Renewables currently provide about half of Germany’s electricity. Two decades ago, the energy industry wouldn’t have considered that possible. The technology revolution unleashed by the EEG has spread worldwide. The EEG has been copied in more than 100 countries, making it the most influential climate-protection law ever. For three reasons:
A guaranteed feed-in tariff – which initially was for 20 years – provides developers with stable returns, which attracts debt financing.
Preferential dispatch – the rule that grid operators must select renewable generation sources first to meet load – enables anyone (not just energy companies) to generate clean energy.
The EEG surcharge is automatic and thus independent of policymakers’ annual budget deliberations.
This success story may be coming to an end. Germany’s political parties broadly agree that the EEG surcharge must go. As a result, the country may lose its most important climate-protection mechanism.
Taxpayer-funded green electricity is a bad idea
The current proposal – to fund renewables growth entirely from tax revenues – is unconvincing. Renewables growth in Germany has slumped in recent years precisely because the legally guaranteed feed-in tariff has been significantly curtailed. The setback for climate protection has been immense: if Germany hadn’t slowed renewables development, renewables could already supply 100% of its electricity.
Will switching to taxpayer funding bring Germany closer to 100%? No, the switch is completely unnecessary. The guaranteed feed-in tariff and the sliding market premiums have meant there has never been a funding problem. These guaranteed payments have attracted hundreds of billions of euros of private investments in renewables. Feed-in tariffs work. All alternatives currently being proposed would likely lead to less climate protection
The Corona pandemic has left Germany with a massive amount of additional debt. Future finance ministers will be compelled to reduce it. This will result in the usual horse-trading, and in the end climate protection will have to do its part to help consolidate the budget. This will inhibit renewables growth rather than propelling it.
Even if investments in renewables are increasingly independent of EEG subsidies, a purely market-based approach in the years ahead won’t result in the new renewables capacity necessary to protect the climate. It’s important to remember that fossil and nuclear energy sources are highly subsidized and that their social and environmental costs aren’t internalized. Renewables are therefore competing on an unlevel playing field.
The erosion of climate protection
How did it come to this? For decades, vested interests have been campaigning against renewables, especially the EEG. From the beginning, their main arguments have been that the energy transition will be too expensive, that energy prices will skyrocket, and that, as a result, German industry will move production capacity to countries where energy is cheaper. None of this has transpired. Despite years EEG surcharges of over six cents per kilowatt hour, German industry is more competitive than ever.
Opponents also contend that the EEG surcharge places an undue burden on residential customers in particular. Each time the EEG surcharge is increased, opponents invariably announce what this will cost the average household. Their calculations ignore the fact that an increase in the EEG surcharge is accompanied by a corresponding decline in the wholesale price of electricity. Consequently, no electricity supplier would have had to pass on the higher surcharge. Besides, the EEG surcharge accounts for just 6% of a household’s total energy expenditures (electricity, heating, vehicle fuel).
So why the panic about the EEG surcharge? Perhaps none of the parties in Germany’s parliament has given enough thought to alternatives to taxpayer funding. In any case, if their current plans are implemented, renewables growth – which is, after all, the centerpiece of climate protection – will be further hindered. Despite lip service policymakers pay to climate protection.
Hans-Josef Fell, President of the Energy Watch Group, was a member of the Bundestag for the Green Party from 1998 to 2013. He helped draft the Renewable Energy Sources Act (EEG).