The Energiewende and energy prices: Public support and Germany’s long term vision
- 26 Jul 2013, 09:30
- Mat Hope
Germany has committed itself to an ambitious long-term
policy agenda to decarbonise the energy sector. The Energiewende -
or energy transformation - policies aren't cheap, but the German
government says it's a price worth paying for long term energy
security and a low carbon economy.
In 2010, the government outlined the Energiewende's
goals: To reduce emissions by 80 per cent compared to 1990, and
provide for 80 per cent of the country's electricity consumption
from renewable sources by 2050 compared to 2008. If that wasn't
ambitious enough, it made the task even more complicated by
deciding to phase out all nuclear generation by 2022. The
government pledged to achieve this in the most cost-effective way
possible, while maintaining economic growth and high standards of
So far, the public have bought into the government's long term
vision and are backing the plans, despite rising energy bills. But
the media is increasingly concerned the Energiewende's policies
drive up energy costs, leaving consumers to
foot the bill.
Wholesale energy prices
At the centre of the scheme is the government's pledge to
increase the amount of renewables in
Germany's energy mix without harming the economy. But not
everyone is convinced the Energiewende will deliver on its
As the Economist puts
"It is hard to think of a messier and
more wasteful way of shifting from fossil and nuclear fuel to
renewable energy than the one Germany has blundered into. The price
will be high, the risks are large and some effects will be the
opposite of what was intended."
While this is a common perception, the figures tell a different
story. Since 2010, the wholesale price of electricity has continued
to decrease, because once renewables are built they have no fuel
Source: Phelix Baseload Year Future,
EEX Power Derivatives
Source: Phelix Peakload Year Futures,
EEX Power Derivatives
While this means wind and solar are increasingly competitive -
helping to get more low carbon generation on the grid - the
declining cost of renewable electricity may have a less desirable
consequence. Some fossil fuel plants are still needed to back up
renewable generation. But cheap electricity from renewables could
make fossil fuel plants economically unviable. A number of German
gas plants have been temporarily shut down - or
mothballed - as they struggle to compete with renewables and cheap
The problem is exacerbated by a requirement to prioritise
electricity from renewables over fossil fuels generation, known as
the 'merit order'. David Buchan, senior research fellow at the
Oxford Energy Institute, explains:
"... if this capacity becomes
effectively excluded from the merit order altogether, or is never
in practice called by grid operators to generate, it will never
earn a financial return and may, therefore, wither away".
This means Germany must consider ways to support fossil fuel
generation as well as renewables.
One solution could be a
"focused" capacity market, where plants used to provide
electricity at peak times are subsidised, but plants expected to
provide electricity around the clock compete in the a market.
Another alternative - favoured by the environment ministry - is a
strategic reserve where gas plants which would otherwise be
mothballed are paid to stay online in case the system needs a
As more renewables come online and fossil fuel plants become
increasingly uncompetitive, balancing Germany's energy system
becomes ever more challenging.
Despite the wholesale electricity price falling, household
energy bills continue to rise as consumers pay for increasing
renewable energy subsidies.
It's commonplace for the UK government's policies to be
blamed for rising energy bills, and Germany is
no different. Bills fell between 1991 and 1998, but have
risen continuously since then - and this is set to continue as
more renewables are added to the mix.
Source: German Institute for Economic Research, consumer
But the Energiewende's policies are only responsible for
a portion of the bill hikes. German economics thinktank, the
Centre for Economics Studies,
calculates renewable subsidies account for about 28 per cent of
the rise since 2000, but costs of electricity generation - mainly
driven by the rising cost of fossil fuels - account for about 45
So far, consumers have been willing to accept the bill increases
as they back the Energiewende's long-term goals and see the
community benefits of the scheme. Private investors and farmers
almost half of Germany's renewable energy projects in 2012.
This makes bill payers more amenable to rising energy costs as some
of the subsidy goes back to their communities. Environmental
thinktank, Heinrich Böll Foundation, says:
"A focus on low prices is microeconomic
thinking. Germans take the macroeconomic view and want to know
whether that price is paid to large corporations, foreign entities,
or back to their community. They are willing to pay higher prices
back to the latter."
The public's willingness to take a slice of the subsidy pie for
themselves has so far been key to maintaining support for the
With the September election looming, some politicians have been
keen to cut the costs of the Energiewende in the hope it will boost
their popularity. But the reformers have their work cut out:
Germany's political system makes changing the way renewable energy
is funded particularly challenging.
For example, some of
Germany's regions are investing heavily in renewable energy -
with some, like Bavaria, wishing to become self-sufficient. This
makes them more resistant to subsidy reform.
There is also bickering
within the federal government. The environment ministry wants
to lead the Energiewende, but the economics ministry is in charge
of grid transformation. So Energiewende policies come with the risk
of political infighting built in. The future direction of the
transformation is likely to depend on who sits in those ministries
at the end of the year.
In Germany, public support for the Energiewende has been robust
despite rising energy bills. The government maintains the immediate
costs will be worth it in the long run, and the public seems sold
on the bigger picture - so far.
But with the European economy still in stormy waters, German
elections in September, and ever rising costs it remains to be seen
how long the support persists.