German Policy Watch
October 15, 2012
Germany’s energy policy: The historic challenge of the 'Energiewende' will be mastered
The planned termination of nuclear power production became, once again, German government policy in the aftermath of the Fukushima catastrophe. Already in the Schröder years, a long-term plan for the exit from this energy source had been agreed and put into legislation. In the autumn of 2010, the conservative-liberal government, however, challenged the plan and initiated a change and prolonged the lifetime of reactors. This was to be changed once again in 2011. Now, there is broad consensus that this turnaround shall take place.
However, Germany’s energy turnaround is far more than the accelerated exit from nuclear power generation that was decided after the disaster at the Fukushima reactor complex. In reality, the energy turnaround is a much more complex project. Besides the nuclear power phase-out by 2022, the following are the most important energy and climate-related goals of the German government:
The long-term goals were set before the Fukushima event and remained unchanged thereafter. Thus, the energy turnaround in Germany is not a new topic at all. The goals for 2020/2030 may come under reconsideration because of the investment needs and the current debates concerning the policies to choose.
There are still huge investment needs. In order for the many energy and climate policy objectives to be met, at least EUR 30 bn will have to be invested in Germany annually in areas such as renewable energies, conventional power plants, grids, storage facilities, energy-efficient buildings and alternative propulsion technologies – no small challenge!
One general problem is the occasional lack of rigour in political decision-making and the therefore still high level of uncertainty for investors and private households. It is currently becoming increasingly obvious that electricity prices for private households will increase rapidly in 2013. One reason is the dramatic increase in the EEG reallocation charge to 5.3 Ct/kWh in 2013 from 3.6 Ct/kWh in 2012; this is an increase of 47%. And – if the German energy policy regulation is not adjusted soon – the reallocation charge could reach about 7 Ct/kWh in 2014.
In 2013, the EEG charge will be borne almost exclusively by small companies and households. If roughly half of German electricity consumption was not exempted and all consumers participated, the EEG charge would fall to even below 3.5 Ct/kWh in 2013 – this is what Chancellor Merkel promised to be the limit for the future in 2011. Otherwise – all things unchanged – households will subsidise German industry by around EUR 2 bn in 2013 through their electricity bills/consumption.
Against the background of an intensified debate on energy prices in Germany, German environment minister Peter Altmaier last week announced his plans for a reform of the Renewable Energy Sources Act (EEG). As for Altmaier a major problem of today´s EEG is the lack of coordination between market participants, the minister first wants to start a political debate in the coming months to achieve consensus. We do not expect a new policy regarding the EEG before the German elections in 2013. Afterwards there surely will be some adjustments. But the direction will be determined by the new government. If the Greens are part of it, the German energy turnaround may be implemented even more rapidly. But every other coalition will also stick to the course the German government has steered in the last two years given the energy and climate goals of the energy turnaround.
The energy turnaround - at least the goals until 2020 - is not a question of technological feasibility. The goals can be reached but it may become more expensive than most politicians currently think. The costs of the energy turnaround will clearly depend on the political framework and on the degree of co-ordination between the German government, the federal states and the municipalities. One example: if there is no grid connection, the planned and installed wind power in the north of Germany cannot be consumed in the south. However, it still has to be paid for due to the EEG regulation. The timetable for grid extension is very ambitious and needs urgent legislative processes.
Today, the German energy turnaround is on its way. There are still tremendous challenges ahead, and implementation problems still need to be solved. Nonetheless, all important parties are (more than less) committed to the change. Therefore, the question is not whether Germany will be committed to the energy turnaround. The real questions are: (1) What remains to be done? (2) How can the goals be reached in time and at what cost? The debate is ongoing in politics and society.
The energy policy turnaround has created new winners and losers, but above all coordination problems in a hitherto pretty oligopolistic market run by a few regional monopolist companies, with some fringe production by “Stadtwerke”. While interaction in a more pluralistic market structure, a larger number of more decentralised producers and the need for high investments in grids are significant challenges, political consensus is no longer the binding constraint. It is effective coordination, cost control and planning, and market entry by new players in grid investment and electricity production.
Josef Auer +49 69 910 31878, email@example.com
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