Author: Craig Morris
Renewables raise German retail power rate by 7 percent but lower industry
prices by 18 percent
Opponents of renewables are using the increase to claim that renewables are too expensive and should
be stopped, and they are suddenly concerned about the impact on the poor – even as German power
firms rake in the cash. But German media and consumer advocates don't buy the logic. The calculation of
the surcharge needs to be redesigned so that households do not have to subsidize industry so much.
On October 15, Germany's Network Agency announced the new surcharge to cover the cost of renewable
power for 2013. As expected, the surcharge increased dramatically by 47% from 3.59 cents per kilowatthour to 5.28 cents. But the retail rate, which is currently around 26 cents per kilowatt-hour, will "only"
increase by roughly seven percent as a result. At the same time, spot market power prices – which
industry pays – are down by at least 18 percent over the past 12 months, but these lower prices are not
being passed on to retail consumers. In other words, consumers are cross-financing industry to the tune
of three billion euros this year alone.
The surcharge almost entirely increased for reasons only indirectly related to the actual cost of
renewable power. Renewables only raised the surcharge by 0.19 cents, not 1.69 cents.
Composition of German green power surcharge
6
5
0,69
Underdraw from 2012
4
1,29
Market bonus
0,96
3
0,53
Liquidity reserve
0,69
Industry exemptions
2
Lower wholesale prices
1
2,07
2,26
2012
2013
0
Cost of RE
Source: BEE
Most of the surcharge is thus an effect of the policy's design. As shown in the chart above from German
renewables association BEE, other factors are responsible for the rising surcharge. The green area
represents the cost of renewables; the blue area, lower spot market prices (!); the red area, industry
exemptions; and the dark green area, the budget shortfall from 2012:

Lower wholesale prices: The blue area is especially noteworthy. While everyone is focused on
higher retail rates from renewables, renewable power has lowered wholesale power prices for
industry by an estimated 18-20 percent over the past year. In fact, power for industry has been
considerably lower in Germany than in neighboring France. Not surprisingly, Germany is
attracting energy-intensive firms. Nonetheless, German industry fervently continues to express
its concern about how renewables could raise prices so that people don't realize how much it is
currently benefiting from renewables.

Broad industry exemptions: The red area of "industry exemptions" also warrants an explanation.
When feed-in tariffs were originally designed by a coalition government between Social
Democrats and Greens, energy-intensive industry was largely exempted from the surcharge to
ensure that German industry remains internationally competitive. Now, however, industry power
prices are down thanks to renewables, so exempt firms benefit in two ways.
To make matters worse, Chancellor Merkel's coalition has expanded the list of firms by around
250 percent, and the list now includes firms that cannot be “scared away” by higher power
prices, such as the municipal transport service in Nuremberg, Stuttgart Airport, and a golf course.
Proponents of renewables are therefore calling for industry to pay its fair share.
German power prices rose (see blue line in chart below) from around 16 cents in 2002 to around 26
cents in 2012, an increase of 10 cents – but renewables (see green line for the surcharge) only made up
3.59 cents of that increase. Again, the red line shows us that prices for industry have had a slightly
downward trend since mid-2011.
German media and consumer advocates get the story right
German media are also putting the increase in the surcharge into perspective. As the screenshot from a
German news broadcast on Thursday shows, the price of electricity only increased over the past 12
months by three percent, compared to a five percent increase in the cost of natural gas, a nine percent
hike in the cost of gasoline, and a 10 percent increase in the cost of heating oil. The three percent
increase in electricity prices is also fairly close to the general inflation rate of two percent in Germany
over the past 12 months.
Germany is a rich country with a thriving economy (the unemployment rate is currently at its lowest level
since reunification more than two decades ago), so most people can afford the surcharge, which is
expected to cost the average German household with an annual consumption of 1,500 kilowatt-hours
around 60 euros additionally next year – 5 euros per month. In addition, citizenry is behind more than
half of investments in renewables, so Germans are largely paying this money back to themselves rather
than to corporations.
Here, we begin to understand why energy consumer advocates in Germany still stand by German
renewables policy. The Bund der Energieverbraucher points out that having industry pay its fair share
would reduce the surcharge for consumers by around 1.5 cents, nearly the level of its increase in 2013.
The German public supports the cost of renewables because they are largely paying the money back to
themselves. More than half of investments in renewables were made by individuals, with the country's
four biggest power firms only making up 6.5 percent of all investments.
Energy poverty – industry suddenly concerned
Germany's largest power provider, Eon, posted a net profit of 3.1 billion euros in the first two quarters of
this year. Nonetheless, when its CEO Johannes Teyssen expressed concern this year about "energy
poverty," he did not announce lower prices for his customers on welfare, but rather called on the
government to protect the poor from rising power rates allegedly brought about by renewables.
Despite these profits, Eon and RWE, Germany's second largest power firm, have both announced that
they plan to lay off some 11,000 people each, a step that will only increase the number of welfare
recipients they claim to be concerned about.
Protecting the poor is a general concern. Unfortunately, Germany does not have any official definition of
fuel poverty, nor does it keep any statistics on how many people have had their power switched off
because they could not pay their bills, though one estimate put the figure at 200,000 people over the
past year.
The UK speaks of "fuel poverty" when a household spends more than 10 percent of its income on water
heating, lights, appliances and cooking. Germans currently only spend 2.5 percent of their household
budgets on electricity on the average, with only 0.3 percent devoted to funding green power.
One way to protect the poor is obviously to have industry pay its fair share. Consumer advocates also
point out that Germans can simply switch their power providers at the end of the month and select a less
expensive provider. Other proposals include the right to a certain amount of power per capita each
month at a low price and free energy audits (to show households how they can lower consumption).
While such ideas can be helpful, higher prices are not necessarily a bad thing, for they also provide an
incentive to conserve energy and use more efficient appliances – two of the goals in Germany's energy
transition. In other words, when otherwise sensible energy policy impacts the poor, social policy can step
up to ensure social equity.
Renewables already cheap
As Claudia Kemfert, energy expert at German economics institute DIW, puts it, "Power prices would rise
even without the switch to renewables because Germany is renewing its fleet of power plants and the
price of fossil fuel continues to rise." Indeed, countries that are not switching to renewables as fast as
Germany are seeing power prices rise as well. Power providers in the UK are now telling their customers
to brace for a nine percent increase, and US power prices have risen by 29 percent since 2004 (see XLS
spreadsheet).
Energy subsidies in Germany from 1970-2012
331
213
87
Hard coal
Nuclear
Brown coal
67
Renewables
A recent study by Green Budget Germany also pointed out that coal power and nuclear power have
received tremendous subsidies since 1970, though they are sometimes passed on as governmental
budget items to be paid for by taxpayers, not as additions to power bills. If all of those subsidies were
tacked onto the retail rate, the "conventional energy surcharge" would be 10.2 cents per kilowatt-hour
this year – nearly twice as much as the surcharge for renewables next year.
The main difference in the cost of conventional power and renewable power is that renewables have an
identifiable price tag, whereas the cost of conventional power is spread across power bills, governmental
budgets, and "external costs" (such as healthcare related to pollution).
Going forward, Germans know that renewables will continue to become cheaper, whereas prices for
conventional power will only increase. Investments made now in renewable power generators that will
run for two will pay for themselves even without consideration of external costs. Germany's
Environmental Ministry has estimated that the switch from conventional energy to renewables will save
570 billion euros by 2050.