Energy price hike to leave mark on coalition talks as parties aim to help households
The unusually high energy prices at the start of Europe鈥檚 winter season are set to leave a mark on the ongoing negotiations to form Germany鈥檚 next government, as the parties pledge to offer relief to lower income households. However, the situation is unlikely to deter the potential coalition from pursuing ambitious climate action. Negotiators as well as independent analysts see the high prices as a driver for massive renewables expansion that would reduce dependence on imported fossil fuels.
The coalition negotiations will be about charting a way for Germany to 鈥渋mplement its future energy system in real terms,鈥� Green Party MP Ingrid Nestle told 威力彩玩法. She and fellow negotiators from her party as well as from the election winner SPD and the pro-business FDP are currently hammering out a coalition deal, the 鈥渃entral task鈥� of which is to steer Germany on a 1.5掳C path.
鈥淎ll partners in the talks also have current developments in mind, such as energy prices.鈥� Nestle, who has been spokesperson for energy industry of the Greens鈥� parliamentary group, is part of the negotiating team on climate and energy.
鈥淲e are aware of the issue,鈥� SPD general secretary Lars Klingbeil at the start of the coalition talks on 21 October, when asked about the influence of high energy prices on the negotiations. While all three parties have told 威力彩玩法 that they do not intend to publicly comment on the content of the talks, Klingbeil hinted that affordable energy for households would be a key focus. 鈥淭hree parties are standing here whose goal is to relieve the burden on low- and medium-income earners, and now we have to see what a way forward might look like.鈥�
Prices for gas, coal, oil and electricity are unusually high as demand, especially in Asia, has increased much faster than expected after the coronavirus crisis, investments in fossil fuel production capacity have been limited, and gas storage levels in the northern hemisphere are lower than usual during this time of the year.
The price increase coincides with the introduction of Germany鈥檚 national CO2-price for transport and heating fuels of 25 euros per tonne of CO2 at the beginning of this year. It has already increased the price per litre of diesel or petrol by 7-8 cents, and the outgoing government agreed to raise it step-by-step to 55 euros by 2025. During the election campaign, the Green Party called for a faster increase and it remains to be seen whether the new alliance plans another reform. The SPD wants to stick with the agreed price path, with chancellor candidate Olaf Scholz citing 鈥渢he hardships of the citizens鈥� as the reason.
All three potential partners agree that the revenues of the carbon price should continue to be used to lower and eventually abolish the renewables levy (EEG surcharge), which power consumers pay to support the build-out of wind and solar. The outgoing government had agreed to use parts of the revenues in this way to relieve citizens and companies. The coalition negotiations could also feature a uniform per capita payment to citizens, which would benefit especially lower income households.
鈥淓nergy transition is not part of the problem, it is part of the solution鈥� 鈥� BDEW head
This is the energy policy backdrop against which the SPD, the Greens and the FDP have started their coalition negotiations. They said their goal was to kick off 鈥渢he biggest industrial modernisation project in probably more than 100 years in Germany鈥� and that they consider renewables expansion the crucial element. Just as the potential new alliance seeks to move Germany into high gear on climate, the high price of energy leads the governments of some European countries to , warning of an 鈥渆xcessive burden鈥� on consumers. Others, such as Spain and France, at least . Germany is among those member states that against hasty changes and say that the price increase is temporary.
The country鈥檚 energy industry is also cautious about the EU鈥檚 energy market reforms. 鈥淐areless interventions in the liberalised internal energy market increase the costs of energy supply and reduce investor confidence, which is needed for many energy transition projects,鈥� says Kerstin Andreae, head of Germany鈥檚 energy industry association BDEW. 鈥淎s a general rule, the energy transition is not part of the problem, it is part of the solution,鈥� she told 威力彩玩法.
The pressure to get away from oil and gas will increase now.
The current crisis could give an additional push to an ambitious energy transition policy, says Andreas Schroeder, head of energy analytics (quantitative) at energy intelligence services provider ICIS.
鈥淭he pressure to get away from oil and gas will increase now,鈥� he told 威力彩玩法. The key long-term effect of the current energy crunch will thus be on renewable energy production, says Schroeder. 鈥淭he wish to be more independent from price fluctuations grows in the current situation, and that means not to import oil and gas.鈥�
Germany鈥檚 outgoing government seems to agree. It has so far showed little interest in intervening in the market, and chancellor Angela Merkel 鈥減rudent鈥� reactions. After a leaders鈥� summit with her European Union counterparts, Merkel said the current situation had to be considered separately from the bloc鈥檚 debates on climate action and the Fit for 55 legislative reforms 鈥渂ecause the medium and long-term transformation of our energy supply must go in the direction of climate neutrality and must not be hindered by such temporary increases in prices.鈥�
Gas main driver of rising power prices
Energy prices in Europe have been on the rise, because global demand increased substantially as the countries鈥� economies, especially in Asia, have been recovering from the effects of the coronavirus pandemic. Supply has not kept up. Prices are high for oil, coal and electricity, but especially for natural gas. Storages in Europe are at atypically low levels for this time of the year, following a cold winter with high heating demand. 聽
鈥淲hat we are experiencing is indeed quite unusual, because we are at the start of a winter and we are already seeing record-high prices,鈥� says analyst Schroeder. 鈥淭his has never happened in the history of liberalised energy markets since the turn of the millennium.鈥�
Wholesale power prices are also high. In spring of this year, the CO2 allowance price in the EU Emissions Trading System (ETS) was a major reason for rising prices, says Schroeder. 鈥淗owever, since then, gas prices have taken over as the main driver.鈥�
This has led to a short-term revival of coal power in Germany, especially domestic lignite, he says. Lignite power plants are now more competitive and have run at high capacity for more than half a year, also because wind power conditions were not very good in the first half of 2021. This is in Germany鈥檚 power sector for the full year.
