The leader of Germany’s Social Democrats, Peer SteinbrÃ¼ck, looks set for defeat in Germany’s elections in September. But with a flurry of electioneering around energy policy, Angela Merkel’s primary challenger has been successful in changing the tone of the election campaign.
Throughout much of this election campaign, now in its final fortnight, energy policy was a peripheral issue at best. That changed when SteinbrÃ¼ck’s Social Democrats (SPD) pushed energy to the fore of the debate. The party’s proposals, and opponents’ reactions, for Germany’s Energiewende or energy transformation will set the agenda for the crucial months after the election on 22 September.
It started in a press conference last month when SteinbrÃ¼ck presented his ” 10-point plan for a successful energy transition”. Its boldest proposals – and subsequent media coverage – centre on one issue: rising electricity costs. To reduce consumer costs, SteinbrÃ¼ck proposes cutting the electricity tax and introducing legislation to force down consumer energy tariffs.
SteinbrÃ¼ck touched a nerve. While Germany’s plan to shift to renewable energy enjoys overwhelming public support, there is also growing concern about its cost. SteinbrÃ¼ck also knows energy is a weakness for his party. Largely due to long-standing links with the coal mining industry, only 11 per cent said the SPD is the best party to manage the Energiewende in a recent poll. Focusing on reducing electricity bills could play to the SPD’s advantage: the same poll showed affordability of electricity to be the energy issue which most concerns the public, some way ahead of phasing out coal.
Cutting the tax on electricity – currently charged at 2.5c/kWh – was an unexpected move for a centre-left party. Whilst this will clearly help people struggling to pay their bills, it will not address any factors driving up prices, since the tax rate has remained unchanged for years.
By contrast, the fastest-growing column on people’s monthly statements has been the EEG-Umlage, the surcharge on consumer bills to finance subsidies for renewables. Both main parties now say they will cut back the Umlage, but have different ideas about where to apply the shears.
The government want to do so by reducing renewable subsidies. Current environment minister, Peter Altmaier of Merkel’s Christian Democrats (CDU,) tried to reduce feed-in tariffs earlier this year. He was partially successful, but stalled by SPD and Green opposition at local level.
The SPD and its ally, the Green Party, would rather focus on industry exemptions to the EEG-Umlage. Energy intensive industries pay only a small fraction of the charge, with consumers shouldering the rest. SteinbrÃ¼ck’s plan includes measures to pare back exemptions to the tune of â?¬500m, meaning a cut of about 10 per cent to the â?¬4.7 billion consumers currently pay to cross-subsidise industry.
Besides the Umlage, a major reason consumers are facing higher bills is that their energy providers have not reduced tariffs in line with cheaper wholesale prices. This is due to a general lack of competition, as well as reluctance among consumers to switch providers (cheaper rates are offered to entice new customers but not extended to existing ones).
SteinbrÃ¼ck wants to respond by intervening in pricing – any supplier charging 10 per cent above the lowest regional comparison price would be forced to lower its tariff.
If the problem is market imperfections, David Buchan, Senior Research Fellow at the Oxford Institute for Energy Studies is skeptical about the proposed solution, however.
“It seems to me the SteinbrÃ¼ck proposal would compound the problem, because it would narrow the range of retail electricity prices, and therefore reduce price competition and therefore reduce the incentive of consumers to switch provider”.
Energy policy after the election
Last month’s press conference turned the spotlight onto energy policy, and the different parties were all keen to chime in with their own proposals. They know that it matters: the one point all parties seem to agree on is that the Renewable Energy Act (EEG) needs urgent reform after the election.
From current polling figures, it’s almost certain that Angela Merkel and the CDU will be re-elected, but it will have to enter into a coalition – and the position of coalition partner remains very much up for grabs.
The CDU’s current governing partners, the Free Democrats (FDP) are free-market liberals. Unsurprisingly, the FDP opposes the idea of laws to interfere with prices. Indeed, it argues for a rethink of the entire Energiewende, and removing the “distorting” effect of subsidies – though it’s also the only major party to staunchly defend industry exemptions as “indispensable”.
The FDP is unpopular and has struggled badly in the polls. However, it appears to be gaining in strength, and there’s a growing possibility it will hang on in the present governing coalition.
A CDU-FDP coalition could mean a sizable cut to future subsidies – the FDP’s ideological opposition to them uniting with the CDU’s more pragmatic desire to put a break on costs. According to Bernd Randowitz, writing in energy blog Recharge News: “No-one in the renewables industry is daring to say so on the record, but a continuation of Merkel’s current coalition is what the sector fears most.”
In the likely event that CDU-FDP fails to get a majority, Merkel will have to look to one of the two centre-left parties.
The Green Party primarily railed against industry exemptions, and in government would strive to roll these back and protect subsidies. However, it’s too far from the CDU on other issues, such as redistribution, to make a coalition likely.
Hence the most likely option remains a grand coalition between the CDU and SPD. That would mean subsidies would get more sympathetic treatment than with the FDP. There would be moves to cut back industry exemptions: the CDU also accept the need to act on this, due to growing public feeling and the threat of legal challenge at EU level. A grand coalition would generally have a greater predisposition than for the state to intervene in the energy market than at present.
And whatever the outcome, a cut to electricity tax seems likely, now that both FDP and SPD have backed the idea.
Though Germans are more engaged than most with energy policy, it will do little to influence the outcome of the election – it will be won and lost on other issues. However, the result will have an important bearing on future policy, and the recent round of proposals and posturing will set the tone for later discussions. The prospect of the FDP returning to government worries some advocates of the Energiewende, but from here that would require a dramatic late swing. Still, the party should remain alert to electricity prices as the factor most likely to erode public support for its project.
Ben Mason is a freelance writer and journalist based in London. He has had a keen interest in German politics since spending a year living in Berlin, and is currently blogging on the election campaign for Spectator Coffeehouse
Image source: www.dts-nachrichtenagentur.de
Composition of EEG-Umlage
Source: BEE (units = euro cents)
Source: TNS Emnid – 08.09.2013