Key points at a glance
4 Agriculture and forestry, fisheries
3.6 Benefits and costs of promoting renewable energy sources
Figure 42: contribution of renewable energy to electricity generation in germany
[gWh]
120,000
100,000
80,000
60,000
40,000
20,000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Hydro power
Wind energy
Electricity Saving act:
January 1991 – march 2000
elec-tricity exchange resulted in an unexpectedly sharp rise in the differential costs and hence in the EEG surcharge.68 Moreover, from 2010 onwards the cost of grid expansion, administration and the additional cost of the control and reserve energy needed to equalise fluctuations in the output of photovoltaic and wind energy systems is also apportioned via the EEG surcharge.
Figure 43: Cost of renewable energy expansion
2009 20101) 20111)
Total EEG payment (less grid fees avoided) Differential costs
bill. EUR bill. EUR
10.8 5.3
12.7 8.2
16.7 12.4
Back payment (differential costs) from previous year bill. EUR 1.10
Average EEG surcharge for non-privileged electricity consumers
(e.g. households, trade, commerce) cents/kWh 1.3 2.0 3.5
Cost per average household
EUR per month 3.8 6.42) 10.3
% of
electricity bill 6 92) 14
1) Forecasts. These figures do not include any retroactive corrections in the light of new data.
2) Sources: Federal Environment Agency (UBA 2011a) and BMU (2011e).
The importance of the EEG surcharge for the development of electricity prices Electricity prices for tariff customers (especially pri-vate households) have risen considerably in recent years (cf. Figure 44). As shown, however, it was only in the first two years that the EEG surcharge made an appreciable contribution to this. On a longer- term view, the price has been pushed up mainly by
increases in the cost of electricity generation, trans-mission and distribution and by a higher rate of value-added tax.
It also has to be borne in mind that the expansion of renewable energy leads to falling prices on the electricity exchange. This is because the priority feed-in for EEG electricity tends to increase the supply of electricity. Offers by the most expensive conven-tional electricity suppliers are pushed off the market – which results in falling exchange prices (merit order effect). In 2009 the reduction in electricity prices due to renewable energy sources averaged about 0.6 cent/kWh. This resulted in a – theoretical – reduc-tion of about 3.1 billion EUR for German electricity consumers.69 It is however questionable whether the tariff customers profit from this effect.
Figure 44: Breakdown of the monthly electricity bill of a model household
2000 2002 2004 2006 2008 2009 2010 2011
Electricity bill €/month (3,500 kWh/a) 40.67 46.99 52.48 56.63 63.00 67.70 69.10 72.78
Generation, transport, distribution 25.15 28.32 31.56 34.53 37.95 41.17 40.53 39.58
EEG 0.58 1.02 1.58 2.20 3.25 3.83 5.97 10.30
CHP Act 0.38 0.73 0.91 0.90 0.55 0.70 0.38 0.09
Concession fee 5.22 5.22 5.22 5.22 5.22 5.22 5.22 5.22
Electricity tax 3.73 5.22 5.97 5.97 5.97 5.97 5.97 5.97
VAT 5.61 6.48 7.24 7.81 10.06 10.81 11.03 11.62
In 2005 prices 43.87 49.00 53.28 55.74 59.10 63.27 63.87 66.47
Source: BMU (2011e)
68 For the calculation of the EEG surcharge in 2010 an exchange price of 5.3 cent/kWh was assumed, in 2009 the figure had been nearly 7 cent/kWh.
69 Sensfuß (2011).
What is more likely is that – as the RWI (Rheinisch-Westfälisches Institut für Wirtschaftsforschung) has found – electricity suppliers are mostly not passing these cost advantages on to the final customer.70 This would be a problem of lack of competition, and from a macroeconomic point of view it would not be efficient. But regardless of who ultimately profits from this effect, it is a reduction in electricity pro-curement costs that is due to the expansion of renew-able energy.
Cost increasing and reducing effects for electricity-intensive companies
For electricity-intensive companies the EEG surcharge has been very extensively restricted by the “special equalisation scheme” laid down in the EEG since 2003. In 2010 it was only 0.05 or 0.25 cent/kWh, de-pending on electricity consumption and intensity.
This provision was created to avoid endangering the international competitiveness of these companies.
Comparing the remaining EEG surcharge with the possible relief due to the fall in electricity exchange prices resulting from the merit-order effect (see
above), it becomes apparent that on balance the expansion of renewable energy may even have re-duced the burden on electricity-intensive industries in 2010 (cf. Figure 45).71 By contrast, the preferential treatment of electricity-intensive companies had the effect of raising the EEG surcharge by around 18 percent for all those who do not benefit from the reduced surcharge.72
Figure 45: cost increasing and reducing effects of renewable energy for industry 2010
the curbing effect on electricity prices due to renewable energies can overcompensate the EEg surcharge of the electricity-intensive industry.
