About that Surcharge Rise in Germany

The government of the German State of Baden-Württemberg, which the first time in history has a Minister-President from the Green party,  has issued a press release with some thoughts about the coming rise in feed-in tariff surcharges in Germany.

This is of course expected to be a talking point vigorously exploited by various anti-renewable propaganda efforts.

The government expects a rise of about 1.5 cents per kWh. It attributes 0.24 of that to new solar capacity, and 0.7 to all new renewable capacity. The remainder is caused by the fact that the 2011 reform of the Law on Priority for Renewable Energy handed out favors to more industry players in the form of lower tariffs, which results in less shoulders to distribute the burden.

The additional 1.5 cent would work out to between 60 and 80 euros per year for the avarage household. However, the merit order effect (cheaper wholesale electricity prices) is actually about in the same ballpark. If utilities don’t pass on those savings but only pass on the higher surcharge, blaming renewable energy for the price increase is not fair.

Fortunately, consumers can easily change their utility if they understand what is going on. Passing on the surcharge cost and not passing on the savings from lower wholesale prices will of course raise the utility profits by exactly that amount.

The government estimates that consumers can save up to 200 euros a year by changing to a utility that offers more attractive prices. The government plans to explain this to their citizens by appropriate campaigns.

They also plan to step up their efforts in helping citizens save electricity. There is still much explaining to do in that area.

In a related article, Craig Morris notes that the surcharge cost is at about 0.3% of the average family income in Germany. The total bill for electricity is about 2.2% of average income. Having that grow to 2.3 or 2.4% as a consequence of the coming surcharge rise is not ever so big a deal. He also points out that while the price per kWh is higher than in most United States locations, the cost is actually less since Germans have switched faster to more efficient technologies, saving more electricity.

Published by kflenz

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

8 thoughts on “About that Surcharge Rise in Germany

  1. The industry players have the power to negotiate the best rates and to get any lowering of the cost of energy to benefit them. Why did they need those favors ?

    Is there any public information on the offers of various utility, the price plan that exist and how large a part of the market each of them represents ?
    It’s a bit surprising that the German don’t just switch if it’s so beneficial.

    As I noted earlier, I believe it’s by itself not a good idea to make electricity more expensive. Even when the effect is still moderate, it still pushes toward other, directly carbon generating power source.
    If there’s no choice, then there should be a carbon tax on the other power sources to keep things balanced because not making them pay the true social cost of the carbon they emit is by itself a subsidy. And my opinion is that carbon free electric options should be paid for more by a carbon tax than by FIT.

    Whatever happens in any case FIT has the completely perverse effect that electricity becomes more and more expensive as it becomes cleaner, and therefore people will try to slow the increase by keeping some unclean power as long as possible, *not caring about how unclean it is*, which has the insane result that Germany reduce gas usage much faster than the coal one.
    Even though gas is around 3 times less polluting than coal.

    This makes me think : there’s extremely little discussion about the fact that Germany has set a fuel tax for nuclear plants. It’s completely *incomprehensible* why Germany has a fuel tax for nuclear *and* *doesn’t* *have* *one* *for* *coal*.

    This in effect becomes a coal subsidy that makes it cheaper than nuclear. As a result of this policy, companies like RWE prefer to run existing carbon heavy coal plants rather than existing nuclear plant.

    But coal in truth has much higher, both carbon and social cost than nuclear, and so not only should have a fuel tax just like nuclear, but there’s every reason why it should be quite a larger one.

    I’ve got strong things to say about coal in Germany, and your use of the 1990 numbers but I’ll do it on a post dedicated to that.

    In recent times, I frequently got angry reading your message because I have the feeling the end result of your position is to help coal. You have no qualms about using the numbers that make the coal situation in Germany, and it’s at best snail’s pace progress, look much better than they truly are, which is dishonest. But I’ll comment, and *demonstrate* that, where it’s more appropriate.

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  2. You raise a lot of points in one comment.

    The reasons more industry exceptions were introduced last year are complex; I would need a whole post dedicated to explain them. Maybe I’ll write one.

    Government predictions of the FIT costs last year assumed that they will peak in a couple of years and then go down. Those predictions were based on solar prices much higher than they actually are now, and no 52 GW cap for solar.

    There will always be people who try to slow the increase of renewable. They are not very successful in Germany right now. The country is far ahead of the government plans.

    I am looking forward to the next election, though. Maybe we can get rid of the FDP. Getting back to a SPD/Green government would be excellent news for renewable energy.

    There will be a fuel tax on coal as soon as carbon credits need to be bought over auctions. I agree completely that this is a good idea. The EU Commission should revise the number of permits issued so as to get prices higher.

    I am sorry if you feel angry about my postings on coal. Feel free to explain where my data or the use of it is wrong (preferably without “inflammatory remarks”).

