The debate on reforming the EEG is overdue. Last year’s hurriedly passed amendment has obvious deficiencies and much room for improvement. I therefore welcome the announcement by Economics Minister Peter Altmaier (CDU) that the EEG will be phased out. Twenty years of subsidies are enough. After all, renewables now provide almost half of Germany’s electricity. Yet the amended EEG doesn’t require the subsidy mechanism to be replaced until 2027. That kicks the can too far down the road.
The debate on the EEG surcharge has neglected its rising costs. The artificial cap from tax revenues limits the surcharge to 6.5 cents per kilowatt hour in 2021 and 6 cents in 2022. Without it, the EEG surcharge would’ve risen to over 9 cents per kilowatt hour. Altmaier’s new financing model thus merely perpetuates the previous situation. It’s almost inevitable that the costs of renewables subsidies will be shifted completely to budget. First, because the current cap on the EEG surcharge was a political decision. Second, because the political pressure for a market-based solution is increasing.
EEG surcharge adieu
The old EEG model needs to go. Instead, carbon pricing will propel a market-based transformation and to promote the financing of sustainable, technology-neutral decarbonization solutions. This would permanently eliminate the financial burden on electricity consumers, facilitate sector integration, and reduce bureaucracy. The FDP believes that the EEG surcharge is obsolete. Over the years, the EEG’s myriad rules for individual circumstances have resulted in systematic weaknesses that are now curbing innovation and impeding an integrated energy transition that’s conducive to a range of business models.
It’s already clear that rising carbon prices are making renewables increasingly competitive with fossil fuels. Consequently, energy providers and other companies are initiating renewables projects – like offshore wind farms and large-scale solar farms – without government support. This trend shows that cost reductions for wind and solar facilities is making them profitable even without subsidies. The EEG surcharge must be gradually reduced. Its phaseout can be funded by revenues from rising carbon prices. This will require that buildings and transport be included in the carbon-pricing scheme.
The FDP calls on Germany’s governing coalition to finally clarify how it intends to close the future gap between energy production and consumption. The addition of numerous electric cars, heat pumps, and hydrogen production facilities in the years ahead will dramatically increase Germany’s electricity consumption. At the same time, Germany’s phaseout of nuclear and coal-fired power will dramatically decrease its available generating capacity. The government’s plans to address this looming gap have long been inadequate.
Subsidy-free renewables growth
More of Germany’s renewables growth needs to be driven by demand rather than subsidies. This will spur innovation in the electricity industry and leverage the enormous potential of sector integration. In addition, renewables finally need to be better integrated into the grid so that they can respond flexibly to electricity demand and take on greater responsibility for system stability. Germany therefore needs to expand its energy storage infrastructure and promote innovative neighborhood solutions. Finally, the rules for the self-supply of energy urgently need to be simplified, in particular to propel the expansion of rooftop solar panels.
To me, one thing is clear: Germany’s energy transition can only succeed if the public supports it and actively participates in it. The energy transition therefore needs greater efficiency and more market-based, technology-neutral approaches. The goal should be a broad mix of low-emission energy sources that ensures supply security, affordability, and sustainability.
Prof. Martin Neumann, who teaches technical building equipment at Magdeburg-Stendal University of Applied Sciences, is the FDP’s energy policy spokesperson in the Bundestag.