German Solar Feed-in Tariff Success – At What Cost?

The success of the German solar feed-in tariffs – and the recent discussion around their reduction – is fueling the debate over the cost of solar electricity generation. As nobody knows how much additional solar capacity will go online this year, figures for the reallocation of renewable energy costs under the EEG regime are based on – varying – assumptions.

In April, VIK (Verband der Industriellen Energie- und Kraftwirtschaft) assumed that the EEG reallocation will increase from 2.047 ct/kWh in 2010 to 3 ct/kWh in 2011.

Solar generation currently accounts for one quarter of EEG reallocation costs, but only about 6% of the renewable electricity supply and about 1% of total final energy consumption.

The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) in June published a report on cost and benefit effects of renewable energy expansion in the power and heat sectors. BMU is of the opinion that a complete registration and allocation of positive or negative charges to individual economic actors is not possible. In 2008 and 2009, electricity consumers were faced with a burden of around EUR 4.7bn as a result of the EEG reallocation (or EEG surcharge). However, the merit-order effect of renewable energy sources, with its reducing impact on electricity prices, was only slightly lower in 2008. Since the extent to which this is passed on to the end consumer is not clear, BMU considered it not possible simply to compare the overall totals for the two effects. This would seem to be appropriate, however, for those companies that are covered by the special compensation provisions of the EEG. Their EEG surcharge is subject to crucial limits, and at the same time the majority of beneficiaries, as non-tariff customers, probably derive special benefit from the merit-order effects of renewable energy expansion which tend to reduce electricity prices. Thus, on balance, BMU assumes that these companies will probably profit from renewable energy expansion.

Last weekend, Frankfurter Allgemeine Sonntagszeitung reported that Manuel Frondel of RWI assumes that 2010 may see an additional solar capacity of 10,000 MW in Germany. Such an increase would lead to an EEG reallocation in the range of 4 ct/kWh in 2011.

This would be getting rather close to a spot market price for electricity in the range of 5 ct/kWh.

Sources: VIK, Frankfurter Allgemeine Sonntagszeitung, 11 July 2010, p. 1, BMU

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