ELECTRICITY PRICES

Rethinking the Cost of Going Green

  • Why it matters

    Why it matters

    The high cost of green electricity to consumers could make it less competitive in the heating and mobility markets, undermining Germany’s efforts to transition to a clean economy.

  • Facts

    Facts

    • Following Japan’s nuclear disaster in Fukushima in 2011, Germany decided to phase out all nuclear energy in the country by 2022 and draw at least 80 percent of energy from renewables by 2050.
    • To expand renewable energy production, Germany has slapped a levy on electriciy bills, now making up 54 percent of the price per kilowatt hour and giving a retail price of 28.73 euro cents, or $0.31.
    • Taxes and fees make up just 27 percent of the price of natural gas and oil, making them more competitive in the heating and mobility markets.
  • Audio

    Audio

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main source Julian Stratenschulte DPA – Electricity lightning power grid cable tower 37439623
Some people find German electricity prices shockingly high. Source: Julian Stratenschulte / DPA

Consumers in Germany pay some of the highest electricity prices in Europe, second only to Denmark. Most of what Germans pay, however, doesn’t go toward keeping the lights on.

At least 54 percent of the price per kilowatt hour, which currently stands at 28.73 euro cents, or $0.31, comes from state-mandated fees to support the country’s ambitious transition to renewable energy sources, according to Germany Association of Energy and Water Industries.

The power companies have grown concerned that the burden on private and corporate consumers could make green electricity a less attractive option for heating homes and offices and fueling automobiles.

“We are running into a paradoxical situation where the fees that made the expansion of renewable energy possible now stand in the way of further expansion because they shut off new markets for green electricity,” said Johannes Teyssen, the head of utility firm E.ON, at a conference on energy hosted by Handelsblatt in Berlin.

“We need a fundamental reform of energy taxes and fees.”

Johannes Teyssen, Chief Executive, E.ON

Electricity consumers, including most companies, have been subsidizing the expansion of wind and solar energy through surcharges as Germany phases out its nuclear and coal plants.

The irony is that the wholesale price of electricity is actually declining due to the glut of green power generated by these subsidies. Consumers, however, have seen little relief due to the surcharges.

Power companies such as E.ON are calling for a re-evaluation of how Germany finances green energy to cope with the problem of rising costs.

“We need a fundamental reform of energy taxes and fees,” Mr. Teyssen said. “For many years, problems have been shifted onto consumers.”

The mounting costs have placed green electricity at a disadvantage in the heating market compared to natural gas and oil, said Peter Terium, chief executive of E.ON’s rival Innogy.

Taxes and fees make up just 27 percent of the price of natural gas and oil, Mr. Terium said, compared to 54 percent for green electricity.

26 p16 Electricity Price-01

One solution is to increase the fees on heating oil, diesel and gasoline, said Patrick Graichen, the head of the Berlin think tank Agora Energiewende, which researches Germany’s transition to renewables.

“Electricity and heating don’t face an equal burden,” Mr. Graichen said. “This imbalance isn’t sustainable over the long term.”

To level the playing field, Mr. Graichen proposed that the German government use its €16 billion budget surplus to ease the burden on electricity consumers by slashing electricity taxes.

“The electricity tax needs to be reduced to a minimum level, it’s outlived itself,” Mr. Graichen said.

Electricity as a heating source has long been viewed skeptically in Germany because it was considered an extension of the nuclear and coal industries.

“Electricity and heating don’t face an equal burden. This imbalance isn’t sustainable over the long term.”

Patrick Graichen, head of Agora Energiewende think tank

The shift to renewable energy, however, creates new opportunities for electricity to compete in the heating market if the costs are reduced for consumers.

“Today we stand before a new wave of electrification that will include heating and mobility,” Mr. Terium said.

Energy efficiency, however, will have to increase substantially for electricity to meet the needs of the power, heating and mobility markets.

Solar and wind energy will also have to compete on the open market without subsidies, which doesn’t seem so far-fetched anymore. Since 2008, the cost of wind turbines has dropped 30 percent while the cost of solar technology has dropped by 80 percent, making renewables more competitive.

Mr. Teyssen, the head of E.ON, said the government should slash red tape and put more power in the hands of consumers, who can now generate their own electricity and manage its use with decentralized smart networks and digital services.

“Electricity is often the most efficient way to use renewable energy,” he added.

 

Dana Heide is a correspondent for Handelsblatt in Berlin, focusing on energy policies, small and medium-sized companies and innovation. Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. Jürgen Flauger covers the energy market for Handelsblatt, including electricity and gas providers, international market developments and energy policy. To contact the authors: d.heide@vhb.de, hubik@handelsblatt.com, flauger@handelsblatt.com

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