2013 German Election Energy Party Profiles – Part 1: Market Integration of Power Generation from Renewable Energies

In the face of the upcoming federal elections on 22 September 2013, we are analyzing the competing parties’ agendas on key questions concerning German energy politics. The topic of this first post is the question how the parties want to integrate renewable energy into the energy market and therewith expose the production of renewable energy to market risks.

Background

In the public opinion, energy policy has become an increasingly important topic, and attention has moved beyond the mere shift from nuclear and conventional generation to renewables, but also increasingly discusses the various challenges of the “Energiewende” and the threats to German consumers and industry. Attention has focused in particular on the increasing costs of the various support schemes and their allocation, but also the tension between the ability of the opened-up energy markets to provide a sound basis for future investments and security of supply and the increasing intervention of politics not only in renewable generation, but also in grid extensions and conventional power generation. Thus all parties set forth their concepts at length, but partially also avoid to give too much detail in order not to upset public opinion and wishful thinking.

The current polls hold a continuation of the coalition of CDU/CSU and FDP or, alternatively, a “broad” coalition of CDU/CSU and SPD for the most probable outcome, with consequently lower likelihood of the Greens participating in the future federal government. Also a shift to a Red/Red/Green government comprising of SPD, the leftist party “Die Linken” and the Greens is rather unlikely. But given the fact that in the 2nd Federal chamber, the Bundesrat, Greens and SPD-led state governments hold a majority, in any case also their political agenda will have an impact on future energy policy, as all parties will need to compromise on a lot of issues. We therefore focus on the programs of CDU/CSU and FDP – the current ruling parties – as well as the programs of the opposing parties SPD, Greens and Die Linken.

Introduction

There is a consensus that the current Renewable Energy Sources Act (EEG) needs to be amended, in particular in order to better integrate renewable energies with the general energy markets. The current EEG provides for fixed feed-in tariffs, staggered depending on the source of renewable energies and partially adjusted parallel to the increase in installed capacity, and a preferential feed-in of renewables compared to other forms of power generation. However, the level of feed-in tariffs is discussed controversially within the parties’ agendas. After the 2012 amendment of the EEG the German government installed more opportunity and incentive for producers of renewable energy to subject themselves to the market, giving the producers the possibility to opt for the direct marketing of renewable energies.

The direct marketing opportunity allows the producer to generate more profit, and is composed of the monthly average price, an administration premium, and a market premium. The direct marketing concept is based on the idea to allow the producer to trade the produced energy on the market and to invest in forecasting and load-shaping technologies with the potential to obtain revenues which are above the statutory feed-in compensation, but also to take the (limited) risk that his profits fall below the statutory compensation. Accordingly the producer gets more dependent on the market movement, and there is an incentive to integrate renewable generation in the market.

In the following the parties’ perspectives on statutory feed-in compensation and direct marketing are outlined, as well as their long-term concepts, for an end of subsidies and a complete market integration of power generation from renewable energies.

CDU/CSU (Christian Democratic Union/Christian Social Union)

The CDU/CSU concept endorses a free-market approach, emphasising that only a liberal energy market can procure for a demand-oriented and therewith efficient energy production and thus calls for the market integration of renewable energy. The CDU/CSU defends the EEG as such and ascertains that there will be no amendments with retroactive effect to the disadvantage of investments already made, however demands steady changes to it along the further developement of renewable energy production. On that matter the CDU/CSU endorses the developement of the direct-marketing-approach and wants to make that approach more obliging; however, further details are not given.

In the midterm, the CDU/CSU wants to achieve, that renewable energy is competitive on the free market without any further governmental support. At the same time, renewable energy generation also shall assume more responsibility for a safe and steady energy supply. According to the CDU-led Department of the Environment, that is the only option to procure for an economically justifiable and socially tenable change of the overall energy supply towards renewable energy sources.

SPD (Social Democratic Party of Germany)

Also the SPD-concept acknowledges that the EEG needs to be fundamentally amended. As regards market integration it differs from the CDU/CSU-concept in two main aspects. Firstly the SPD wants to concentrate on the statutory feed-in compensation instead of the direct-marketing approach, secondly instead of integrating the renewable energy production into the market the SPD wants to stabilise the market. As regards feed-in tariffs, the SPD expressly suggests to provide incentives to prefer technologies which have a more balanced load shape of renewable generation facilities.

