Volker Quaschning: Electricity Too Cheap in Germany

Volker Quaschning just posted an article at the Greenpeace blog (in German) where he says that electricity is too cheap in Germany for private consumers.

He mentions that the average consumer uses 1.700 kWh a year, which works out to 440 euros at 26 cent a kWh. And that is much less than people pay for their handy. And most people wouldn’t even kn0w how much they pay for electricity.

He also notes that higher electricity prices help saving energy.

I agree with his analysis. And I have a couple of points to add.

For one, the ecotax introduced in 1999 wanted electricity prices to go up, so as to give an incentive to use less. The basic idea is still as correct as it was in 1999.

Next, 1.700 kWh per year is about 4.66 kWh a day. That’s the equivalent of employing five slaves (in times when slavery was legal) and having them work treadmills eight hours a day. Paying only around one euro for that massive amount of energy is still ridiculously cheap.

Another bright side of rising electricity prices is that it will increase the difference between buying electricity from the grid and making your own. Already it is cheaper to get your electricity from your own solar panels than from the grid in Germany. If that difference increases, more people will buy solar to save on their electricity bill, even once the feed-in tariff for solar runs out in a couple of years (it has a final ceiling of 52 GW now).

If more and more people stop buying from the grid and the government persists in its policy of letting most of industry off the hook, there will be less and less shoulders to distribute the burden of the feed-in tariff. That will make it more expensive, even with much lower tariffs in the future, which in turn will drive even more people into getting their own solar panels.

Quaschning says that the owners of conventional power plants try to use the cost talking point to slow down solar and wind. He is right.

However, that talking point actually cuts both ways. If the big German utilities overdo it with their “our electricity is expensive” campaign, more citizens might get a clue from that and opt out from their services altogether.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

9 thoughts on “Volker Quaschning: Electricity Too Cheap in Germany

  1. More than my handy ? Sorry not here in France with the kind of price the operator Free is pushing, it’s almost twice more expensive than the unlimited option.
    And actually in Japan, if Masayoshi Son would let you reuse your old phone, instead of giving you a “free” iPhone, you’d be paying the same kind of amount on the subscription (because that’s about the raw margin he makes on peoples who every two years change their iPhone for a new almost free one each time).

    The more important point is that with the Hartz law, with the huge number of people in Germany who are now getting a low paid, part time job, around 6 millions are now under the poverty threshold, and 12 millions people earn less than 940€ a month per person (calculations made by Thorsten Kalina a researcher at the institute of labour studies in the Duisbourg-Essen university).

    So for all those persons, the difference is a lot of money. You have a good job that pays well, they don’t and they are more and more numerous.
    The trouble is this energy that’s getting more and more expensive for them is not something they use wastefully, reducing actually means more and more part of their life that they have to give up on.

    A very important matter is that the first resulting choice, the one that’s done massively in Germany, is to use fossil power instead of electricity for heating. This means that the heating *will* generate CO2 even if you put in place a huge lot of renewable power for electricity.
    If you make the global calculation, CO2 content of electricity gets lower, the use is lower, but global CO2 emission is still high, that’s because people directly burn fossil fuel for heating and gas for cooking.

    The same researcher also calculated that in Germany between 1992 and 2006, the poorest 10% got 13% poorer, whilst the richest got 33% percent richer.

    The trouble is : what effect have the renewable on that ? It’s easy, they make the situation significantly worse, the poorest poorer, and the richest richer.

    Who owns his house ? Who lives in a owned property and not a rented flat ? Who has savings to invest in wind power ? Savings to spend on better isolation so that higher prices don’t mean we’ll stop the heating and freeze inside the house, putting on warm clothing ? So in this game they are the winners who can get very profitable returns on the renewable power that they bought, and the losers who have only the option of paying always increasing tax on electricity.

    I don’t know about Germany, but here in France, wind power investment is a tax niche, a lot of the investment is paid for by the reduced tax. Must be why the right and Sarkozy were actually rather favorable to on-shore wind power.

    I’m not saying it’s impossible to do things another way with renewable, with more social justice, but I’m saying that’s the path Germany is currently following, and also I’m saying that’s the direct consequence of feed-in tariffs and will be very similar in any other country using the FIT solution.

    And also I’m tired of hearing non-sense about nuclear being very expensive. EDF in France generate 77% of power with nuclear, does not require any FIT but instead provide electricity as cheap as Germany’s lignite one, pays quite generous salaries and foremost provides some massive employment benefits, and still makes a lot of profits. It also repaid to the state *all* of the money it used for building the plants, with interests.

    And the money saved on fossil imports, that’s spent instead on local salaries, helps a lot the nation’s commercial balance. Which is still bad because of the oil for cars, but that would be worst if we needed more oil/gas/coal for electricity.

    PS : You said several times I’m an anonymous commenter, but my full name is on my twitter account that you follow.

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  2. Since you did not write your name in any of your comments here, how do I know that you are comfortable with attaching it to your comments?

    I am not sure why you discuss “more than my handy”. Quaschning (and I above) say that electricity costs less than the handy for most people. I personally don’t have one of these infernal machines in the first place and have no intention of getting one.

