German law under election fire -- Facelift or major surgery?

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Debate about the cost of renewable energy, and in particular the subsidies that support it, is featuring prominently in the electioneering strategies of Germany's politicians in the run up to country's general election on September 22. While all parties acknowledge that costs should not be allowed to spiral out of control, the question of whether to control them by making minor revisions to the country's system of fixed premium prices for renewable energy, or to radically overhaul the entire market structure, is dividing opinion even within party ranks.

Not surprisingly, the sharpest criticism of Germany's two year old renewable energy law, Erneuerbare-Energien-Gesetz (EEG), is coming from the conservative opposition parties, the Christian Democratic Union (CDU) and the Christian Socialist Union. To the consternation of the renewables lobby, they were last month leading the polls.

If the CDU's Matthias Wissmann has his way, the EEG will get more than a minor facelift -- it will undergo major surgery. Arguing that by 2010 the additional costs of renewable energy will add up to EUR 13 billion a year, he launched a blistering attack on the EEG and is vowing to put a strait jacket on renewables expansion by capping the support budget if his party comes to power.

His credibility took a knock, however, when Josef Auer, the author of the Deutsche Bank study into the costs of renewables which Wissmann based his arguments on, publicly refuted the politician's statements. According to Auer, his study clearly predicts costs of EUR 6.5 billion by 2010, rising from current costs of about EUR 1.3 billion.

Some of Wissmann's fellow party members have also publicly distanced themselves from his position. The CDU in the state of Lower Saxony, where wind energy is well developed, stresses the EEG should continue unchanged and local CDU politician Enak Ferlemann says an established wind export sector and offshore wind developments should be underway before the law is substantially altered.

The current Social Democrat/Green coalition government seems to be of the same opinion. Economy Minister Werner Müller made a point of publicly praising the success of the legislation. But he also stressed that the costs of the EEG to electricity consumers must "remain within reasonable bounds." Regular fine tuning of the law is necessary to meet "the government's aim to achieve competitiveness of renewable energies in the medium to long term so that they can play a permanent and leading role in the internal market," he said.

An amendment to the EEG to this end is due -- and is apparently only waiting to be implemented, according to renewables firebrand Herman Scheer. He is one of a group of Social Democrat/Green members of parliament behind the amendment, details of which remain under wraps. The presumption is that they deal with adjustments to the fixed purchase prices, particularly for wind turbines at good windy sites, and with how best to pass on the costs of renewables to customers. Whether the amendment is implemented by a new government of the right or left remains to be seen, but it looks as if change is in the air for the EEG, as well as in the corridors of political power.

EEG reviewed

The EEG places an obligation on network operators to buy all renewable energy at a fixed minimum price. Rates for wind power vary according to wind conditions (lower where wind speeds are higher) and rates per kWh are different for each type of renewable energy -- photovoltaic generation getting by far the highest rate at EUR 0.481/kWh in 2002.

In total, network operators paid EUR 1.5 billion for 17.8 TWh of green electricity last year or EUR 0.084/kWh, according to the first EEG review report, published in July. Wind generated electricity accounted for 11 TWh (60%), for which utilities paid EUR 950 million, or EUR 0.086/kWh. The costs for 2002 are expected to be higher -- the electricity industry is estimating total renewables generation to reach 21 TWh by the end of the year, costing EUR 1.9 billion at an average price of EUR 0.09/kWh.

The report notes that additional costs of ยค0.0018-0.0026/kWh (depending on the market price) have been created by the 17.8 TWh of renewables generated electricity displacing cheaper conventional electricity -- and this is before the costs of balancing power and network expansion carried out by the network operators are included. On the other hand, the savings secured by decentralised generation, such as avoided network costs and lower transmission losses, are not taken into account.

Some fine tuning of EEG is recommended, the report concludes. It should be clear about how network operators should pass on the costs of the EEG to customers, it suggests, while consideration should be given to granting larger industrial customers EEG credits.

In relation to wind energy, the report notes there may be grounds for adjusting the payment structure, particularly in areas of high wind speed, while serious consideration should be given to extending the 2006 deadline by which offshore wind stations must be on line to benefit from a longer period of higher payment rates.

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