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. 

The Economic or Competitive Advantages of the Energiewende for Germany

The energy transition in Germany is "pragmatic", moderately paced, and produces benefits that far outweigh the costs:

• This new industry worth 40 billion Euro per year employs about 400,000 people, which drives up tax revenue and stabilises the social security systems.  The lesson that well-designed policies for energy transformation can help governments with high deficits and debts is sadly often lost in the debate about public finance in the Euro-zone.
• The employment is across skill levels -- from highly specialised technicians to farm hands -- and geographically spread, particularly useful to stop the economic decline of rural areas and the migration to towns and cities. 
• Import substitution reduces the cost of imported fuels and strengthens the balance of trade and payment.  This is not just a short-term fix but implies the development of a broad and deep value chain on renewable energies, smart grids and storage within Germany. 
• Security of supply and grid stability improved due to fuel mix diversification, but Germany still largely depends on foreign imports of fossil fuels.
• Wholesale electricity prices, the prices paid by large industrial power users and utilities that buy electricity to distribute it to their customers, are very low in Germany -- at around 4 Euro cents per kWh -- and projected to remain there for the next few years.  This is attracting inward investment, or the expansion of some electricity-intensive industries, such as aluminium recycling.
• The renewable industry is driving innovation and acts as an automatic stabiliser, as seen in 2008-2009 when the wind industry, for instance, took off on the back of lower steel prices. 
• Once the last nuclear power plant has gone cold at the end of 2022, Germany will no longer be adding to the already high (and largely unfunded) legacy costs of nuclear power, and can address the issue of long-term nuclear waste storage.
• At that point, Germany will also no longer risks the devastation of a nuclear catastrophe, at least from nuclear power plants on its own territory; the consequences of such accidents have the potential to bankrupt a country.
• Germany will still be exposed to the risks emanating from plants in other countries.  (I am advising the German government to explore ways to leave the international agreements that would currently stop Germans that suffer damages from nuclear accidents from suing nuclear plants operators in other countries.  These agreements are in violation of the polluter-pays-principle, and Germany's adherence loses its rationale once it no longer operates any such plants.)

The overall, macro-economic assessment shows that the total cost of electricity supply to end users in Germany, expressed as a percentage of the Gross Domestic Product (GDP), representing the size of the German economy, has not changed much as a consequence of the Energiewende.  In essence, the benefits listed above are being obtained at low net cost to the German economy, and domestic controversies are the result of and about distributive and social consequences of the Energiewende.