Germany's Energy Poverty How Electricity Became a Luxury Good



Part 2: The Regressive Energy Tax

Consumer advocates and aid organizations say the breaking point has already been reached. Today, more than 300,000 households a year are seeing their power shut off because of unpaid bills. Caritas and other charity groups call it "energy poverty."

Lawmakers, on the other hand, have largely ignored the phenomenon. In the concluding legislative period, the government and opposition argued passionately over a €5 increase in payments to the long-term unemployed. But no one paid much attention to the fact that those welfare recipients would subsequently see the extra €5 wiped out by higher electricity bills.

It is only gradually becoming apparent how the renewable energy subsidies redistribute money from the poor to the more affluent, like when someone living in small rental apartment subsidizes a homeowner's roof-mounted solar panels through his electricity bill. The SPD, which sees itself as the party of the working class, long ignored this regressive aspect of the system. The Greens, the party of higher earners, continue to do so.

Germany's renewable energy policy is particularly unfair with respect to the economy. About 2,300 businesses have managed to largely exempt themselves from the green energy surcharge by claiming, often with little justification, that they face tough international competition. Companies with less lobbying power, however, are required to pay the surcharge.

In this respect, at least, all of Germany's political parties are pushing for change. They want to close loopholes and more widely distribute the costs of clean energy subsidies. But even this improvement would translate into a relatively minor financial benefit to citizens. According to the SPD plan, an average household would see only about 70 cents a month in savings -- slightly less than under the plan Environment Minister Altmaier proposed a few months ago.

In the end, what actually drives up costs would remain unaffected: the haphazard expansion of wind and solar energy.

The Offshore Trap

Far out in the North Sea, about 70 kilometers (43 miles) from the island of Norderney, there is a large, bright yellow steel box. It's as wide as the Brandenburg Gate and taller than the Federal Chancellery building. It's essentially a giant electrical socket, which collects the electricity from the nearby offshore wind farms and transmits it to the mainland via a thick cable. The system, along with the cable, cost grid operator Tennet about €1 billion and is designed to last 20 years, although there is no data to show that this will actually be the case.

According to an official at Tennet, the company has no experience with such systems. It knows only one thing: There are always obstacles in the way.

In the case of Germany's offshore projects, those obstacles currently include weather and porpoises. In heavy seas, work on the wind farm is suspended. The same applies when porpoises and their young are spotted, because of the potential damage to their sensitive hearing by construction noise. As a result, there are still many spots where metal stumps protrude from the water instead of wind turbines.

Still, the government is pressing ahead with wind expansion, and the plans are breathtaking. By 2020, offshore wind turbines are expected to generate up to 10 gigawatts of electricity, theoretically as much as eight nuclear power plants. To attract investors, the government has created the best possible subsidy conditions, so that operators will be paid 19 cents per kilowatt-hour of offshore electricity, or about 50 percent more than from land-based wind farms. The government has also assumed the liability risk for the wind farm operators. If anything goes wrong, taxpayers will bear the cost.

Hidden Costs

As fascinating as the plan is for engineers, economically it's a potential disaster. Experts believe that because of the more challenging conditions, the power offshore wind turbines generate will be consistently two to three times as expensive as on land. Although the wind blows more consistently at sea, this comes far from offsetting the higher costs.

The less visible costs are also high. There is little demand for electricity in the thinly populated coastal region. New high-voltage power lines will be needed to transport the energy to industrial centers in western and southern Germany. The government already estimates the costs of expanding the grid at €20 billion, which doesn't include the additional ocean cables for offshore wind power.

If the government sticks to its plans, the price of electricity will literally explode in the coming years. According to a current study for the federal government, electricity will cost up to 40 cents a kilowatt-hour by 2020, a 40-percent increase over today's prices.

Worse yet, it remains completely unclear whether the offshore facilities are even needed. The Federal Environment Agency believes it's enough to install modern turbines in the best terrestrial wind sites. It would also be cheaper.

But even if that were the case, the environment minister still believes consumers can expect to see rising prices. Experts say the miniscule impact wind energy has had on current prices is due to an uncooperative Mother Nature: 2013 has been an unusually windless year so far.

The Storage Conundrum

The Cossebaude reservoir is Dresden's largest and most popular open-air pool. On summer days, up to 8,000 sunbathers lounge on its sandy beach or cool off in the 10,000-square-meter (2.5-acre) lake.

Cossebaude is also part of the enormous Niederwartha pumped storage hydroelectric plant. At night or on weekends, when there is plenty of available power, lake water is pumped electrically through big pipes into a second reservoir 140 meters above the main reservoir. At noon, when electricity is scarce, the water is released from the higher-elevation reservoir, spinning giant turbines as it descends. The system generates electricity when the cost is high and consumes it when the cost is low. Plant operator Vattenfall makes its profit on the difference. When the plant was connected to the grid in November 1929, it was considered the technology of the future.

