Germany's renewable energy race pushes prices up and dampens growth

Germany's surcharge for green energy will go up by almost a fifth next year - to 6.24 euro cents (5.3p) per kilowatt hour (kWh) - say network operators, as first reported by Reuters.

The monthly surcharge, levied on consumers via their electricity bills to finance renewable power subsidies, rose by almost two cents (or 47 per cent) to 5.277 cents (4.47p) this year. 2014's 18 per cent rise will mean the average household using 3500 kWh will have to pay an extra €40 (£33.91p) for electricity from renewable sources like wind or solar power.

Germany's surcharge, which is expected to rise from about €20.4bn (£17.29bn) this year to around €23.6bn (£20bn) in 2014, has come under significant criticism. To put it into perspective, its hardline subsidising resulted in energy developers receiving £11.89bn in 2012 - in the UK, the equivalent was £1.88bn. It covers the difference between prices guaranteed to be paid for renewable energy and market prices for conventional energy from fossil fuels.

Decisions on how quickly renewables are developed and how they should be funded in Germany will have a marked effect on economic growth and the country's ability to compete in the global economy, says a new study from global analytics firm IHS. The price hike reflects growth in the renewables industry, along with lower market prices for electricity and the cost of power-intensive industries being granted exemptions from the surcharge.

Ralf Wiegert, director of IHS Economics comments says that "rising electricity costs present a challenge similar to one Germany faced a decade ago from a rigid labor market. Solving that problem was key to enabling Germany’s formidable export performance in the years since. Today, a rigid and inefficiently organised energy market with rising costs—which have strikingly jumped nearly 10 percent in the past 12 months—puts Germany’s international competitiveness, and thus its economy, at risk.”

The two-part study concludes that a shift to a lower carbon energy policy can be compatible with Germany maintaining its competitiveness. It recommends that gas-fired power capacity should be expanded as a bridging technology to a low-carbon future, and, in making decisions on a suitable mix of power generation, overall system costs and CO2 emissions should be balanced. And further, that maintaining the current exemptions on energy-intensive industries means positive macroeconomic effects can still be realised for the whole economy.