesale prices – the growth of renewable electricity is pushing back demand for conventional electricity. Germany has closed more than half of its nuclear plants, and electricity from fossil fuel was at a 35-year low last year. In 2004, Germany had a target of 20 percent renewable power by 2020, but we already had 33 percent in the first half of this year. As a result, wholesale power prices are unexpectedly low, so less revenue is generated from green power sales to the electricity exchange, thereby jacking up the renewable energy surcharge that covers the difference between feed-in tariff payments and that sales revenue.
- Second, the number of energy-intensive industrial firms exempt from the surcharge has skyrocketed under Chancellor Merkel, so a smaller ratepayer base has to cover the full cost.
- And third, there is a forecast. The grid operators have to estimate events over the next year. A surplus has been building up on the account. It stood at 4 billion euros this time last year and now stands at 2.5 billion – roughly 10 percent of the expected 24.7 billion euros in feed-in tariff payments next year. The surcharge could therefore easily be reduced to prevent this surplus from building up further, but it wasn’t done this year. Why not? I don’t know, but next year is an election year, so if it is done then, the government can once attempt to take credit during an election campaign. This year, the surcharge hardly drew attention; indeed, the cost debate is over anyway. Germans are far more concerned about the refugee crisis now (and rightly so).
Back when Peter Altmaier was in charge of the Energiewende as Environmental Minister in 2013, he tweeted a question: “what should the limit be for the renewable energy surcharge?” I responded that no one cares what the surcharge is, so it can make up 100 percent of the retail rate – as long as the retail rate drops. Right now, it makes up around a quarter of the retail rate. And retail rates remain stable at a level that Americans would not find unusual. The 0.17 cent hike in the renewable energy surcharge is less than 0.01 percent of the retail rate, so don’t expect a major impact.