Renewable energy surcharge stabilises
Wind power, the price of electricity on the exchange, the equalisation scheme: what factors influence the renewable energy surcharge? A new study by the Institute for Applied Ecology (Öko-Institut) looks at how wind power, the price of electricity on the exchange and the equalisation scheme each affect its pricing.
In Germany, the price of the renewable energy surcharge (EEG surcharge) – used to finance the expansion of renewables on the electricity market – is a topic of public interest. This surcharge is paid by customers via their electricity bills. Apart from the discussion on whether the surcharge is too high and how it can be reduced, there is also a lot of speculation about what exactly leads it to rise. The Federal Ministry for Economic Affairs and Energy has therefore commissioned the Öko-Institut to undertake a study into what really does affect its price progression.
Reforms of the Renewable Energy Sources Act having a positive effect on electricity bills
Between 2010 and 2014, the renewable energy surcharge often increased at rapid pace, climbing by 4.2 cents per kilowatt hour (ct/kWh) overall. From 2014 to 2018, however, the rise was only minimal – 0.5 ct/kWh. The average household is paying roughly the same in electricity bills as they did in 2014. The fundamental reforms undertaken over the past four years have made it possible to put an end to the spiralling increase and to stabilise both the surcharge and, with it, electricity prices as well.
Price on the electricity exchange vs. EEG surcharge
The price on the electricity exchange has been found to contribute 20 per cent to the rise in price of the EEG surcharge. This makes it one of the most important influencing factors. Electricity from renewables is mainly sold via the electricity exchange, meaning that if the price on the exchange falls, so too do market premiums for this electricity. This drop in revenue then has to be balanced by charging a higher EEG surcharge. Since 2010, the price on the electricity exchange has fallen dramatically. This reason alone has contributed a rise in the EEG surcharge of 0.8 ct/kWh up to 2018. The amount paid by the consumer is calculated based on the price of electricity on the spot market plus the EEG surcharge.
Exemptions for electricity-intensive companies
Almost two-thirds of the EEG surcharge is financed by businesses and public institutions, and just over one-third is funded by residential customers. Both railways and those companies which use a lot of electricity and face international competition can apply for a partial exemption from the EEG surcharge. However, these exceptions only made a minimal contribution to the rise of the EEG surcharge. In total, the ‘special equalisation scheme’, as it is known, contributed 0.5 ct/kWh to the rise in price. This is equal to 10 per cent of the rise in price of the EEG surcharge since 2010. The vast majority of companies are continuing to pay the full EEG surcharge.
Until 2014, the use of solar energy represented a very cost-intensive means of generating green electricity, thus making a high contribution to the increase in the EEG surcharge. Since then, the situation has changed. Although solar installations have continued to be built since this date, the technology involved has become continually cheaper, meaning that solar energy has been contributing to the rise in the surcharge less and less.
This trend started to be reversed following the reform of the Renewable Energy Sources Act in 2014 and continued with a further reform in 2017. The 2014 revision stipulated binding deployment corridors, concentrated continuing expansion on the low-cost technologies of onshore wind and photovoltaics, and restricted the creation of additional capacities for what is comparatively cost-intensive biomass.
Over the past four years, wind energy has seen the strongest development among all sources of energy
Offshore wind turbines are a relatively new technology with correspondingly high initial costs and feed-in tariffs. This explains why offshore wind has contributed to the increase in the EEG surcharge over recent years.
However, competitive auctions are already causing the costs of new wind energy and photovoltaic installations to drop dramatically. In the future, the cost of offshore wind energy will fall even further, as will wind power generated onshore, which is already cheap today. In fact, the operators of three out of the four offshore wind farms that took part in the auction submitted zero-subsidy bids. This means that from 2023, they are to be operated without receiving any government funding under the Renewable Energy Sources Act. When it comes to wind power produced onshore, the level of funding awarded for the winning bids was also very low – at around just 4 ct/kWh.