A Bold, New Green Energy Plan Meets Reality (And it Bites)
It was supposed to be a bold, new move…
But Germany’s attempt to phase out nuclear energy while becoming more reliant on renewable energy has slammed headlong into reality. And it bites.
In this case, the audacious vision was one thing, but the resilience of the end user turned out to be something else altogether.
As with most of these green efforts, German consumers are getting hit hard in the wallet.
Under the plan, Germans are now suffering through rapidly accelerating electricity prices with the highest rate increases in Europe.
This is quickly turning into far more than a test of one nation’s resolve…
The Fate of Europe Runs Through Berlin
This is morphing into a question about the entire continent’s ability to underpin the industrial and commercial expansion which is so essential.
Europe, as a whole, stands or falls on the continuing ability of Germany to produce and export.
That’s why on Tuesday, the cabinet in Berlin approved changes in the national energy policy. According to the government, these amendments would contain soaring electricity costs while protecting jobs, especially in the national industrial sector. These changes include less ambitious targets for wind power and a cut in subsidies for certain forms of green energy.
Chancellor Angela Merkel’s “energy transformation” remains a bold experiment to make Germany the first major industrial economy to run largely on green energy.
Originally, these measures had strong popular support, especially in the wake of the Fukushima Daiichi tragedy in Japan. More recently, however, the move has met with strong resistance from companies and households faced with steep increases in power costs.
The central issue involves subsidies for the development and construction of alternative energy sourcing that are actually financed by energy end-users through what opponents are calling a structural tax. Proponents prefer to refer to it simply as a “levy.”
Either way, the objective of the “levy” is to encourage a buildup in renewable energy capacity. The government expects that the overall “green energy” subsidy program will equal $33 billion this year, following a figure of closer to around $29 billion for 2013.
First applied in 2000, this green energy levy has since more than tripled. The result has been an acceleration in retail electricity costs that shows no signs of retreating.
Among the reforms approved by the government is a pledge not to increase the subsidy from its current level through 2017. However, since the subsidies will be required for some time, few believe the levels will not rise again once the pledge period is over.
Where’s the Help for the German Consumer?
These new plans have already become the target of heavy criticism.
Virtually all of those disappointed with the action say the belated reforms are not going to address the real reasons for the high prices.
Claudia Kemfert, an academic and energy expert at Berlin-based research institute DIW, told the Wall Street Journal Europe (WSJE) that “the reform won’t slam the brakes on retail power prices.” Furthermore, Kemfert believes some heavy industrial energy users would continue to be exempt from the levy at the expense of private households, who are bearing the brunt of rising electricity costs.
That is now setting the stage for a broader cross-border disagreement over the German attempt to reform the levy. The European Commission (EC), the administrative arm of the EU, is not pleased that Berlin is allowing major industrial consumers to avoid a levy that would still have to be paid by residential users.
Last year, the EC began an investigation of German energy policy after complaints were made by other non-industrial users who claimed their burden was inflated by exempting heavy industries. EU regulations allow citizens of member nations to object in Brussels to the actions of their own governments back home.
In response, as the WSJE noted, Germany claims the exemptions are crucial to keeping its energy-intensive industries competitive. Yet Brussels is coming to conclude that too many businesses might have benefited from what it considers state aid.
While the exemptions originally focused on such sectors as steel and machinery engineering, they were later expanded to include less obvious beneficiaries, such as railway operators.
It was also reported that German Energy and Economics Minister, Sigmar Gabriel, said that the government would reduce the number of exempted companies to around 1,600 from the current 2,000. Companies that have previously qualified for exemptions would have to pay 20% of the levy in the future, he added.
The industrial sector financed about $10.3 billion in renewable subsidies in 2013 and Mr. Gabriel said he expects that figure to remain stable despite the reduced number of companies that qualify for exemptions. Private households paid around $11.1 billion in 2013 renewable subsidies.
With new EU guidelines on state assistance in the areas of energy and the environment scheduled to be released this week, the fate of Germany’s proposed reforms may well be determined by how closely what is happening in Berlin squares with the expectations of a broader Europe.
Once again, the fate of the German energy industry is going to be heavily determined by what is decided in the public sector.
And this time, those decisions are likely to include the political and economic interests of the EU – all 28 members of it.