Promotion of renewable energies in Germany: EEG and more

The expansion of the renewable energy portfolio has been a success story in recent years. Today, approx. 200 billion kilowatt hours of electricity are produced in wind, water, solar and bio mass power plants; around a third of the electricity demand in Germany can be generated without producing climate-damaging greenhouse gas emissions. Since 2000, renewable energies have been financially supported under the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, EEG). The EEG provides that electricity from renewable power plants is preferentially fed into the grid and guarantees fixed feed-in tariffs to the producers using renewable energy. The differential costs between these guaranteed remuneration payments and the revenues received on the electricity market are transferred to the final customers.

What effect does the German Renewable Energy Sources Act have? How will it develop? What privileges and exemptions do certain industrial sectors have? What will the promotion of renewable energies be in the future? These questions are an important focus of Oeko-Institut’s research. The expansion of renewable energies is the key component of the path to a CO2-free electricity supply, which is necessary for long-term climate protection. It also means that the support system for renewable energies has to be developed in the future in a way that safeguards the ever-growing share of renewable energies in the electricity supply.

Brief analyses of the development of the EEG surcharge

In the debate about the costs of the expansion of renewable energies, the amount of the EEG surcharge plays a major role. Oeko-Institut has been analyzing the reasons behind the increases in the EEG surcharge for several years now. The essential driving force behind this development in recent years has been the huge decrease of electricity prices on the electricity exchange. The EEG surcharge covers the difference between the electricity price on the electricity exchange and the fixed (higher) remuneration payments to producers for electricity from renewable energies. If the difference is large due a decrease in the electricity exchange price, the EEG surcharge has to make a greater contribution to cover the remuneration payments; as a result the surcharge increases. The electricity price fell again in 2015, which is a key cause of the EEG surcharge increasing slightly, by approx. 3%, in 2016. The surcharge decreased slightly in 2015 – a result of the very large increases of the previous years, which the legislator balanced last year.

The amount of the EEG surcharge is also driven by other factors, e.g. the scope of exemptions for industry and large electricity consumers from the duty to pay the surcharge. The fact that CO2 prices are currently extremely low also plays a role in the high amount of the EEG surcharge as they are also an important factor of influence on the exchange price.

Further information on the development of the EEG surcharge in 2015 (in German)

Further information on the development of the EEG surcharge in 2014

Calculating the surcharge with the EEG calculator

If one wants to determine the precise level of the EEG surcharge and to make assumptions on its future development, around 80 factors have to be taken into account. For this purpose, Oeko-Institut has developed a calculation tool on behalf of Agora Energiewende in 2013, enabling the user, with just a few mouse clicks, to calculate how political decisions will affect remuneration under the EEG. Interested parties can calculate the future surcharge by choosing between a user-friendly decision-maker mode with pre-defined scenarios and a more complex expert mode in which all assumptions can be modified if desired.

Link to the EEG calculator on Agora Energiewende’s website (in German language)

EEG reform – Oeko-Institut’s proposal

The German EEG contains a number of privileges for different circumstances, on the basis of which numerous companies do not have to participate in the financing of the scheme at all or are only obliged to pay insignificant amounts. In recent years, this privilege has contributed significantly to the increase in the surcharge. According to Oeko-Institut, the industry, large-scale consumers as well as plant operators producing electricity for their own consumption (autoproducers) should pay a larger share of the costs of energy transition. A study on behalf of Agora Energiewende therefore proposes to distribute the burden more fairly.

Hence, only those segments should benefit from the exemption rules that have already been classified as particularly sensitive to electricity price trends by the European Union regulations on the Emissions Trading System and that are actually subject to international competition. This would concern about 15 electricity-intensive sectors, such as the aluminum, steel, chemicals and paper industries. Also the electricity produced by autoproducers should be included in the EEG surcharge. As a result, the EEG surcharge could fall by 1.2 cent per kilowatt-hour (about 20 percent) to five cent, providing considerable financial relief for households. An average household with an energy consumption of approximately 3,500 kilowatt hours could thus save more than 40 euros per year.

More information available in the press release "Fair reform of the EEG - reducing exemptions for industry and auto-producers" (in German language) 

Assessing costs of energy transition in a realistic manner

The costs caused by energy transition are a component that cannot be regarded as exclusively responsible for the increase in electricity prices. Instead, the fact that electricity prices have increased by about 7 cents per kilowatt hour since 2003 is rather attributable to increased prices on fuel markets and exemptions granted to the industry.

To better classify the main factors influencing electricity prices and the costs of energy transformation, Oeko-Institut has developed an Energy Transition Costs Index (Energiewende-Kosten-Index, EKX). It shows that almost half of the cost increases are triggered by the huge increase in costs for fuel prices on global markets, as well as by redistributive effects that arise because energy-intensive sectors and large electricity consumers do not have to pay the EEG surcharge at all or only have to pay significantly reduced amounts. Oeko-Institut therefore proposes that the Energy Transition Costs Index is used instead of the "EEG surcharge", which is an unsuitable parameter for this purpose.