Sunday, June 2, 2013

EU May Make German Industry Pay for Renewables

Up until now Germany has largely exempted energy intensive industries (and increasingly some not so intensive industries) from paying the price of renewable energy. In essence the costs of subsidising renewables is added on to energy bills in the form of a surcharge, but this is not applied to companies that use a large enough amount of electricity. There are good arguments for and against doing this. In favour you have the limitation of “carbon leakage.” If industries are hit too hard they may just move somewhere else and release even more carbon dioxide. It also helps politically to limit big business’s opposition to renewables.
On the other hand making households pay a disproportionate amount of the bill for renewable energy is quite obviously unfair and will lead to an inevitable political backlash against subsidising renewables, something that already appears to have happened in Germany.
This policy however may now be in disarray, having come under the radar of the European Commission. You don’t need to know much about EU competition laws, (and I suspect we all have more interesting things to read about, such as mediaeval theology), to suspect that making energy intensives exempt from paying for renewable energy is stretching the bounds of EU competition laws. And this is exactly what the EU’s Energy Commissioner seems to have concluded. According to Der Speigel:
For the European Commission and for Competition Commissioner JoaquĆ­n Almunia, Oettinger said during a dinner event, it is clear that price concessions for energy-intensive companies in Germany amount to an inadmissible subsidy. In the best-case scenario, he said, the Commission would ban such subsidies. But, he added, the worst case could see Brussels demanding that such companies pay back the money they had saved as a result of the discounts they have received.
In an internal statement on the grid charges, the legal service of the European Commission noted last October that “German lawmakers are deliberately favoring certain energy-intensive companies, which threatens to distort competition and is apt to obstruct trade between member states.”
Consequently, a few weeks ago, the Competition Commission introduced formal proceedings against Germany, which it suspects of providing “inadmissible subsidies.” In a first step, the case revolves around company exemptions from grid charges, Oettinger told his small audience in Brussels. This amounts to about €800 million in 2013. According to Oettinger, companies and the German government are likely to see sanctions from Brussels this year.
How much could German industry be hit for this? Tim Worstall suggests up to 9 billion euros. If this happens reforming Germany’s renewable subsidies will be even more of a nightmare. Getting rid of the exemptions for industry appears, on balance, to be the right thing. (A rare thing I can agree with the German Green party on). However, if the EU goes hard and tries to reclaim all prior exemptions then political pressure to cut the subsidies will grow even stronger.
Now, I may be repeating myself, but Germany very easily could have avoided all of these problems with a sensible energy policy. Money spent on solar farms in Bavarian would have got a far greater return in terms of emissions saved if it was invested in wind farms. Also, spending stupid money on solar while opening large numbers of new coal plants is remarkably contradictory. To date Germany has 32 GW of solar. Between 2011 and 2015 it will open over 10 GW of coal. These capacity numbers of course mask what this really means. Solar has a capacity factor of 10% in Germany, but coal over 50%. So, the coal plants will produce almost double what the solar panels will. Just imagine: Germany could have build 20 GW of gas, and no coal or solar for the same emissions outcome, but lower costs. And let’s not forget Angela Merkel’s somewhat irrational decision to shut nuclear power plants, while lignite power plants were under construction.
Germany however appears to be the new “Green” model, and it appears that no amount of facts, or coal plants, will do much to budge green opinion on this. Dogma, once in place, is rather hard to shift.