Now the power plant, along with the recreational lake attached to it, could soon be gone. The company plans to shut down the energy storage facility within the next two years. This is bad news for Dresden's swimmers, but it's especially detrimental to Germany's energy transition, which depends on backup power plants like the Niederwartha facility.

When the sun isn't shining and the wind isn't blowing, gas-fired power plants and pumped storage stations are supposed to fill the gap. A key formula behind the Energiewende is that the more green energy is produced, the more reserves are needed to avert bottlenecks.

This is true in theory, but not in practice. On the contrary, an ironic result of the green energy expansion is that many of the reliable pumped storage stations could be forced out of the market. There are roughly 20 of these power plants in Germany, with Vattenfall being the most important operator. The plants were very profitable for utilities for decades, but now the business has become highly unreliable. Dresden is a case in point.

When it's sunny and people are most likely to head to the lake, solar power is abundant and electricity prices drop. This means the pumped storage station earns less money, so the power plant is shut off. In 2009, for example, the turbines in Niederwartha were in operation for 2,784 hours. Last year, Vattenfall ran the facility for only 277 hours. "Price peaks that last only a few hours aren't enough to utilize the plant to full capacity," says Gunnar Groebler, head of Vattenfall's German hydro division.

No Incentives for Storage

Not surprisingly, the company invests very little in its pumped storage plants today. In Niederwartha, the buildings are filled with the musty smell of earlier floods, the paint is peeling from the walls and the reservoir leaks.

It would cost Vattenfall €150 million to modernize the plant. But company executives are hesitant, fearing they won't recoup that money with future profits. Vattenfall has also hit the brakes elsewhere, like in Hamburg suburb of Geesthacht. Plans to increase the capacity of the existing reservoir there have been put on hold. Instead, the plant is used only as a backup.

Meanwhile, competitors RWE and EnBW have also shelved plans to build a large pumped storage power station in the southern Black Forest. Trianel, an association of about 100 municipal utilities, withdrew from a similar project at Rursee Lake in the western Eifel Mountains in late June.

All this gives credence to the claim that Germany's energy reform is its own worst enemy. Despite the erratic expansion of wind and solar projects, the backup power capacity those projects require is lacking. One study found that Germany's expansion of renewable energy will require additional storage capacity for 20 to 30 billion kilowatt-hours by 2050. So far the storage capacity has grown by little more than 70 million kilowatt-hours. And hardly anyone is interested in maintaining the existing storage facilities.

At least that isn't the case in Dresden, where a grassroots movement is working to keep the old pumped storage facility open -- partly because of the popular swimming lake.

Discuss this issue with other readers!
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dtechba 09/04/2013
1. but wait
I thought wind and solar were cheap and limitless?
Inglenda2 09/04/2013
2. Are politicians being bribed?
There has yet to be an honest answer as to why free sun, water and wind energy should be more expensive than that produced by expensive fossilised fuel or complicated nuclear systems. The organisations responsible for the production and transport of electricity are taking the profits, while the consumers and taxpayers are being presented with the bills. This would seem to be a typical case of successful interference by lobbyists, who in many cases have a more than healthy influence on the lawmakers in Germany.
S H 09/05/2013
3. Substandard propaganda
Describing renewable technologies as socially regressive and employing the RWI as crown witness. Wanting to replace the EEG with a certificate system, when the one environmental certificate system that is applied in Germany – EU “carbon trading” – is totally ineffective, counterproductive and corrupted by the “too big to fail” players.
carambolagen 09/05/2013
4. Windgas
No word about "Windgas" in this article. Wind energy is turned into gas during peak wind periods. There are several plants in operation in Germany. This is where the money needs to go. Biomass is not an option, since Germany is already riddled with bio-mass reactors and the fuel used for cars - a highly unecological operation! Apart from that high(er) energy prices are necessary in a world which believes that our resources are infinite. Even though electricity in theory could be infinite it is not, because you need ample resources to build the gadgets to capture it.
specialsymbol 09/05/2013
5. Energy costs
Germany is one of the main exporters of electric power -- this leaves two questions: a) if fossil and especially nuclear energy is so cheap, how come France is a net importer and not an exporter? b) if Germany has more electric power than it needs, why are the consumer prices so high? The answers are simple: fossil and nuclear energy is only cheap when heavily subsided by the state. And consumer prices are hefty in Germany because the cheap price for energy is handed forward only to bulk consumers - and because no one cares. About half of the consumers in Germany have never changed to a cheaper provider and more than half of that are even in the base supply, at the most expensive rate. It's simple market logic.
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