German electricity price is half taxes and fees | Business| Economy and finance news from a German perspective | DW | 13.08.2014
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German electricity price is half taxes and fees

Just over half the price paid by retail electricity consumers in Germany is composed of taxes and fees, a fresh report has shown. It spoke of a new record caused by the country's switch to renewable energies.

Taxes and fees now amount to 52 percent of the monthly power bill for retail consumers, according to a new report released Wednesday (13.8.2014) in Berlin by the German Association of Energy and Water Industries (BDEW).

A typical household that uses 3,500 kilowatt hours of power per year pays about 85 euros ($113) a month for electricity. That's just one euro more than last year. About 45 euros, just over half the monthly total, is composed of taxes and special levies imposed by government. They include the standard value-added tax that applies to all goods and services, plus a special electricity tax, and a levy used to subsidize the buildout of renewable energy capacity under Germany's feed-in tariff system.

The renewable energy levy alone adds 18 euros to the average monthly bill. But experts say that in coming years, the renewable energy levy will increase much less quickly year-on-year than during the past few years - indeed, some say it may start sinking. The reason: A new reform of the renewable energy subsidy law has capped the subsidies available for new wind turbines.

Energy-hungry industries

The burden shouldered by retail electricity consumers in Germany is not shared by the industrial sector. On the contrary - industry is paying less for electricity than it used to, because it pays wholesale prices, and wholesale prices have been pushed sharply down over the last few years thanks to Germany's growing renewable energy capacity.

The reason is that whenever a strong wind blows or the sun shines, a large amount of electricity is dumped onto wholesale electricity markets at extremely low prices. Unlike with coal or gas-fired power plants, there is little or no marginal cost involved in generating more or less power from wind turbines or solar PV cells. The production cost of solar and wind power depends largely on the initial equipment and installation costs, not on fuel costs or other running costs. When a windy or sunny day leads to an overabundance of electricity, producers are willing to sell it very cheaply.

At the same time, the government has almost entirely exempted industry from paying the renewable energy surcharge, in order to make sure that it doesn't end up with a competitive disadvantage compared to other jurisdictions that lack a feed-in tariff subsidy like Germany's.

What this boils down to is that for ordinary retail consumers like households, the average price of electricity is now 29.13 euro cents per kWh, of which 6.24 euro cents goes to pay for the renewable energy subsidy. In contrast, industry typically pays between 14.56 and 15.56 euro cents.

European Union competition authorities have grumbled over Germany's implicit subsidy to energy-hungry industries as a result. The upshot, after European Competition Commissioner Joaquin Almunia took on the issue, is that European renewable energy subsidies are supposed to be replaced by more "market-based" systems by 2017.

nz/hg (dap, AFP)