Green energy levy set for drop on excess payments for renewables

The levy German consumers pay for the development of renewable energy is set to drop next year for the first time since it was introduced 15 years ago. Power users overpaid this year, meaning there is extra cash available to cover a slight reduction in 2015’s surcharge, the operators of Germany’s long-distance power grid said on Wednesday.

But industry experts and business representatives agree this is a one-off effect and the cost of new installations is expected to drive up the surcharge again in 2016.

“If consumers had not paid too much this year, next year’s surcharge would have risen,” said Uwe Nestle, an energy expert at energy consultancy EnKliP in Kiel. “The exact costs for a given year are difficult to estimate. Everything being equal, the surcharge would rise each year by the costs for the power produced with the new facilities of any given year.”

Germany is on course to ramp-up renewable energy production to provide 35 per cent of its power consumption in 2020 as part of its energy transition, or, in German, “Energiewende”.

Green power in the country is financed through guaranteed prices – so-called feed-in tariffs – that green power producers receive from local grid operators selling the power. The part of the cost of feed-in tariffs that cannot be recouped on the market is then financed through the surcharge, which is added to energy bills for every kilowatt-hour consumed.

The surcharge is therefore only part of the financing of renewables and “doesn’t tell us anything about the price of renewables,” Nestle said. That is also because some consumers – mainly energy-intensive industry – pay at a reduced rate.

Germany’s four grid operators set the levy each year by estimating how much money they will have to hand over to green power producers. New renewable energy facilities mean more green power coming onto the grid and more money paid out in feed-in tariffs.

But grid operators also have to deal with several imponderables, such as fluctuating annual power production from wind and solar facilities. Discrepancies then have to be corrected the following year. In 2012, grid operators underestimated spending on renewables, leading to a 47 per cent rise in the surcharge in 2013.

This year’s excess cash will be used to reduce next year’s surcharge by 1.1 per cent to 6.17 cents per kilowatt-hour. The grid operators’ calculations take into account a predicted increase in renewable power production of 7 per cent in 2015 from 2014, and the money they are legally obliged to keep in reserve for uncertainties over coming years.

“We’re happy that the surcharge will be dropping, as more or less stable power prices are good news for companies,” said Sebastian Bolay, energy expert at the German Chamber of Commerce and Industry. “Looking further ahead, new solar power and wind parks on land have manageable costs, while offshore wind parks will be the main factor driving the surcharge in coming years.”

The levy has risen each year since it started at 0.41 cents per kilowatt hour in 2000, and has enabled the build-up of renewable energy facilities to almost the same capacity as the country’s conventional power stations. Renewables covered more than a quarter of Germany’s energy needs in the first nine months of this year. 

Proponents say the leg-up given to green power by way of the surcharge has made renewables competitive, allowing their cost to drop to that of conventional power. But some critics say too much money is being spent on sun and wind-powered facilities that are inefficient compared to conventional power plants because of fluctuating power supply – and the cost of financing them is damaging German industry.

“Higher power prices are bearable if you get an exemption from the surcharge or if you have low electricity expenditure,” Bolay said. “But they hurt especially those mostly medium-sized industrial companies for which that’s not the case.”

Surveys show that households, for which the renewable energy surcharge accounts for around 20 per cent of energy bills, are less worried by the cost of developing renewables. A majority remains in favour of Germany’s transition to renewable energy and a low carbon economy, and believes the government and businesses are not expanding renewable energy production fast enough. 

The government aims to cut the cost of renewable development by introducing a new law which will phase out feed-in tariffs altogether by 2017 (See Dossier on EEG 2.0). That did not affect next year’s surcharge, researcher Nestle said, as the law only came into effect in August.