Talking point
Germany's EEG-2012: Lots of enemies, few alternatives

December 19, 2011

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Since its introduction the Renewable Energy Sources Act (EEG) has been highly controversial. Its opponents can be found at all levels, ranging from the scientific community and consumer associations right through to the political parties. As long as alternatives such as emissions trading still fail to gain global acceptance, the German government is well advised to stick with the principle of the incentive programme.

The EEG came into force in April 2000 and has already been amended twice after a four-year gap. The incumbent federal government already specified in its coalition agreement that the new EEG amendment was to come into force at the start of 2012, i.e. after just three years.h

One important reason was undoubtedly the huge expansion in volume terms of renewable electricity generation, which together with the incentives (whose rates differ depending on the technology) led to a sharp rise in feed-in payments. Whereas in 2001 these payments amounted to just EUR 1.58 bn, by 2010 they already totalled EUR 13.18 bn.

The law that promotes “green electricity” owes its inception and development primarily to the particularly emotional climate change debate in Germany. Another factor was the increasing scarcity in the global markets for fossil fuels, whose relevance is probably shown most starkly by the dramatic rise in oil prices during the last decade. While there was nevertheless a lively political dispute about the usefulness of the EEG and its modalities until the end of 2010, this was changed by Fukushima.

The reversal of the energy policy rethink announced at the start of the government’s term was harsh and abrupt. The faster exit from nuclear power makes the expansion of alternative sources of electricity more urgent. This is underlined by the targets for renewable energies to provide 35% of electricity in 2020 and no less than 80% in 2050.

This puts policymakers in a dilemma: on the one hand, the energy policy rethink cannot be implemented more rapidly for free. On the other, the public would probably not meekly accept rising electricity costs. Chancellor Merkel therefore announced a few weeks ago in parliament (Bundestag) that the EEG levy is not to rise above its current level of 3.5 cents per kWh in future.

It is already apparent, though, that this promise will be very difficult to keep. In 2012 the levy will already rise to 3.592 ct/kWh from its current level of 3.53 ct/kWh. At first glance it thus appears that the ceiling will barely be breached, but in fact it is on the one hand a politically curtailed increase since the levy could only be kept “within bounds” by reducing the volume of liquidity reserves for offsetting deficits during the year. On the other hand, the levy would, however, actually remain below the limit, were the exemptions for electricity-intensive firms not to be broadened from 2012 and their contribution to be billed to normal customers (namely via a levy). Thus the growing segment of those privileged to pay less for green electricity (also) ultimately results in bigger electricity bills for normal users.

The “time bought” with the current tweaking of the balance sheet will come to an end from 2013, though. Levies can then indeed be expected to exceed the promised ceiling. This begs the question of whether the new amendments to the EEG-2012 are up to date. We believe this is essentially the case. The expansion of renewables is being continued vigorously despite the looming opposition from many quarters. It would of course be desirable while determining the future power generation mix to also give a chance to technological progress on fossil fuel sources of electricity, if carbon capture and storage (CCS) can successfully be implemented.

It is also right that in future more attention should be paid to the cost efficiency of incentives. The lavish German photovoltaic subsidies have enabled manufacturing to be automated and made the technology ready for the world market, but the main beneficiaries have long been photovoltaic manufacturers from China. It is also to be welcomed if renewables are to be integrated faster into the grid and the system in future.

The climate change conference in Durban has just shown that no international climate change agreement with binding targets is to be expected for the foreseeable future. On top of this comes Canada’s withdrawal from the Kyoto Protocol, which may possibly prompt other emitters to follow suit. As we know, Germany has for many years been one of the 10 countries with the highest emissions. Unlike other large emitters, however, Germany has not only joined the emissions trading system but has also pledged huge funding to promote new energies using innovative laws like the EEG. There has never been energy for free in Germany. Not during the golden age of coal and not during the era when nuclear energy became established. It does not make any sense at present to wait for the populous emerging markets to participate in the global energy policy rethink. Germany would do well to assume responsibility. Of course solidarity should not only be required of normal customers. Furthermore, Europe should focus more attention on low-carbon technologies.

 

 

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