Surcharge Reductions for Industry in Germany

With the recent decision to raise the feed-in tariff surcharges in Germany to 5.227 cents per kWh in Germany, there has been a lot of discussion on the surcharge reductions the German law provides for large scale industrial electricity users.

The German law on this is codified in the Articles 40 to 44 of the Law on Priority for Renewable Energy (EEG).

These reductions are available for railways and for productive industry (as opposed to service industry, for example providing cooled storage room).

The Article on productive industry reductions provides for several brackets. All electricity use up to 1 GWh is unaffected (subject to full surcharges of 52,270 euro for that GWh). All electricity use between 1 and 10 GWh is subject to 10 percent of the surcharges, that is 5,227 euro per GWh, which is 47,043 euro for 9 GWh. All electricity use from 10 to 100 GWh is subject to 1 percent of the surcharges, that is 522,7 euro per GWh, or  the same 47,043 euro for 90 GWh.

Everything over 100 GWh is subject to 0.05 cents per kWh, which actually doesn’t work out much cheaper than 1 percent of the surcharge.

So a large industrial user with 200 GWh of yearly electricity demand would pay 52,270 plus 47,043 plus 47,043 plus 50,000 euro, which would be 196.356 euro. They would not pay nothing, as many people assume wrongly.

The above are the rules for companies whose share of electricity costs in relation to their added value is over 14%.

For companies where that value is over 20% and which are consuming over 100 GWh per year, the surcharges go down to 0.05 cents for all electricity. So a company consuming 200 GWh would have to pay only 100,000 euro, a difference of 96.356 to the case with less share of electricity cost.

These surcharge reductions for industry are supposed to help German industry to stay competitive relative to international competitors.

This may be at least doubtful under the spirit of WTO rules on subsidies, which frown on any subsidy specifically awarded for exports.

On the other hand, it is doubtful if these reductions can be seen as “subsidies” under the WTO scheme in the first place. And they actually only avoid additional burdens for German industry that industry in a country without an aggressive renewable deployment program doesn’t have in the first place. So these reductions don’t give German industry an unfair advantage in the international competition, they just want to keep the level playing field.

These reductions have been reformed last year. Until then, they were granted only to companies using more than 10 GW, which was seen as unfair to companies just below the threshold value. Actually, under the old system, it would lead to major savings for a company in that general area to use more electricity, so as to surpass the threshold.

That, of course, is contrary to the important goal of energy efficiency. Under the new system, no one will pay less by using more.

On the other hand, reducing the threshold by a factor of 10 to 1 GW obviously gets a lot more of companies under this system. And it might lead to much more reductions.

These were estimated as about 2 billion euro a year for 2011 by the German government (page 155).

For next year, Prognos AG has published some estimates. They expect 56.4 TWh of fully privileged demand (over 20 percent share of electricity cost and over 100 GW use). These would have to pay around 2.498 billion euro without the privilege, and that is reduced to 28.2 million, which leaves 2.469.8 billion in additional cost to be shouldered by someone else.

The next largest section is that of companies using between 10 and 100 GWh. Their surcharges are reduced by 99 percent for this segment. 20.9 TWh would cost around 1.092 billion under normal surcharges. Reducing that by 99 percent leaves 10.92 million euro, and accordingly another 1.081 billion to be paid by someone else.

Those companies getting a 90 percent reduction (between 1 and 10 GWh) are estimated to use another 9.9 TWh, and those over 100 GWh (but less than 20 percent share in added value) another 4.2 TWh. Add railway use (4.8 TWh), and the grand total comes to 96.2 TWh.

Clearly, the total reduction costs add up to several billions of euro. The German government says they want to reconsider this aspect of the law. Maybe they will come up with some reform ideas.

 

Published by kflenz

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

3 thoughts on “Surcharge Reductions for Industry in Germany

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