Who is paying for it?

Who is paying for it?

(Copyright Photo: Getty Images)
(Copyright Photo: Getty Images)
ENERGY COSTS
Who is paying for it?

Who is paying for it?

Germany’s transition to renewable energies is costing billions. The high prices are putting many households under pressure, while German industry fears its competitiveness may be jeopardized.

Text: Bärbel Brockmann and Tanja Requardt

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hen the German electricity market was liberalized in 1998, politicians promised that electricity prices would fall. The energy transition would not cost the average household any more than the price of a scoop of ice cream once a month, promised former environment minister Jürgen Trittin. His comparison has since become infamous. Both these forecasts turned out to be wrong, as we now know. And it is Germany’s Energiewende – energy transition, which aims to drastically reduce greenhouse emissions in Germany – that is largely responsible. The main instrument of the energy transition, the financial support for renewable energies, has cost the country billions of euros every year ever since. An average household with an electricity consumption of 3,500 kilowatt hours (kWh) paid €222 in 2016 for the Renewable Energies Act (EEG) levy, the main source of funding for the energy transition. In 2017, it will rise by €18. Indeed, since the introduction of the EEG surcharge in 2000, it has risen by over 3,000 percent. 

ONE EURO FOR A SCOOP OF ICE CREAM. Families in Germany won’t have to pay any more than that per month for the energy transition, promised Green Party politician Jürgen Trittin.

And there is no end in sight for these cost increases. In 2017, the EEG surcharge will climb to a record 6.88 cents per kilowatt hour. And “further cost increases” are on the horizon, as an expert committee appointed by the German federal government recently confirmed. It also said that key climate protection goals “will, in all likelihood, not be attained.” To achieve the target of a 40 percent reduction in emissions by 2020, the rate of cuts to CO2 emissions would have to be roughly quadrupled. “The way things stand today, it is not possible to see how the German government intends to achieve that,” the Commission said, recommending a complete “change of system.” It said the Energiewende could only be financed long-term if the European emissions trading scheme played a greater role. The “complex system of support mechanisms currently in place should be eliminated,” the scientists said. 

EUROS A MONTH is the cost to every German citizen for the energy transition until 2025. That would be enough for a monthly visit to the local hairdresser.

(Copyright Photo: Stocksy United)

But there’s no sign of this happening yet, even though the performance so far should compel Germany to take action. According to an interim review by the Cologne Institute for Economic Research (IW), for example, the financial viability of the Energiewende only achieved 25 out of a possible 100 points. Among other things, the economists criticized the fact that the German government had actually promised in 2011 that the EEG surcharge would remain at 3.5 cents, although it had reached 6.17 cents in 2015. The economic researchers at the IW expect further increases to the renewables surcharge – to 9 cents per kilowatt hour by 2025. They say that in 2017 German consumers will pay €2 billion a month to the operators of wind, photovoltaic, and biogas facilities for this charge alone. “So far the renewable energies surcharge was considered the largest cost factor of the Energiewende,” says energy economist Esther Chrischilles from the Cologne Institute. “But nowadays the indirect costs are creeping up – and pushing up network charges even further.” 

The Düsseldorf Institute for Competition Economics (Dice) calculated a possible total figure for the direct and indirect costs of the Energiewende – the indirect costs being primarily incurred by the expansion of the transmission and distribution networks. It came to the conclusion, much debated in political and energy circles, that a further €370 billion would need to be spent in the next ten years. This figure includes the costs of expanding the electricity networks and financial support for combined heat and power as well as the direct subsidies for renewable energies via the EEG surcharge. Together with costs of €150 billion that have already been incurred since 2000, the total bill by 2025 would be more than half a trillion euros. To put this in context, €317 billion was earmarked for this in the 2016 German federal budget.

A FOUR-PERSON FAMILY will have to pay €25,000 for the German energy transition by 2025. That would cover the cost of a new medium-sized car. Already today, you could buy a small electric car with the government premium.

(Copyright Photo: Stocksy United)

Thus, a four-person family pays more than €25,000 for the German energy transition directly and indirectly,” says Professor Justus Haucap, economist and director of the Düsseldorf Institute. That is more than €6,000 per family member. What’s more, the lion’s share of €18,000, or €4,500, still awaits consumers since the costs are increasing exponentially. In addition, the study merely includes the period to 2025 and only the electricity sector. But the costs are likely to continue after that, especially if you consider that the Energiewende now also aims to manage, if possible, without fossil fuels such as oil, coal and gas in the entire transport and heating sector. This concept, which is known as “integrated energy,” will cost billions of additional euros – for example, for subsidies for electric cars and electric heat pumps

But for Hermann Falk, director of the German Renewable Energy Federation (BEE), the calculation by the Düsseldorf Institute doesn’t hold. “Even without the Energiewende, the networks would have to be modernized and expanded, a fact the study neglects to mention. Furthermore, without the energy transition we would have to pay much more for climate protection,” he says. Falk also criticizes the fact that the Dice study, which is funded by employer associations, does not take into account the benefits of the Energiewende, such as the creation of 360,000 jobs or investments in the construction of new green electricity plants. In 2015 alone, these totaled €15 billion.

EUROS IS THE COST of the energy transition for every resident of Germany by 2025. That would have been a nice family holiday in the Mediterranean. Four weeks on the beach, all-inclusive.

(Copyright Photo: Aurora Photos, USA)

Scientists at the Fraunhofer Institute for Solar Energy Systems (ISE) in Freiburg performed their own calculation. They examined the costs for the transformation of the energy systems in various different scenarios – in which developments of fossil fuel prices and the costs imposed on CO2 emissions play a role. “If, for example, the prices for fossil fuels stay the same until 2050 and the costs of CO2 emissions remain low long-term,” says Professor Hans-Martin Henning, deputy director of the institute, “then the total costs for the lowest-cost scenario are around €1,100 billion, that’s 25 percent higher than if we stick to today’s energy system.” But if you assume an increase in prices for fossil fuels by three percent a year, then the overall costs for the transformation of the energy system are in line with the costs for continuing to operate today’s system – although you would reduce energy-related CO2 emissions by 85 percent at the same time. This is a mere system costs analysis, Henning explains, and it should be noted that, “even in a future without renewable energies, the existing energy infrastructure would have to be constantly maintained and modernized.”

The 2050 Climate Protection Plan of the German federal government is supposed to define the restructuring of the energy landscape. By 2050, the government is aiming to reduce greenhouse gas emissions by 80 to 95 percent. But how it intends to achieve this objective, and what it will ultimately cost, has not yet been clearly specified. Yet regardless of one’s perspective on the situation, one thing is certain: the restructuring of the energy landscape will cost a great deal of money. Contrary to Jürgen Trittin’s 2003 comparison of the costs for the energy transition with a scoop of ice cream, the sum of around €1 trillion is very close to the forecast that Trittin’s successor as environment minister, Peter Altmaier, made in 2013. Back then he was scolded for being a doomsayer. Today, it looks like he was right.

EXTRAPOLATION: The Düsseldorf Institute for Competition Economics produced a forecast of the possible cost development of the energy transition. (see: figures in red circles)

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