    If someone is hard pressed to pay the average cost, he will be all the more motivated to save electricity by yet another surcharge increase. In contrast, someone with a good income won’t even know his electricity bill most of the time (as Quaschning remarks in his article) and will therefore lack any economic incentive to do with less.

    There is indeed a potential problem with building the system as the equivalent of an indirect tax. That, however, is mitigated by the fact that the amounts in question are rather small in absolute numbers. One could imagine a lower surcharge for people with very low incomes, and a higher one for every one else. However with about 10 euro per month in surcharges, I am not yet convinced that this is absolutely necessary.

    One should also mention that the profits of the utilities are much higher as the surcharges, and consumers do have the freedom to change to a utility that passes on the sinking prices on the wholesale market (merit order effect).

    Consumers pay about 380 euro a year for the utilities’ profits, and about 70 euro per year for solar. The former figure is much larger than the latter.

    http://k.lenz.name/LB/?p=6496

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  3. Volker is out in left field. We should not be making the argument that electricity is too cheap. The analogies regarding slavery are crass and inappropriate. I could counter with an analogy about tractors that would be equally inappropriate.

    Don’t set up solar against progress. We’ve invested a whole lot of money in solar to make it cheaper and we’ve come a long way. Solar continues to get cheaper and that’s the message to focus on.

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  4. What is crass and inappropriate about pointing out that present generations are using an abundance of energy at extremely cheap cost compared to people a thousand years ago?

    I agree that solar is continuing to get cheaper. I still agree with Volker Quaschning that electricity is too cheap. Feel free to disagree, but I am serious about the necessity to bring down wasteful consumption. Anything helping with that is welcome in my book.

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  5. Slavery is up there with Nazis as far as emotional distraction goes. Once you’ve dropped slavery into the conversation you’ve activated a negative emotional response in a significant percentage of your audience. You’ve dug a hole. Why on earth connect slavery to solar power? One is ugly the other is beautiful.

    Here’s how it works. If you make solar electricity cheaper relative to the competition it will be used more. That is a fundamental truth. We should focus on this message. It’s a direct message and a good mantra. Arguing that electricity in general should be more expensive is an indirect message with a layer of abstraction. Didn’t Romm talk about this in his book?

    Remember that PV is driving prices down on the wholesale markets in Europe and Australia. PV is eliminating peak pricing from the grid and squeezing profits from the conventional players. We want to drive the competition out of business. You don’t do that by raising prices. You do this with lower prices and direct sales. Someone should tell Volker this.

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    1. It’s more complex than what you describe. PV removes some of the peak prices in the middle of the day, but the result as HSBC analyses here

      Click to access RDV


      is that the load factor of CCGT and pumped hydro goes down.

      They are the one that need the mid-day level to make a profit. Not coal, lignite and nuclear, those are still profitable at a much lower price. Solar actually helps nuclear and coal, and in Germany it unfortunately helps coal because of the political threat on nuclear as well as the fuel tax surcharge.

      The trouble is that solar is significant only half of the year, and you need the capacity in winter, but the peak price going down means the builders of gas and pumped hydro don’t get the money to build it. The IEA number is that if a recent CCGT (combined cycle gas turbine) that needs to be repaid for is not used at least 5000 hours a years, it cant’ be profitable. Blomberg says at the current price in France a CCGT loses 6€ per generated MWh
      (source for those two statement is here in French http://www.adpse.fr/avril-2012-menaces-de-fermeture-sur-les-centrales-au-gaz-en-europe/ sorry I don’t know an equivalent article in English about the economics of CCGT).

      I see your logic is very efficient in terms of carrying the right message to convince people. However I’m far from convinced you’re interested in understanding if things really work out in practice as well as you wish to describe.

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      1. I agree that, paradoxically, there is now less business for pumped hydro. I recall having blogged that:

        Less demand for pumped hydro storage in Germany

        http://k.lenz.name/LB/?p=7179

        I don’t agree with your view of coal and nuclear. Renewable has priority. That reduces capacity factors of the former “baseload” plants. Reducing capacity factors is well known to increase levelized costs of energy.

        While it may be still possible to operate existing coal or nuclear plants even with less capacity factor, this clearly makes it less attractive to build new ones. I understand that there are no plans in Germany to build any new coal capacity after the projects in construction now are finished.

        On your speculation about my interest in finding out new things, I just want to point to my track record of changing my mind if I find out new information:

        Lenz Blog out of the pro-nuclear advocacy business

        http://k.lenz.name/LB/?p=5538

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  6. You may be right on that “slavery” point. Thinking it through in behind, there may be some better way to illustrate the point that one kWh actually is an enormous amount of energy if you have to provide for it by muscle power, and therefore it would be cheap even at ten times the usual final consumer prices of today.

    On the other hand, I write quite a lot of posts. And that implies, in the words of Joe Romm, that “perfection is not an option”.

    I also agree that solar will eventually become the cheapest generating option (in places where it isn’t already). And that PV is driving down wholesale prices. But Quaschning’s article and by extension my comment are placing some preventive strikes against the barrage of anti-renewable propaganda that will come in about two weeks when the surcharges go up again.

    And yes, I still happen to think that there is nothing wrong with electricity becoming more expensive for the home consumer, since that will, all things equal, lead to less consumption.

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