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  3. As RWE reported here :

    Click to access RWE-report-first-half-2012.pdf

    A lot of factor have accumulated to make coal cheap. The recession led to an excess of CO2 certificates, and RWE says Poland blocked attempts at the EU to modify the rules to make the price higher again. Hard coal became cheaper (23% in dollar and 16% in euro) because the US export more (lot of shale gas). And also because of recession, transportation cost went down also, since a lot of cargo is available since it’s less expensive to bring it to Germany.

    They also say on page 16 that in first half of 2012 their generation of electricity from lignite raised by 16%, and the one from coal by 24% (whilst hard coal is about several countries, the lignite number is almost only about Germany).

    I should try not to use inflammatory remarks. However it’s very hard to believe you as a German can honestly not realize something happened in 1990 in Germany that make that date certainly not a relevant starting point to measure CO2 level progress.
    I know that’s the reference point for Kyoto, but that also exactly why the percentage asked from Germany was higher. Not because Germany was very brave, but because everyone knew at Kyoto that using that starting meant the number was skewed in Germany’s favor, and so delivering after Kyoto the same level of effort as the others would result in a high reduction when compared to this inflated 1990 number.

    The carbon intensity of the country you lived in before 1990 suddenly exploded because it was reunited with another until then politically, and foremost economically, separated entity that had a very inefficient economy in term of CO2.
    Yes, CO2 level went down a lot between 1990 and around 96-98. But that was not as a result of the Kyoto agreement because that was before the Kyoto signature, or before any effort immediately after Kyoto has had time to pick up speed.
    That was just the effect of replacing a soviet area industry with a modern, eastern one. And simply completely closing altogether some parts of it, therefore getting rid of the associated CO2. That took years and was not yet totally finished in 1995.
    And for that period you can not really claim a significant result from renewable investments because there was a very small level of renewable until 97-98. Or if not so small compared to some other countries, a lot lower than everything that happened after that, so certainly the gain that should duly be attributed to them is scant compared to what happened later on, right ?

    So if you want to show the real effect of renewables on CO2 in Germany, you need to take 1997 or 1998 as a starting point. And if you were honest in using the 1990 date until now, you will very surprised at how much more modest that makes them.

    I need to check but if you remove oil from the calculation, which is basically not used to make electricity in Germany and went down because of the big price increase and more efficient cars, not because of renewable, I believe the result gets even smaller.

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    1. I suggest you go see the American energy administration numbers about Germany here :
      http://www.eia.gov/countries/country-data.cfm?fips=GM&trk=p1#pet

      I found that source of data recently, and it’s a gold mine.
      Check the coal consumption data graph (I understand it’s hard and brow coal together), that picture is worth a thousand words :

      It’s actually missing the 1990 data point, which would above all the rest.

      Check also the oil consumption :

      It does go down from 1998, as price increases, and given the huge impact oil has on CO2 intensity, it certainly contributes a lot to the CO2 gains in Germany after that date.

      I’m not trying to “claim victory over renewable” or anything like that. I just want the facts, and I’m under the feeling many renewable enthusiasts do not share that intent at all.
      An important point is that renewable would have had a very significant on the CO2 intensity of Germany in 2011 and first half of 2012, if 8 nuclear reactors had not been closed. Those who claimed the impact of renewable is so high and so huge that we don’t need nuclear anymore, have been hurting the fight against CO2 a lot.
      Nuclear together with solar, and some hydro, plus a bit of biomass, might work very well. Solar hurts CCGT a lot, and their use in the German mix is going down currently but does not really hurt nuclear. Solar provides energy during the mid-of-day peak, but it’s just not economically profitable to built nuclear to provide that peak ! Peak production is not the one for which it makes sense to use nuclear.

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      1. I do not claim that renewable gets deployed so fast that there is no need for nuclear. I claim that there is not much hope for nuclear, and that it is not a rational strategy to hope for the nuclear bailout, and that because of that it is vital to deploy renewable even faster than without the nuclear phase-out in Germany and Japan, which only wishful thinking detached from reality can ignore any more.

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    2. I am aware of the fact that there has been a reunification of East and West Germany in 1990. Actually, October 3 is a holiday for the occasion in Germany, and I mention that each year around this time in my lectures on German law.

      I also recall that I recently quantified the part of the reduction coming from renewable energy deployment:

      Renewable CO2 Reductions Contribute 10% to Germany’s Success

      http://k.lenz.name/LB/?p=7809

      And I also recall that getting the former East Germany States up to speed has been costing a lot of money. Germany introduced a special tax to deal with those costs, which is still in force now:

      http://de.wikipedia.org/wiki/Solidarit%C3%A4tszuschlag

      While it might have been low hanging fruit, those gains in efficiency did not come without investments, just as getting to 100% renewable will of course need massive sums of investments.

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