What electricity really costs

by | 14.12.2018 | Uncategorized | 0 comments

Birds power supply line

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say: The greater use of renewable energies is important or very important.

The Popular Transition to Clean Energy

Looking at the prices for electricity in Europe and the ambitious project to make the transition to clean energy, one gets the impression that: The transition is driving up the price for electricity in Germany.

That is why it is all the more gratifying that the promotion of renewable energies in Germany is welcomed by an overwhelming majority of the population. This has been confirmed by figures from a questionnaire that the research institution Kantar Emnid conducted in 2018 for the Renewable Energies Agency (AEE). It shows that: 93 percent of those interviewed consider the promotion of renewable energies to be important to extremely important.

People want the transition to come sooner

And what’s more:  The transition to clean energy is not making good progress in Germany. This is the opinion of 64 percent of the German population according to a study published by the Energy Monitor of the German Federal Association of the Energy and Gas Industries (BDEW).

Opponents to the clean energy transition are exerting pressure

And the opponents of renewable energy are mobilizing. It is especially difficult for new wind farms. They are run into strong headwind from citizens’ action groups. Some just don’t want to have energy production at their own doorstep. Photovoltaic plants have a higher acceptance than wind power. Others are of the opinion that climate change is not real.

The Foundation for Energy and Climate Protection (Stiftung Energie & Klimaschutz) not only wants to make a contribution towards greater objectivity, but also wants to provide opportunities for dialogue. It promotes the transition to renewable energy and tries to dispel the myths and misunderstandings.

EEG surcharge promotes misunderstandings

One of the greatest misunderstandings regarding the transition to clean energy was caused by a political measure: the EEG surcharge from  the German renewable energy law. This surcharge made green electricity more expensive with its increase from 0.41 cents per kilowatt hour in 2003 to 6.41 cents in 2019. It passes the costs from generating electricity with renewable energies to consumers.

Companies that consume a rather high amount of electricity have been exempted from the EEG surcharge. According to the German Federal Office for Economic Affairs and Export Control (Bafa), 2,092 companies took advantage of this exemption in 2017. 1,955 of these companies were manufacturers and 137 were railway operators.

Private households and the not-so-privileged companies have to indirectly pay for these EEG surcharge exemptions.

Researchers from the RWI – Leibniz Institute for Economic Research have determined that: people’s acceptance of the EEG surcharge would increase massively if these exemptions for the privileged were abolished.

The researchers’ method was unconventional: They divided the 11,000 survey participants into two groups. One test group was informed that the exemptions would be abolished for energy-intensive industries; the other group was told that the exemptions would continue.

This impatience is even increasing: In 2016, only about half of those interviewed (52 percent) thought that there was little or no progress with the transition to clean energy. That is now increased to 64% in 2018.

This view is not only prevalent in Germany. According to findings of the Foundation for Energy and Climate Protection (Stiftung Energie & Klimaschutz), the opinions are at similar levels in all industrial countries.

Results of the EEG Acceptance Survey

  • For the group that was told that the exemption would continue, only between 23 and 38 percent of those surveyed were willing to pay additional EEG surcharges.
  • The other group was told that the exemptions would be abolished. Results: Between 61 and 74 percent of those surveyed in the group that was told that the exemptions was abolished were willing to pay more for renewable energy – depending on the amount of the surcharge. The option was 1, 2 or 4 cent(s) per kilowatt hour.

The researchers concluded the results indicate that eliminating the exemptions, for example with tax financing, could be a decisive factor for the acceptance of additional EEG surcharge increases.

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Electricity prices in Europe

Electricity prices in Europe

The graphic shows the electricity prices for private households (including all taxes), second half-year in 2017. Source: eurostat, it also contains figures on non-household customers as well as definitions of the terms and further explanations of the methodology.

