Sunday, February 16, 2014

The Distributive and Social Consequences of the Energiewende

The German "Energiewende policy" in support of renewable energy:
  1. Takes money, in the form of a "renewable energy levy" of 5.3 Euro cents per kWh, from households and small businesses, and
  2. Gives to
  • Operators of renewable power generators, in the form of the feed-in tariff as a reward for the successful operation of their plants,
  • Large industrial power users via significantly lower wholesale prices for electricity, and
  • Governments (at federal, Land, and municipal level) in the form of additional tax revenue and contributions to social security funds.
The policy also makes power plants redundant in nuclear and fossil energy.  Where these have been depreciated -- and the costs been passed on to electricity users via power prices -- there is no "real economic loss", just a "loss on paper".  However, there are also new assets, notably in fossil power plants, that are now "stranded" part of the time and unlikely to earn enough revenue to return a profit to their owners.

The policy induces a net flow from urban to rural areas, and leads to surplus in the South, e.g. in Bavaria which has large photovoltaic capacity, the North, e.g. Schleswig-Holstein with much onshore wind, and the East, where rural areas took advantage of the Energiewende and "reinvented themselves" as energy regions with wind, solar, and biomass power after unification of Germany in 1989.

Wholesale power prices are about 4 Euro cents per kWh.  That is what large industrial power users pay if they are clever. 

Prices are predicted to stay at this level for the next few years. 

Households pay far more, because they don‘t have the negotiating strength of industry, taxes and charges are high, and because household and small business customers pay for the grid and the expansion of renewable power, while large industrial users not only don‘t pay for that but also benefit from ever-lower wholesale power prices. 

I pay about 22 Euro c/kWh for renewable power from an independent generator.

With a basic connection fee and VAT of 19% on top, that translates into 80 Euros per month or 960 Euros per year for a 4-bedroom home with all normal appliances.

Electricity prices are rising above the rate of inflation but below the increases in other forms of energy, notably petrol or heating fuel (2012).

"Energy Poverty" is not a term in the German debate.  There is no such thing.  If an individual or a family is poor, they may be unable to pay for rent, telephone, food, or power.  They are poor, and need support.  That is the role of social policy, not of energy policy.  Yet there are a number of people who are hard hit by rising energy prices.  The government helps by sending energy advisers into such households. 


  1. The geographical transfers are interesting; and much more visible in the German model than in other countries.

    I suspect "energy poverty" really does exist, in that some poorer households face a disproportionate impact from higher energy prices, and in some cases find themselves struggling to afford the level of heating necessary for health. It's just that political debate frames the issue differently in different countries. And, yes, it is essentially a social policy problem; but that doesn't stop it being relevant to energy policy. The prominence of "energy poverty" in the UK debate has at least two effects: (i) synergies between social and energy efficiency policy are more visible; but (ii) those with a negative agenda on mitigation are able to recruit support from poorer voters. Particularly older voters, in the case of UKIP, highlighting the generational equity problems.

  2. Thanks Martin, for engaging. First, to keep things in perspective: "Energy poverty", especially fuel poverty, is a side issue in Germany. This may be different from the UK. In Germany, if you allow for a crass simplification, poor people live in multi-party apartment houses, which have central heating, and the cost of that is included in the "warm rent" they pay. Those poor enough to be eligible for rent support in effect get "energy support" with it. For those without a car, public transport is available and relatively cheap (often including reduced fares needy groups). We do see the emergence of "mobility for the poor" in the form of scooters and mopeds with highly polluting two-stroke engines. All this is not to say that there is no economic and social stress resulting from Energiewende policies, but they are not nearly as bad as you might think from the English-language press. The focus on "energy poverty" is a distraction from the good news that the Energiewende comes at marginal macro-economic cost and produces oodles of benefits.