[ct/kWh]
+0,6
+0,4
+0,2
0,0
-0,2
reduced EEg surcharge 2010:
0.05 cents/kWh
reduced EEg surcharge:
incl. deductible share1) 2010:
0.25 cents/kWh
curbing effect on electricity prices due to rE at the electricity exchange 2010:
about 0.5 cents/kWh
-0,4
cost increase cost reduction
1) deductible share: If an entreprise consumes < 100gWh/a and its electricity costs/gross value added are < 20 percent it must pay the full EEg surcharge for 10 percent of the electricity consumed (2010: 2,045; 2011 : 3.53). this applies to three quarters of all privileged entreprises, which consume about one quarter of the privileged electricity.
Source: renewable Energy agency (agentur für erneuerbare Energien) (2011) 70 Cf. Frondel et al (2010), p. 13.
71 Renewable Energy Agency (Agentur für Erneuerbare Energien) (2011).
72 Wenzel, Nitsch (2010).
73 Cf. www.eeg-kwk.net, references to scientific studies can also be found here.
Future costs of promoting renewable energy through the EEG
The future costs of promoting renewable energy will be influenced by a variety of factors (e.g. support re-gime, expansion rate, energy price trends) and are very difficult to predict. This is illustrated, for example, by the forecasts on the development of the EEG surcharge and EEG tariffs submitted regularly by the four transmission system operators.73 In the medium and long term, electricity generation based entirely on renewable energy by the year 2050 has substantial cost advantages over conventional electricity gener-ation on the basis of fossil fuels (cf. Figure 46). The main driving forces behind this trend will be falling
generation costs for renewable electricity, rising pric-es for fossil fuels, and the predicted rise in CO2 allow-ance prices. Thus the expansion of renewable energy also makes economic sense.
Figure 46: Development of differential costs for renewable electricity generation in Germany from 2010 to 2050 74
20 10 0 -10 -20 -30 -40 -50 -60 -70
Costs
Economic profit
755.8 billion Euro 152.1 billion Euro
2010 2015 2020 2025 2030 2035 2040 2045 2050
Differential costs for renewable electricity generation [in billion EUR]
Source: ZSW (2011)
Overall economic benefits of expanding renewable energy
The costs of renewable energy have to be seen in the light of substantial overall economic benefits.
For example, the expansion of renewable energy avoids climate-damaging emissions and air pollu-tants. Estimates indicate that the electricity paid for under the EEG reduced CO2 emissions by around 58 million tonnes in 2010 alone.75 This leads to lower follow-on costs for society as a result of harmful effects on health and the environment. Figure 47 shows the costs and benefits quantified to date that
can be attributed to EEG electricity. On this basis the quantified costs and benefits of renewable energy expansion are already more or less equal today.
Figure 47: Costs and benefits of promoting renewable
energy expansion
(in billion EUR)2008 2009
Differential costs electricity 76 4.7 5.3 Cost of control and balancing energy 0.6 (2007) 0.4
Grid expansion 1) 0.02 0.02
Transaction costs 1) 0.03 0.03
Total: Cost of renewable electricity 5.35 5.75 Total: Benefits of renewable electricity 77 5.9 5.7 1) estimate for 2007
Source: IZES et al (2010a)
74 The estimates of the differential costs are based on updated figures for the energy concept of the Renewable Energy Research Association (FVEE), which achieves full electricity supply on the basis of renewable energy sources by 2050, cf. (FVEE 2010).
75 BMU (2011c).
76 This balance, which is oriented to the national economy, is calculated using “system analysis differential costs”.
These vary slightly from the differential costs based on the EEG. Cf. details in IZES et al (2010a).
77 Of this figure, only about 1 billion EUR was internalised through emissions trading in 2009, cf. IZES et al (2010b).
The expansion of renewable energy also reduces im-ports of energy resources, increases domestic value added and thereby creates additional jobs. In 2009 the increased use of renewable energy sources made it possible to save imports of fossil fuels to the value of about 6 billion EUR.78 This tended to produce posi-tive macroeconomic effects, because the imports were to a large extent replaced by domestic output.
It also makes for greater security of supply.
The positive effects on the international competitive strength of German companies are also an important favourable factor. German companies occupy an out-standing position on the global market for renewable energy, and the promotion of renewable energy under the EEG – as well as research-related and project-specific assistance – has made a major contribution to this development.
The doubts that are nevertheless continually being raised about the sense of providing assistance for re-newable energy are partly due to the fact that under the EEG the cost of this assistance is very transpar-ent, whereas subsidies for other forms of electricity generation tend to make the costs more obscure.
For example, nuclear power is only profitable on a microeconomic view because it receives explicit and implicit subsidies running into the billions. The risk of damage, for example, is largely borne by society.
Moreover, if the external environmental costs of fos-sil power generation were charged to the originators in full, the cost of electricity generation from nuclear power and fossil fuels would already be higher in many cases than for renewable energy sources.79