  • Ukraine: 3.8
  • Kosovo: 6.5
  • Serbia: 6.9
  • Macedonia: 8.1
  • Albania: 8.6
  • Turkey: 9.6
  • Bulgaria: 9.8
  • Montenegro: 10.0
  • Moldova: 10.1
  • Lithuania: 11.0
  • Hungary: 11.3
  • Croatia: 12.3
  • Romania: 12.9
  • Estonia: 13.2
  • Malta: 13.6
  • Slovakia: 14.4
  • Poland: 14.5
  • Czech Republic: 14.9
  • Iceland: 15.2
  • Netherlands: 15.6
  • Latvia: 15.8
  • Finland: 16.0
  • Norway: 16.1
  • Slovenia: 16.1
  • Luxembourg: 16.2
  • Greece: 16.2
  • France: 17.6
  • Cyprus: 18.3
  • United Kingdom: 18.6
  • Sweden: 19.9
  • Italy: 20.4
  • Spain: 21.8
  • Portugal: 22.3
  • Ireland: 23.6
  • Belgium: 28.8
  • Denmark: 30.1
  • Germany: 30.5
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Companies that consume a rather high amount of electricity have been exempted from the EEG surcharge. The acceptance of the EEG surcharge would increase greatly if these exemptions were abolished.

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acceptance for a 4-cent increase in the EEG surcharge when the exemptions for privileged companies continues

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acceptance for a 4-cent increase in the EEG surcharge when the exemptions for privileged companies are abolished.

Distorting effect of the EEG surcharge

Research which demonstrates that the EEG surcharge has a distorting effect can also make a valuable contribution towards the acceptance of the transition to clean energy. There are many reasons for this. An important factor is that: With conventional energy sources, the costs are not shown as transparently and they are not directly expressed in the form of a surcharge.

Nuclear power and coal have considerable consequential costs for society which are not included in the price calculation by the energy suppliers. These consequential costs have been accumulating over the decades but are not passed on directly to us with our electric bills. These costs are paid by society in the form taxes. However, there is not much talk about these costs as with the transparent EEG surcharge.

Green Budget Germany (GBG – Forum Ökologisch-Soziale Marktwirtschaft) provides information and clarification on the EEG surcharge. Commissioned by the Greenpeace Energy association, GBG conducts regular studies on the actual costs of various energy sources from their perspective.

Die-hard opponents of the energy transition will not be convinced by the results. However, those who are undecided may find the results enlightening.

Here’s food for thought: the surcharge for conventional energy would be 11 cents

The current study “Was Strom wirklich kostet” [What Energy really costs] (PDF, October 2017 edition) reveals that society pays a considerable price for the various energy sources.

The study tries to determine all these costs. In the next step, it examines how much of these costs is reflected directly in the electric bill and how much is left for the taxpayer.

There is no “conventional energy surcharge,” just a “renewable energy surcharge.” According to the researchers, however, the state also subsidizes conventional energy sources – about 40 billion euro per year in 2016 and 2017. These costs are included in the electric bill.

The result is a (real but not existing) “conventional energy surcharge.”

The surcharge would have been about 11.4 cents per kilowatt hour in 2016. For 2017, the study estimated a surcharge of about the same amount – 10.1 to 11.5 cents per kilowatt hour.

As a comparison: the EEG surcharge for renewable energy was 6.35 cents in 2016 and 6.88 cents in 2017.

A “conventional energy surcharge” would have to be twice as much as the “renewable energy surcharge” (see the bar graph).

The study also presented details on the total amount of subsidies that each energy source received from the state. From 1970 to 2016, coal led with 337 billion euro, followed by nuclear energy with 237 billion euro. Renewable energies ranked third with 146 billion euro, just ahead of brown coal with 100 billion euro.

What would the costs be if the state did not subsidize the costs for conventional energy sources and there was also a surcharge for consumers to cover these costs?

Illustration above: Title page of “Was Strom wirklich kostet” [What Energy really costs]

Diagram below: The study shows that a “conventional energy surcharge” in 2016 would have been 11.4 cents per kilowatt hour (yellow bar). Such a surcharge does not actually exist. The costs for coal and nuclear energy are borne by society, i.e. all taxpayers. The costs for renewable energies, on the other hand, are added to the electricity price with more than 6 cents per kilowatt hour (dark blue bar).

  • EEG surcharge 2016, per kWh: 6.35 cents
  • “Conventional energy surcharge,” 2016: 11.4 cents

Conclusion of the “Was Strom wirklich kostet” [What Energy really costs] study:

The transition to clean energy is not driving up prices

The study concludes that the transition to clean energy is not driving up prices. On the contrary: The clean energy transition’s overall economic balance sheet is positive. That means: Society saves money with the clean energy transition – 50 billion euro by 2030 according to the authors of the study. After that even more:

These figures will not only be of interest to those who doubt the economic viability of the energy transition, but also show that electricity from renewable energy sources is not more expensive, but actually cheaper.

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