Germany's ruling coalition said Thursday it had agreed on a major reform to the country's renewable energy program, agreeing to bury power lines in Bavaria, pay utilities to keep conventional supplies on hand, and to store nuclear waste.
The reform was announced late last night after five hours of talks by Chancellor Angela Merkel, Vice Chancellor Sigmar Gabriel and Horst Seehofer, the head of Ms. Merkel's Bavarian sister party, the Christian Social Union.
The agreement may end months of dispute over who pays for the costs generated to industry by the country's mandated push toward renewable energy, which Ms. Merkel set in motion after the 2011 nuclear disaster in Fukushima, Japan.
The reform plan sealed last night between Germany's major political parties would reduce the costs of the transition to the utility industry and pass on more costs to German consumers, who already pay some of the highest energy prices in Europe.
In the compromise, negotiators abandoned a planned tax on conventional power plants, which had been proposed by Mr. Gabriel. The tax was opposed by utilities, regional politicians and trade unions fearful it could speed plant closings, leading to a loss of jobs and tax revenue.
The share prices of Germany's two largest utilities, RWE and E.ON, rose on the news.
The new package will require German energy producers to reduce carbon emissions by an extra 22 million tons by 2020, helping the nation meet its pollution-reduction goals.
Half of the additional reductions will be achieved by putting five coal-fired power plants on standby as reserve for when renewable sources of energy are low.
The government will also subsidize domestic producers with €750 million per year to encourage co-generation, factories that produce both heat and power that use fuel more efficiently than conventional facilities.
Greater use of this technology is to help to save 4 million tons of CO2.
Other energy efficiency measures are to cut 5.5 million tons, the negotiators said.
The new package includes additional subsidies of €1.2 billion to the German energy sector, cities and private households, to cut carbon emissions.
The plan foresees keeping five power plants on standby with a capacity of 2.7 million gigawatts for four years before shutting them down.
According to the government’s calculations, this will mean one-off costs of €1-2 billion plus an additional €230 million per year for electricity customers and taxpayers.
The three political party heads also reached a compromise on the issue of building high-power electric transmission lines to transport electricity generated by wind and solar from the north to the south, which were opposed in Bavaria.
Germany needed Bavarian approval to complete its national grid of new distribution lines to deliver green energy. Politicians from Bavaria had blocked the plan, calling for lines to be buried or routed through the territory of neighboring states.
In the compromise, the political leaders agreed that Germany would make greater use of underground cables to channel electricity to Bavaria.
“That will make a lot of people in grass roots campaigns happy,” said Mr. Gabriel in announcing the compromise. The decision, however, will mean billions in extra costs to bury the cables, which will delay construction of the network by years.
The plan also calls for further development of the electricity market with more competition not only between providers but also in terms of capacity, electromobility, network management and reserve power stations.
Power providers will be required to ensure they can generate sufficient electricity for their customers to avoid sudden shortfalls.
The changes to the electricity market will include new reserve capacities; the government plans to release further details about its electricity market reforms later this year with a white paper followed by a draft law.
The announcement was met with a mixed response.
Greenpeace criticized the government for backing down on its proposed tax on coal-fired power plants.
“Angela Merkel broke the promises she made,” Greenpeace spokesman Tobias Münchmeyer told the DPA news agency. “Rather than stopping the generation of energy through coal, as she announced at the G7 (meeting in Bavaria in June), she is pandering to the industry – companies won’t have to reduce their emissions as much, and they’re given further millions.”
Eva Bulling-Schröter, a member of Germany's Left party, agreed.
“This forces Gabriel to take his good idea for helping the climate to the grave while the government is easing the path for dirty power providers like RWE, Vattenfall and Vibra," Ms. Bulling-Schröter said.
Mr. Seehofer, leader of the CSU and Bavarian premier, hailed the pact, which will please his voters who opposed the construction of unsightly pylons and power cables in one of Germany's most prosperous states.
“This move will help Germany’s transition to clean energy succeed. It is already doing well but this will carry it through to its completion,” Mr. Seehofer said.
The agreement also outlined demands of energy companies in the wind-down of nuclear power plants and storage of waste. So far, nuclear power companies have set aside €36 billion for this purpose though there are concerns about whether they can afford to do so, as their profits from the business have fallen in the wake of the renewables boom.
“The government will ensure that companies do not reduce their liability assets,” the government stated. Preparations for funds are already underway to secure more than €35 billion from the country’s four biggest providers.
The rapid shift to renewable energy has upended the utility industry, as the German government has spent billions of euros since 2009 to subsidize the construction of wind farms and solar panels.
The explosion in renewable production has led to a glut of electricity on the German market, which has driven down the wholesale price of electricity and thrown the nation's largest utilities, E.ON, RWE and Vattenfall of Sweden, into an existential quandary, leading to billions in losses and writedowns.
Some utilities have responded by adjusting their business models. One of the first was E.ON, which announced plans to split itself into two separately traded companies, one focusing on renewable and the other on the traditional power generation business.
While the newest measures resolve some uncertainties for utilities, and may help Germany meet its 2020 carbon reduction targets, they will come at a high cost to German consumers.
Jürgen Flauger covers the energy industry for Handelsblatt. Allison Williams is deputy editor in chief of Handelsblatt Global Edition and reports from Berlin. To contact the authors: [email protected], [email protected]