The plans of the SPD with respect to the direct-marketing approach contain that the administration premium will be cut in half for producers of wind-energy, which according to SPD calculations will save 200 million Euro. As mentioned above, the SPD-concept focuses on the statutory feed-in compensation, which, according to SPD politicians will result in further developement of renewable energy and eventually will allow for a degression of the feed-in compensation, as production costs will decrease through further technological progress. In the meantime, according to the SPD-Agenda, the feed-in priority for renewable energy has to be progressed.

However, the SPD does not address the possible end of subsidies for renewable energy. They propose to increase the national target of of power generation from renewables by 2020 from the 35% proposed by the current Federal Government on & June 2011 to between 40 and 45% and to 75% by 2030, whereas the current government targets 80% by 2050.

FDP (Free Democratic Party – Liberals)

The FDP’s position provides for many overlaps with the CDU/CSU’s concept, but goes even further regarding the question whether the model of a statutory feed-in compensation or direct-marketing is to be endorsed; it differs a lot from the position of the SPD and fundamentally from the Greens. The FDP wants to take the direct-marketing model even further by replacing it with a market surcharge, and estimates, that using their concept, renewable energy will wholly be integrated in the energy market by 2022 – when the last nuclear power plant will be shut down – at the latest.

The market surcharge which shall replace the market premium,  shall cover the price differences to fossil energy sources, but without the guarantee of a certain level of feed-in tariffs, as the surcharge will be a fixed rate per kWh generated and thus revenues fluctuate not only based on generation costs, but also based on general power market prices. Additionally, the market surcharge shall be degressive and only differentiate among technologies, not among the size of the facilities in question. The surcharge shall decrease each year for new facilities at a much faster path than in the past, in order to provide higher incentives to increase efficiencies of renewable power generation and pass on cost reductions.

Furthermore, the FDP wants to draw up a roadmap, which provides for a fast, plannable and mandatory change for all technologies and all sizes of generating facilities from the feed-in compensation to the direct-marketing model. The FDP perceives the administrative expense for smaller generating facilities, which execute the direct-marketing model and holds out the prospect of solving that issue, however not specifically.

If a technology achieves its national expansion-target before 2020 any premium or surcharge based on the EEG shall end and will be replaced by a national quantitive model.

B’90/Die Grünen (The Green Party)

The Green Party opposes the plans of CDU/CSU and FDP to substantially amend the EEG and proposes to stick to the statutory feed-in compensation, and only postulates moderate amendments, which are not further specified. The Green Party especially criticizes that the FDP proposals will close the market to smaller investors and fears that the market will be controlled by larger companies. Additionally, the Green Party wants to preserve the feed-in priority for renewable energies and agrees with the SPD’s plan, to cut in half the administrative premium for producers of wind-energy.

The Green Party does not yet provide for a roadmap for the end of the subsidies for renewable energy. They propose a national target of 100% of power generation from renewables by 2030 and to double current levels to 50% by 2020.

Die Linke (The Leftist Party)

Also the Leftist Party Die Linke wants to achieve 50% of power generation from renewable sources by 2020 and proposes to stick to the statutory feed-in compensation. However, it calls for more incentives within the EEG so that also renewable generation supports the overall-functioning of the energy system. The party favours decentral approaches and a commons-based structure of the market, and explicitly is opposed to large and costly projects which are run by market-dominating players, in particular off-shore wind farms in the North Sea.

Conclusion

Analysing the political views of the major German parties on the question of market integration it becomes visible that CDU/CSU and FDP are in agreement on a more free-market approach and that SPD and B’90/Die Grünen are united on a cross-party basis that the forces of the free market will not adequately serve the goal of an energy supply from completely renewable sources and therewith prefer a more planned approach.

In the case of a coalition of CDU/CSU and SPD the topic of market integration of renewable energy will bear a great potential for controversial discussions within the cabinet.

In the next part of the series the parties’ positions on the future of the EEG reallocation charge and electricity tax will be discussed.

Sources: CDU/CSU, SPD, FDP, B’90/Die Grünen, Die Linke

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10 Responses to “2013 German Election Energy Party Profiles – Part 1: Market Integration of Power Generation from Renewable Energies”


  • Just a quick note on the wording:
    “Market integraton” seems to assume that there is something called electricity market that is “natural”, quasi god given. And renewables need to be integrated into that.
    But markets, especially power markets, are something that is created and shaped by policies. They are not a “force of nature”, they are the product of policies.
    But the current market design will never really work for electricity from renewables. This is a commodity with near zero marginal cost, but high capex.
    So what is needed is a new market design that is suitable for this new source of power. Not the integration of renewables in the existing power market.

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