IEA: German Energy Policy Shift Commendable But Further Action Required

In a review of German energy policies launched on 24 May the International Energy Agency  (IEA) commended Germany for its Energiewende, i.e. its energy  policy shift towards a renewable energy supply.  The scale of Germany’s energy policy ambitions, coupled with the size and energy intensity of its economy, and its location at the heart of Europe’s energy system, however, meant that further policy measures were necessary if the Energiewende was to maintain a balance between sustainability, affordability and competitiveness, the IEA said.

German consumers had so far borne the brunt of the costs of the Energiewende, IEA pointed out, warning that the transition to a low-carbon energy sector required public acceptance, and, therefore, retail electricity prices to remain at an affordable level. The renewables surcharge on electricity prices, the so-called EEG surcharge, has indeed risen sharply and continuously over the last years. It is paid by consumers and covers the difference between the fixed feed-in tariffs paid pursuant to the Renewable Energy Sources Act (EEG) for renewable energy fed into the grids and the sale of the renewable energy at the EEX energy exchange by the transmission operators (certain limitations apply for large energy consumers, cf. Sections 40 to 44 EEG). Various law suits against the EEG surcharge are pending. Besides the EEG is under review for compliance with state aid rules by the EU Commission, who is also investigating whether exemptions for large electricity consumers from network charges granted in Germany since 2011 constitute unlawful state aid. The Higher Regional Court of Düsseldorf declared the respective provision in the Electricity Grid Charges Ordinance (StromNEV) void in March.

The framework conditions in Germany for a policy consensus in favour of large-scale deployment of renewables have never been better, IEA said. Its Executive Director, however, warned that “any form of retroactive tariff cuts – even if applied for only a short period – must be avoided” as sudden changes could undermine investor confidence and would drive up costs in the long term. A joint proposal on measures cutting electricity prices put forward by the Federal Economics and Environment Ministries in February had in particular drawn criticism because it included a flat-rate reduction of tariffs for existing plants for one year.

The report in particular calls for:

  • The development of suitable mechanisms to manage the cost of incremental renewable energy capacity via cost-effective market-based approaches, which will bring new renewable capacity closer to market needs, support investments in appropriate locations and complement planned network expansion;
  • Measures to ensure that the costs of the Energiewende are minimised and allocated fairly and equitably across customer groups, including households and small businesses, producers of renewable energy and energy-intensive industry and limit the growth of the EEG surcharge attributable to the deployment of additional renewable energy capacities, while drawing all benefits from the rapid decrease in technology costs that has occurred;
  • Timely and cost-efficient investment in transmission and distribution networks and a regulatory system that provides sufficient financial incentives and investment security for mobilising the necessary investments in distribution;
  • An assessment, in co-ordination with all relevant stakeholders, of the extent to which the present electricity market arrangements enable the financing of economically viable investments in new, flexible gas-fired generation and cost-effective electricity storage. Part of this assessment must examine the suitability of capacity markets as a transitional measure to support the adjustment to a post-nuclear power system.

Furthermore IEA advises that Germany must also develop structural co-operation at regional level, and within existing European mechanisms, in order to enhance security of supply at reasonable cost, especially under extreme weather conditions or periods of prolonged high demand. Decisions on German energy policy inevitably have an impact far beyond the country’s borders and should be considered within the context of a broader European energy policy framework and in close consultations with its neighbours, IEA recommends.

On behalf of IEA an international expert team reviews the energy policies of the member states in 5-year intervals.

Stefan Kapferer, state secretary at the Federal Ministry of Economics (BMWi) said the IEA report was a confirmation of Germany’s energy policy. He announced that the government wanted to promote a speedy expansion of the transmission and distribution grids by ensuring that the regulatory framework provided for sufficient financial incentives and investment security. The urgently needed reform of the EEG should provide for more market and competition elements, he said, adding that further renewable growth had to go hand in hand with grid expansion and the efforts to maintain the security of supply. In order to ensure the security of supply highly efficient coal and gas-fired power plants remained indispensable as they were reliable and affordable energy sources. The general aim was to keep the costs of the Energiewende as low as possible, Mr Kapferer said.

Source: IEA; BMWi

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