The governing coalition in Germany, in office for about a month now, has given top priority to reforming the country's controversial Renewable Energy Sources Act (EEG).
On Wednesday (22 January), Germany's cabinet approved previously unexpected cuts to energy price discounts for industry which will affect new and existing power plants as well as companies that generate their own electricity.
The EEG legislation was originally meant to support green energy by means of a subsidy making up the difference between the price of renewables and the regular market price. But after rising energy prices in Germany there have been widespread calls to revamp the EEG's effectiveness and have it comply with EU competition law.
The controversial reform plan was spearheaded by Germany's ministry of economic affairs and energy under the leadership of Social Democratic Party chair Sigmar Gabriel, who spoke on its key points earlier this week.
"That's a project for the whole federal government and not just a project of a single minister," Chancellor Angela Merkel said on Wednesday at the cabinet retreat just north of Berlin, according to Deutsche Welle. Gabriel's revision had her "absolute support", the chancellor said.
Bad news for industry
In the past, the EEG was meant to ensure that companies remained competitive by exempting them from the renewable subsidy in certain cases. Energy-intensive industries such as chemicals or those generating their own power are among those typically receiving special exemptions from the costly subsidy scheme.
For some industries, this amounted to a reduction of roughly half of the energy price, which explains why close to one fourth of power consumed by companies in Germany is self-generated.
But under the new plan, expected to be adopted in August, the exemption no longer stands.
Energy generated from new industry facilities will have to pay 90% of the renewable subsidy which is currently around 6.24 euro cents per kilowatt hour. Power received from stations generating it with renewables or through cogeneration will pay 70%.
According to the chemicals company Bayer, self-owned power plants would no longer be economical under the new decision. This applies to old and new power stations, said a company spokesperson.
"In the coalition agreement it was said that own power generation would only be very moderately affected. Considering this, [the new plan] is a violation of the coalition agreement," the spokesperson said.
Certain cuts for renewables are also on the horizon, as the cabinet decided to cap power generation in the wind energy sector. To keep wind power generation under a maximum of 2,600 megawatts per year, subsidies for new wind turbines are set to be cut by 1.59% annually.
If power generation increases by more than 2,600 megawatts, cuts would increase by 0.1% for each additional 200 megawatts.
EEG reform long-overdue
"The 'Energiewende' (energy transition) remains the biggest challenge for our country", Gabriel said on Tuesday (21 January) ahead of the cabinet's vote.
Stemming from the 1980s, the term Energiewende describes a movement in Germany to shift to clean energy, reducing the country's dependence on gas, coal and nuclear energy. In the wake of the Fukushima nuclear disaster 2011, the campaign was picked up by the Merkel administration. The German government quickly reacted, passing legislation that would phase out the country's nuclear power plants by 2022 while introducing a number of targets for shifting to renewable electricity generation.
But in Gabriel's view, the EEG needs a comprehensive makeover. Simply updating the law is not an option.
On Tuesday he outlined the main goals of the new EEG saying it should reduce costs, further integrate renewables in the energy market, and comply with EU law.
"There is no doubt in my mind that we can successfully move forward with the 'Energiewende'," said Gabriel. "But it is crucial that the project is carried by society as a whole. It is about economical solutions that must be absorbed by all those involved," Gabriel indicated.
While surveys have shown that a majority of the German public does support renewable energy, there is mounting frustration with the way the government has gone about realising the Energiewende. The cost of renewable subsidies is high, ranging from €22 to 24 billion, according to Gabriel.
The brunt of these costs are carried by small-scale consumers who pay for the difference between renewables and the regular market energy price, an amount which has steadily been rising.
Referring to the high energy costs in Germany, Gabriel said he could not think of any other economy that would be able to shoulder such a burden. The limit of trust in the market economy has been reached, he said.
Still, Gabriel underlined the fact that the "Energiewende" is not attainable without a cost, but a continued rise in prices should be avoided. In his view, this means concentrating on the most cost-effective technologies, primarily wind and photovoltaics.
Compliance with EU competition law
In its current form, the European Commission disapproves Germany's discounts to industry under the EEG, arguing the measure is a violation of EU law on the basis of state aid. The case is currently under investigation by the EU's competition directorate, headed by Commissioner Joaquín Almunia.
On Tuesday (21 January), Gabriel repeated criticism he raised previously in Brussels over the EU's position on industry rebates.
The economic affairs and energy minister accused the Commission of abusing its power. "The Commission uses competition law as a tool to Europeanise national energy policy," Gabriel said.
Gabriel believes the new EEG should promote competition and security of supply. For this reason, he said, there should be a general framework for conventional power plants. Here, increased energy efficiency is also an integral part of the "Energiewende", Gabriel said.