Renewable Energy

Is Germany Deceiving Power Consumers?

Is Mr. Gabriel pointing the way for power prices? Source: DPA
Is Mr. Gabriel pointing the way for power prices?
  • Why it matters

    Why it matters

    Germany pays some of the highest power prices in Europe, due, in part, to a surcharge financing its switch to renewable energy sources.

  • Facts

    Facts

    • German Economy Minister Sigmar Gabriel recently announced the surcharge would drop to €0.0617 per kilowatt-hour next year.
    • But Handelsblatt research found a decline to  €0.054 would be more appropriate.
    • Germany’s Renewable Energy Act (EEG) pays green power providers guaranteed feed-in tariffs to encourage its expansion.
  • Audio

    Audio

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German electricity consumers should be pleased – at least according to Energy and Economy Minister Sigmar Gabriel.

“It is a good achievement, that for the first time in 14 years the EEG (Renewable Energy Act) surcharge is not rising,” said Mr. Gabriel last Wednesday.

Only hours earlier, the country’s largest network operators had announced how much each power customer must pay in the coming year in order to finance the expansion of renewable energy. And the surcharge, which has surged in recent years, will actually drop for the first time, however only slightly from €0.0624 to €0.0617 per kilowatt-hour. Most Germans won’t notice a difference.

What Mr. Gabriel is concealing, however, is that the Renewable Energy Act’s surcharge could have dropped considerably more. A decline to €0.054 would be more appropriate, even if a case for a level as high as €0.058 could arguably be made. This has been verified by detailed and confidential calculations from the industry, which have been made available to Handelsblatt.

The calculations use the same factors as the four relevant transmission network operators Amprion, 50Hertz, Tennet and TransnetBW – including forecasts for the trading price, the feed-in tariffs for renewable energies, and the build-up of wind and solar power.

The calculations of the four grid operators differ on two crucial points. First, they take full advantage of skimming off a liquidity reserve of 10 percent. They can use this as a protective buffer in the surprising event that revenue from the renewables surcharge does not cover their expenditures, because wind and solar systems yield much more power than expected.

The impact is enormous: a mere €0.001 of the renewables surcharge adds up to €350 million to €400 million.

But according to the documents seen by Handelsblatt, there is no justification for this. The surcharge pot at the end of September was brimming with €1.4 billion. This year, there was no dip in revenue during the summer months, as there had been in previous years. Assuming average growth, the account should swell during the winter months, when less of the more expensive green power tends to be produced, to more than €5 billion by April.

Even if the network operators were to completely do without the liquidity reserve, which adds up to €2.1 billion, there would remain a sufficient buffer of €2.9 billion to absorb potential risks, such as if, for example, the summer were especially sunny. The grid operators calculate that these risks to be €2.7 billion.

“There is no reason for this extreme hedging,” said an energy manager. “On the contrary, there has been enough of a margin to finally relieve consumers.”

The impact is enormous: a mere €0.001 of the renewables surcharge adds up to €350 million to €400 million.

But another factor has also been fundamentally tinkered with: projected electricity consumption was set intentionally low, causing the surcharge to rise per customer kilowatt-hour.

The network operators reject the accusations.

The current level of the financial buffer “was entirely priced into the calculation of the renewables surcharge,” said a spokesman for network operator Amprion.

Any surplus from the surcharge would be completely paid out to electricity consumers in 2015, since it was part of the liquidity reserve, he said. The 10 percent reserve was necessary to plan for unforeseen risks, and consumption was forecast to dip only minimally from this year to 2015.

Germans Energy shift-01

Felix Matthes from the environmental research group Öko-Institut said the grid operators had padded themselves against any eventuality with their generous calculations. “The liquidity reserve is much too high,” said a spokesman for the green power provider Lichtblick, adding that the surcharge was €0.005 higher than it needed to be.

In the energy sector, there are suspicions that the German economy ministry influenced the pricing. Instead of sharply lowering costs for consumers this year, the government might be trying to save some room for future declines. It could then try to sell this to the public as the continued success of its recent reform of the Renewable Energy Act.

A spokeswoman from the economy ministry dismissed such an interpretation, however, indicating that setting the surcharge was entirely up to the network operators.

But sources within grid operators admitted that the surcharge in the past had been subject to political influence. After Chancellor Angela Merkel in the summer of 2011 said the surcharge would not top €0.035, network operators quickly recalculated the cost for 2012.

“It’s naturally no coincidence that shortly thereafter an artificially lower value was defined – even though the facts completely contradicted that,” one industry insider told Handelsblatt. So quickly can a surcharge become a political plaything.

Last Wednesday, Mr. Gabriel made a pledge: “Our goal is to make sure that in the next few years we never have such exorbitant surges that we have had in the past two to three years.” And he said that would be because of his courageous reform.

Jürgen Flauger covers the energy sector for Handelsblatt. Klaus Stratmann covers energy policy from Berlin. To contact the authors: flauger@handelsblatt.com and stratmann@handelsblatt.com

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