Germany amends green-energy regime to curb rise in prices

The government has high hopes for the expansion of offshore wind farms. But the construction sites are in a state of chaos: Wind turbines off the North Sea island of Borkum are currently rotating without being connected to the grid. The connection cable will probably not be finished until next year. In the meantime, the turbines are being run with diesel fuel to prevent them from rusting.

BERLIN—The German government has amended renewable-energy laws meant to help make the country nuclear-free but that have sent power prices rocketing—squeezing consumers and the country’s formidable export machine.

The cabinet approved amendments on Tuesday that it said would contain soaring electricity costs while seeking to protect German jobs in the industrial sector. The changes include less ambitious targets for wind power and a cut in subsidies for certain forms of green energy.

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Solar power in cloudy Germany. It is only gradually becoming apparent how the renewable energy subsidies redistribute money from the poor to the more affluent, like when someone living in small rental apartment subsidizes a homeowner’s roof-mounted solar panels through his electricity bill. The SPD (Socialist Party), which sees itself as the party of the working class, long ignored this regressive aspect of the system. The Greens, the party of higher earners, continue to do so.

Chancellor Angela Merkel’s “energy transformation,” a bold and initially popular experiment to make Germany the first major industrial economy to run largely on green energy, has met strong resistance from companies and households faced with steep rises in power costs.

The project revolves around subsidies that are financed by end users via a levy and meant to encourage a buildup in renewable energy capacity. Overall, the government expects such subsidies to reach €24 billion ($33 billion) this year, compared to around €21 billion a year earlier.

Germany’s most heavily polluting plants are now also its most profitable: old and irrelevant brown coal power stations. Many of the plants are now running at full capacity. While the amount of electricity from renewable energy rose by 10.2% in 2012, the amount of electricity generated in hard coal and brown coal plants also increased by 5% each. As a result, German CO2 emissions actually increased by 2% in 2012.

The levy, first imposed in 2000, has more than tripled since 2010, driving retail power prices ever higher. As part of the new reform, the government has pledged not to increase the subsidy from its current level through 2017.

Analysts on Tuesday criticized the government’s plans, saying the reform doesn’t go far enough in tackling high power prices.

“The reform won’t slam the brakes on retail power prices,” said Claudia Kemfert, an academic and energy expert at Berlin-based research institute DIW. She said that some heavy industrial energy users would continue to be exempt from the levy at the expense of private households, who are bearing the brunt of rising electricity costs.

The Goldisthal pumped storage power station is the largest of its kind in Germany. Stations like Goldisthal are key to balancing demand with supply on the grid, yet many are in danger of closing.

Allowing power-hungry businesses to dodge the levy has also angered the European Commission. The European Union’s executive arm last year launched an investigation against Germany after complaints from other energy users who claimed their burden was inflated by exempting heavy industries.

Germany says the exemptions are crucial to keeping its energy-intensive industries competitive, but Brussels fears that too many businesses might have benefited from what it considers state aid. While the exemptions originally focused on such sectors as steel and machinery engineering, they were later expanded to include less obvious beneficiaries, such as railway operators.

Onshore wind farm: Many Germans have a strong attachment to their forests and worry that chopping down huge parts of them to house wind farms isn’t worth the benefits they return or the loss in beauty and tranquility.

Germany’s energy and economics minister, Sigmar Gabriel, said Tuesday that the government would reduce the number of exempted companies to around 1,600 from 2,000 at present. Companies that have previously qualified for exemptions would have to pay 20% of the levy in the future, he added.

The industrial sector financed some €7.4 billion in renewable subsidies in 2013 and Mr. Gabriel said he expects that figure to remain stable despite the reduced number of companies that qualify for exemptions. Private households paid around €8 billion in renewable subsidies in 2013, he said.

Mr. Gabriel expressed confidence that Germany’s proposed reforms would be consistent with new EU guidelines. The commission is expected to announce its new guidelines for state aid in the area of energy and the environment Wednesday.

Photos from Der Spiegel here.