The Energiewende and (un)affordable energy

Continuing with the “9 myths about the German Energiewende debunked” brochure of Greenpeace, we arrived at myth 3: “The German Energiewende makes energy unaffordable”. The two first myths (the previous six posts already) showed that the myths were debunked with a mix of truth and spin. The 3th myth was no different. This is how it is explained (translated from Dutch):

The German wholesale energy prices are at their lowest level in twelve years. Cheap renewable energy pushes expensive fossil fuels further and further out of the market. Both German companies as neighboring countries reap the benefits of this, but the kilowatt-hour price for households still can go much lower.

The first sentence is correct. The German wholesale price is at its lowest level in twelve years and their graph illustrates that:

Evolution of German wholesale prices according year-ahead contracts

Evolution of German wholesale prices according year-ahead contracts

So, yes, those who buy their power at wholesale prices will be better off and sure, that will be (energy intensive) companies and importers of German electricity. That lowering is brought as a good thing: the injection of renewable energy is bringing the price of electricity production down.

However, the question I asked myself was: WHY is that injection of renewable energy bringing wholesale prices down? Wholesale prices follows supply and demand. Those prices are the consequence of how they deal with the growing share of intermittent energy. By not balancing, but overproducing and exporting the overproduction to the neighboring countries.

But this graph is of course about the wholesale price. In the brochure it is correctly explained that household customers pay most for the transition. Just look at the comparison of the household consumer prices of 2014 in th EU. Notice the two countries in which consumer prices rise head and shoulders above the rest:

EU electricity prices household consumers 2014

The two countries are Denmark at the first place, followed very closely by Germany. Coincidently the two countries with the highest share wind and solar. 😉

The perception Greenpeace want to create is that household prices could still go down because of this lowering of the wholesale prices, if only those pesky energy providers would share their profit with the household consumer. I think that is justwishful thinking. Let’s just look at what that household energy bill is composed of. It has three main components (share of those components is from 2016):

  1. the cost for the delivery of power to the grid (“wholesale”) and the costs of the sale of power to the consumer (21.3%)
  2. the network costs of maintenance and expansion of the transmission and distribution networks (24.6%)
  3. the government-imposed taxes and levies (54.1%).

The wholesale component is only one fifth and is even smaller than the Renewable energy surcharge of 22.2% (which is part of that 54.1%). More, if wholesale power prices fall, the renewables surcharge will rise (my emphasis):

[…] The wholesale price of power for delivery in 2016 is expected have fallen by only 3.25 cents per kilowatt-hour (kWh) on a 12-month average (October 2014-September 2015). That is a decline of nine percent, or 0.32 cents per kWh, over the previous year. As a consequence, the renewables (EEG) surcharge added to consumers’ power bills, which helps finance Germany’s green energy expansion, will rise slightly, to between 6.4 and 6.6 cents per kWh from 6.17 cents now. When the wholesale price falls, the surcharge rises to make up the difference between the market price and a higher, state-guaranteed, renewables tariff. This ‘feed-in tariff’ is paid to renewable energy companies to incentivise investment.

“The renewables surcharge rises to the same degree as wholesale prices decline,” said Dr. Patrick Graichen, director of Agora Energiewende. “This means power consumers will not have to pay more than today if utilities make an honest calculation. But consumers will get more renewable energy for their money […]

If I understand that correctly, then the household prices will not go down because the surcharge compensates for the wholesale prices. In such a scheme the household consumers will not get lower prices, but more renewable energy in the mix. The other components will probably only go up, so there is only one way the prices for household consumers can go and that is up.

Over to the second sentence that “Cheap renewable energy pushes expensive fossil fuels further and further out of the market”. There is nothing cheap about renewable energy. Who are they trying to fool? It is not cheap for government and therefor not cheap for households either. If it were cheap, there would be no need for subsidizing it in the first place.

So that sentence needs some corrections:

Cheap Subsidized renewable energy pushes more expensive cheaper fossil fuels further and further out of the market”.

Voilà, that is a whole lot better. Fossil fuels are pushed out of the market, not because they are more expensive, but because they can’t compete with subsidized energy sources. That is a distinction that Greenpeace didn’t make and this is crucial information to understand the issue.

In the end, are unaffordable prices a myth or not? Well, that will depend on one’s definition of “unaffordable”. But fact is that German household prices are among the highest in Europe and most probably will only get more expensive.

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