Market uncertainty back again -- German law in the dock

Germany's new renewable energy law is under fierce attack from both the European Commission and the country's utilities, who have renewed their charges against the country's politically set fixed price support system. While the EC examines possible breach of competition laws, the German utility sector complains the high tariff "could lead to windfall profits that should not have to be financed by the electricity customer."

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Within just weeks of being passed, Germany's new renewable energy law, the Erneuerbare- Energie-Gesetz (EEG), is under fierce attack from both the European Commission and the country's utilities. On April 7, the EC's competition directorate told the German government that official notification of the EEG to the commission was "imperative" for the EC to establish the law's legitimacy under EU anti-trust regulations and that "non-notification proceedings" had been initiated. One week later, the German utility sector issued a statement saying it was being forced to pay 80% more "for non competitive power from renewable sources" than it paid last year.

The attack has rekindled the long term uncertainty of the German wind power market and its reliance on political support for the fixed premium prices embodied in a Renewable Energy Feed-In Tariff (REFIT). The EEG came into force on April 1 and replaced a law which also contained a REFIT. Both the EC and the utilities suspect the REFIT of inflating the cost of wind and other renewables.

Not state aid

The German government did not notify the EC about the EEG as it does not regard the REFIT as a form of state aid. The premium payments are paid directly by consumers in their electricity bills and not from state coffers. But if the EC decides the REFIT is a subsidy, part of the premium payments may have to be reimbursed by wind plant owners.

In particular, the commission will examine whether the REFIT complies with EU rules on state aid for environment protection and whether the German government can prove that the current premiums are necessary to compensate for higher production costs of renewable energies. Competition directorate head Alexander Schaub notes that after a preliminary investigation, his office is not convinced that, in every respect, the premiums are necessary and appropriate to fulfil the government's target for renewables. The commission stresses, however, that it supports the growth of renewables.

The competition directorate's quick action may have been prompted by the German utilities association, the Vereinigung Deutscher Elektrizitaetswerke (VDEW). Managing director Eberhard Meller told the competition commissioner, Mario Monti, that the EEG's fixed prices were much higher than necessary to expand the use of renewables, "which could lead to windfall profits that should not have to be financed by the electricity customer." According to Meller, more economically efficient mechanisms are available to achieve climate protection targets.

Tariff too high

Underlining the market uncertainty caused by the EEG's unsure footing, Mellor added: "Renewable plant operators don't know whether they can keep their premium rates of pay, nor do electricity customers know whether they are going to have to pay the additional costs resulting from the minimum prices for renewable power."

According to the VDEW, the prices being paid for renewables under the EEG's REFIT rates are between 30% and 1000% higher than wholesale electricity prices, which are falling as a result of market liberalisation and the new competition between generators.

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