鈥淚f we get a cold winter then we will really have a problem鈥�
High gas and power prices have already affected the industry of Europe鈥檚 largest economy. The businesses that buy their energy on the wholesale market are the ones most directly affected, such as energy suppliers and industry companies.
, power and gas retailer Otima Energie was the first German company to file , citing the 鈥渕assively rising wholesale prices.鈥� It might only be the first of several such cases, says Schroeder.
鈥淥ver the winter, we could see a market shakeout, as small companies without long-term supply contracts drop out and the bigger ones, such as Uniper, remain.鈥� Other energy suppliers, have halted their business with new customers as they re-evaluate their pricing.
But the impact on German industry goes beyond the energy supply sector. Natural gas is used especially in the chemical industry, for example in fertiliser production, and operations there have been stopped or at least reduced in some places, says Schroeder. 鈥淵ou don鈥檛 see something like that very often, because they must normally produce very steadily.鈥� The effect on other energy-intensive sectors like steel manufacturing might be less immediate, he adds.
鈥淕erman industry players are reasonably protected, because many have long-term supply contracts with somewhat fixed prices,鈥� explains Schroeder. Here, the crisis may thus hit with a delay when they also pay higher prices. 鈥淭he industry must already start thinking about whether they can avoid gas and replace it with other energy sources in different processes.鈥�
Whether the situation gets a lot worse depends to a large extent on temperatures in the northern hemisphere, as gas consumption increases with heating needs.
鈥淚f we get a cold winter then we will really have a problem,鈥� says Schroeder.
Reducing dependence on imported fossil fuels key to avoiding similar situations in the future
Germany and Europe are highly dependent on imported fossil fuels. In 2019, of the EU鈥檚 energy needs were covered by net imports. The main imported energy product was聽petroleum (including crude oil, which is the main component), accounting for almost two-thirds of energy imports into the EU, followed by gas (27%) and聽solid fossil fuels聽(6%).
Russia is Europe鈥檚 main supplier with 27 percent of crude oil imports, 41 percent of natural gas imports and 47 percent of solid fuel imports. The country of holding back on additional gas deliveries with the aim of exerting pressure on Europe to greenlight the contentious Russian-German gas pipeline Nord Stream 2.
Analyst Schroeder could not confirm this. 鈥淲e simply don鈥檛 know whether Russia is holding back supply because of Nord Stream 2. I am an analyst and I look at data. The data situation in Russia is bad, because there is no market with reporting obligations about production outages or the like.鈥� Schroeder says Russian requirements to fill domestic storages ahead of the winter are quite strict and Gazprom has promised more deliveries to Europe from November, once storages in Russia are filled.
We need to become less dependent on energy imports. This can only be achieved through a rapid expansion of renewable energies.
Sources from the European Commission said that while there may be reasons for gas producer Gazprom not to increase supplies 鈥� higher prices in Asia or the need to fill domestic storages 鈥� 鈥渨e believe that under market conditions a supplier like Gazprom can be expected to increase its supply.鈥� The situation proves the importance of speeding up the transition to clean energy sources and thus reducing dependence on imported fossil fuels.
Germany鈥檚 coalition negotiators agree. 鈥淪witching to cheaper renewables is our best chance against future price rallies 鈥� and at the same time a prerequisite for climate action and the future of industry,鈥� says the Greens鈥� Nestle. She is backed up by fellow MP Timon Gremmels, energy policy rapporteur for the SPD parliamentary group.
鈥淲e need to become less dependent on energy imports,鈥� he told 威力彩玩法. 鈥淭his can only be achieved through a rapid expansion of renewable energies.鈥�
Both politicians say they want to work towards reforms that help push renewables. Gremmels says his party wants to 鈥渕odernise the entire system of levies and charges in the energy sector,鈥� while Nestle says the current sharp rise in electricity prices shows how urgently the next government should push ahead with necessary reforms of the power market.
Coalition partners 鈥渃ommitted to ensuring that mobility and energy remain affordable鈥�
Households across Germany also face rising prices, but when this will happen and by how much prices will go up very much depends on the situation. Homeowners who have not yet filled their oil heating tanks have to pay almost 90 percent more for the fuel than in the same period last year, .
Verivox also expects many gas suppliers to pass on the price increase on the wholesale market to their customers, albeit with a bit of a delay. Average household power prices, meanwhile, are at a record high of more than 31 cents per kilowatt hour, the website. High procurement costs for the suppliers and rising grid fees would mean that household prices are bound to remain high next year, despite the country鈥檚 renewables levy decreasing to its lowest level in ten years.
The prospective government coalition partners have put their focus on relieving lower income households. In their paper for the coalition talks, the three parties have already announced their aim to end the financing of the renewables levy via the electricity price as soon as possible in this legislative period to lower power costs.
鈥淚n the upcoming coalition talks, the SPD is committed to ensuring that mobility and energy remain affordable,鈥� says Gremmels.
Many energy industry stakeholders and politicians have proposed to gradually lower or outright abolish the renewables levy over the coming years. 鈥淭his would relieve the burden on electricity customers and not least on small and medium-sized enterprises,鈥� BDEW head Andreae told 威力彩玩法. At the same time, environmentally friendly electricity-based applications, such as electromobility or heat pumps, would become more attractive, the ramp-up of the hydrogen economy would be supported and bureaucracy would be noticeably reduced, she added.
Aside from household consumers, the parties' agreed which serves as the basis for negotiations shows that the potential coalition partners also have industry in mind. As Germany should 鈥渋deally鈥� exit coal by 2030, massive renewables expansion and some modern gas power plants will be necessary to secure supply and meet increasing electricity demand 鈥渁t competitive prices鈥�, it says.
