Tuesday, January 21, 2014

Sunny, windy, costly and dirty

SIGMAR GABRIEL has been on a roll. The boss of Germany’s centre-left Social Democrats (SPD) has herded his party into a coalition with Chancellor Angela Merkel and become vice-chancellor. He is jovial, convivial and aligned with the Zeitgeist. Demonstrating the SPD’s vision of work-life balance, he plans to take Wednesday afternoons off to pick up his two-year-old daughter from her crèche.

But Mr Gabriel, who is mulling a run for chancellor in 2017, will by then be judged on a more daring project. As part of his coalition deal with Mrs Merkel, he is now a “super minister” combining two portfolios, energy and the economy. He is thus in charge of rescuing Germany’s most ambitious and risky domestic reform: the simultaneous exits from nuclear and fossil-fuel energy, collectively known as the Energiewende, a term that means energy “turn” or “revolution”.

More a marketing slogan than a coherent policy, theEnergiewende is mainly a set of timetables for different goals. Germany’s last nuclear plant is to be switched off in 2022. The share of renewable energy from sun, wind and biomass is meant to rise to 80% of electricity production, and 60% of overall energy use, by 2050. And emissions of greenhouse gases are supposed to fall, relative to those in 1990, by 70% in 2040 and 80-95% by 2050.

German consumers and voters like these targets. But they increasingly dislike their side-effects. First, there is the rising cost of electricity. This is a consequence of a renewable-energy law passed in 2000 which guarantees not only 20 years of fixed high prices for solar and wind producers but also preferred access to the electricity grid. As a result, Bavarian roofs now gleam with solar panels and windmills dominate entire landscapes. Last year, the share of renewables in electricity production hit a record 23.4%.

This subsidy is costly. The difference between the market price for electricity and the higher fixed price for renewables is passed on to consumers, whose bills have been rising for years. An average household now pays an extra €260 ($355) a year to subsidise renewables: the total cost of renewable subsidies in 2013 was €16 billion. Costs are also going up for companies, making them less competitive than rivals from America, where energy prices are falling thanks to the fracking boom.

To forestall job losses, Germany therefore exempts companies who depend on electricity and compete globally from paying the subsidy. But the European Union’s competition commissioner, Joaquín Almunia, has been investigating whether the entire package of subsidies and exemptions violates European law. Only concerted German lobbying in Brussels just before Christmas has held him back from seeking repayments for now.

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