One reason why Germany’s transition to renewable energy sources has been so successful is its funding model. A surcharge on electricity bills has been financing the expansion of solar and wind parks, biogas and hydro power. The levy, however, has risen dramatically since its introduction in 2000: from €883 million to an estimated €26.6 billion this year ($1 billion - $29.8 billion).
Consumers and companies pay this amount each year, posing a burden on consumption, profitability and competitiveness. It is the main reason politicians from right to left want to change the funding system to keep it viable and acceptable in the long run. It is expected to happen when the next government takes office after federal elections in September.
In the run-up to the makeover, the Cologne Institute for Economic Research, or IW as it is known by its German acronym, has proposed a new model, of which Handelsblatt has obtained a copy. The economic think tank, funded by business and employers’ associations, suggests abolishing the electricity levy and instead introducing a surcharge on top of income and corporate tax rates. The institute calls the new levy an “eco-solidarity tax” in reference to the Solidarity Tax initially levied in 1991 to finance the rebuilding of the former East Germany, which is supposed to end – after two decades of extensions – in 2019.
Under the new funding model electricity would become “drastically cheaper in one fell swoop” compared with other energy sources, according to the economists. Johannes Teyssen, Chief Executive, E.ON
The new model would radically reset Germany’s energy transition, which aims to shut down all nuclear power plants by 2022 and simultaneously shift to 80 percent renewable electricity by 2050 from 32.3 percent last year. (Click here for an explanation of Germany’s green consciousness.) All consumers and corporate electricity users would have to pay the new levy under the new model. Currently, around 2,000 heavy electricity users are exempt from the electricity surcharge. The new funding scheme would end uncertainty about who is entitled to the exemption.
The new levy would also ease the burden on lower income groups, because under the current system they spend a larger share of their income on electricity. A private household in Germany with a yearly power use of 3,500 kilowatt hours now pays an EEG surcharge (with VAT) of €269 ($301) per year on average. A levy applied to income would shift funding to higher earners.
The Cologne-based economists go even further, saying that if the system were changed to an income-based eco-solidarity tax, electricity would become “drastically cheaper in one fell swoop” compared with other energy sources. The incentive to electrify would increase in the heat-energy and transport sectors as well, the economists write. Currently, the power wholesale price is around €0.03 per kilowatt hour, while the electricity levy is €0.0688 – or more than twice as high. An average household which uses 3,500 kilowatt hours pays €0.288 per kilowatt hour, or €1,008 per year, due to other charges and costs, such as distribution, grid maintenance and value added tax.
But this is not the only proposal for reforming the current finance system. The German Renewable Energy Federation (BEE) suggests defraying the costs of industrial company exemptions from the tax – of around €5 billion – using budgetary appropriations. This, says the BEE, would lower the surcharge by 1.4 cents. The German Federal Association of New Energy Suppliers (BNE) is calling for the EEG surcharge to be levied not only on electrical power users, but also users of fossil fuels – natural gas, oil and coal as well. This, they say, would dramatically lower the costs for electricity.
The Bavarian Economics Minister Ilse Aigner, a Christian Social Democrat, is pushing for a federal fund model. This would initially be covered via loans and used to distribute costs of renewable energy support over several years. This system would be used until the end of the coming decade, when surcharge revenues would exceed payments to renewable energy operators, at which time revenues could be used to pay back the loans. Supporters say that future generations would profit from the energy revolution and should assume some of the startup costs now.
The German government is aware it has to change the funding model of its energy transition. It has already made several changes, latest in 2014 and at the start of this year to lower the costs per megawatt hour of renewable power and lower the waste of renewable energy which is automatically produced when the sun shines or wind blows, but not used. After the general election in September, another change can be expected.
Klaus Stratmann covers energy for Handelsblatt. Gilbert Kreijger, an editor with Handelsblatt Global, contributed to this article. To contact the author: [email protected]