German levy hike triggers outrage

GERMANY: A sharp hike in Germany's renewables levy - announced in October - has been met with a wave of criticism.

This includes demands for a cap on the amount of support paid by the public and calls on industry to support the expansion of wind energy and other green-power generation.

The levy is growing in considerable leaps. A 56% increase from EUR0.0131/kWh in 2009 to EUR0.0205/kWh in 2010 is to be followed by a 72% rise to EUR0.0353/kWh in 2011. This is mainly due to a large increase in solar installations - which reached up to 8GW in 2010, compared with 3.8GW installed in 2009.

The levy serves to cover the difference between the guaranteed minimum prices paid to renewables generators for their electricity and the price the power commands on the electricity exchange. The levy amounted to about EUR6 a month - around 9% of a monthly household electricity bill - in the first half of 2010, and will increase to about EUR10 a month in 2011.

Falling prices

But the levy is being defended by the federal energy regulator, small conventional energy players and other electricity market experts. Matthias Kurth, president of federal energy regulator Bundesnetzagentur (BNA), believes that prices will fall in 2011. Many electricity suppliers buy electricity a year or two ahead of the delivery date, and electricity bought at a high price in spring or summer 2008 for delivery in 2010 means prices to customers have been high this year.

However, the buying price in late 2008 and 2009 was lower due to the economic crisis, according to the BNA. It expects the procurement price of electricity delivered in 2011 to fall by EUR0.005/kWh.

There is a general consensus that electricity generation should increasingly switch to renewable energies - and that comes at a price, admits Robert Busch, managing director of the federation of new energy players, Bundesverband Neuer Energieanbieter. He echoed the BNA's advice for consumers to shop around for the best deal on electricity rather than stay with their local supplier, which is often more expensive.

Germany's large industrial sector has vehemently complained about the levy increase, arguing that competitors in neighbouring countries do not carry the same additional charge on their electricity bills. The 2011 increase translates into around EUR2 billion in additional costs for some 110,000 companies in Germany. Energy-intensive firms such as aluminium smelters are protected by a hardship clause, but this accounts for only 500 companies, according to industrial energy consuming and generation lobby organisation VIK.

In 2011, the renewables levy will make up as much as one third of the price a mid-sized company, such as a metal-processing firm, will pay for electricity, VIK states. It has called for an upper limit to be imposed on the levy.

This is a one-sided view, market experts counter. When wind or solar generation is high, other expensive conventional generators are pushed off the electricity grid and the market price of power drops. The impact is particularly marked in peak price periods such as the middle of the day. This so-called merit-order effect reduced the overall cost of electricity in 2008 by EUR3.6-4 billion, a study for the environment ministry concluded in March.

Whether electricity suppliers are always under sufficient competitive pressure to pass on these savings to customers is open to question, however. Earlier this year, energy expert Gunnar Harms unravelled the arguments of energy company RWE for a 7.3% electricity price increase - or EUR0.015/kWh - affecting two million customers. RWE claimed this was necessary due to a higher purchase price of electricity and the hike in the renewables levy in 2010.

In his analysis for the Green Party, Harms concluded that, if competition was working, the fall in electricity exchange price from 2009 to 2010 should have led to a price drop of EUR0.01/kWh and the renewables levy hike justified an increase of only EUR0.007/kWh.

Renewables experts expect the levy to rise more moderately beyond 2011 and peak in 2015-16, before falling to well below EUR0.01/kWh in 2030. This is due to the annual drop in payment rates for renewables generators and renewables operators increasingly deciding to market their electricity directly on the electricity exchange, rather than rely on the support system.

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