Germany

Germany

Germany caps renewable surcharge in recession fight back

Germany’s renewable energy industry welcomed the coalition government's decision to cap the green surcharge used to finance renewable energy projects for the next two years. However, it called for changes to the way it is calculated to make sure consumers benefit from falling generation costs for wind and solar.

German stimulus package includes clean energy measures (pic: Cezary Piwowarski/wikimediacommons)
German stimulus package includes clean energy measures (pic: Cezary Piwowarski/wikimediacommons)

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As part of its self-styled Marshall Plan 2.0, Germany’s latest €130 billion economic stimulus package includes measures to cap green costs paid out by consumers to cover renewable developers’ shortfalls when wholesale prices drop below subsidy support prices under the EEG renewable energy law.

Agreed this week by Angela Merkel's CDU, its Bavarian sister party the CSU and the Social Democrats, the country's EEG surcharge paid by consumers will be capped at €65/MWh in 2021 and €60/MWh in 2022. To make sure project operators continue to receive their contracted prices, government funds will be used to make up any shortfalls.

The coalition believes that the EEG surcharge could increase sharply in 2021 due to the decline in economic activity because of the coronavirus pandemic and accompanying fall in wholesale power prices. It expected this to happen despite the government planning to pay into the EEG fund from the forthcoming carbon-trading mechanism for the transport and heating sectors, it stated.

Although the impact of the Covid-19 crisis on the electricity market has helped to push hard coal and lignite out of the market, German renewable energy association BEE believes that the price cap is a short-term solution only.

It argues that the high increases in Germany's renewable levy are due to a calculation mechanism that "does not guarantee that the low generation costs for renewables will reach the customer" and has called for a more fundamental change.

“Renewables carry the system to an ever greater extent and take on more and more responsibility,” BEE president Simone Peter wrote in response to the energy price cap.

“However, their low costs do not reach the end customer and prevent the use of CO2- free electricity in mobility, heating and industry. A fundamentally new approach is needed  for a future-oriented electricity market design," she added.

Germany is on course for its worst recession in post-war history, with GDP expected to shrink 6.3% this year. On top of its €1.1 trillion coronavirus rescue package -- roughly one third of its GDP -- launched in March, the latest €130 billion stimulus package earmarks €50 billion for addressing climate change, innovation and digitisation within the German economy.

One of the most significant — and controversial — aspects of the package is that it only offers increased incentives to buy new electric cars. It included no measures to kickstart demand for petrol and diesel cars in a move signalling the German government is trying to follow through on its joint pledge with France to put the European green deal at the heart of the post-Covid recovery.

Green hydrogen

The government's package also includes plans to invest about €7 billion incentivising 5GW of green hydrogen output by 2030 — onshore and offshore — and 10GW by 2035 or 2040.

It is yet to unveil its full green hydrogen strategy.

German wind energy association BWE suggested that wind farms no longer eligible for EEG payments could be used to produce green hydrogen and gain a new revenue stream.

BWE managing director Wolfram Axthelm called for the industrial production of green hydrogen to start as early as early as possible.

"For a quick start, the onshore wind energy capacities falling out of the EEG system from 2021 can be used here," he added. "The existing plants should be given the chance to remain in the system for hydrogen production."

The BWE expects 4.5GW of onshore wind farms to exit EEG funding in a first wave in 2021, followed by an additional 2.5GW every year until 2025.

Allowing these projects to be used to produce green hydrogen, would provide their operators with a quick and orderly entry into the climate-neutral hydrogen economy," the BWE's Axthelm added.

Late last month, the European Commission set out its proposals for a €1.85 trillion recovery plan in response to the economic impact of the coronavirus pandemic.

Other measures include a €50-billion fund to tackle the climate crisis and and finance new technologies. An incentive for consumers to buy an electric car has been increased from €4,000 to €6,000.

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