Germany returns to reality: Merkel wants to cap subsidies to renewable energy producers

Merkel begins to see the light.

Upcoming elections sometimes have a beneficial effect on politics. Germany is a case in point: Chancellor Angela Merkel is now prepared to scale down the disastrous and huge subsidies to wind and solar energy producers. 

Merkel's environment minister Peter Altmeier this week announced a plan that he described as a "paradigm shift":

In a surprise announcement on Monday, he said he would draft legislation to cap subsidies to renewable energy producers in order to stop the recent sharp increase in electricity bills caused by those subsidies -- a potentially popular move in an election year.

"It is not acceptable that electricity consumers should keep bearing all the risk of the future costs on their own," Altmaier told a news conference.

The current system works like this: Germany wants to boost its power generation from wind, solar and biogas plants, but the electricity they produce remains more expensive than coal and nuclear power. To encourage investment in renewables, the government allows operators of such plants to sell their electricity at a guaranteed fixed price or feed-in tariff that is above the market price. Energy consumers pay the difference via a renewable power surcharge on their electricity bills. To date, there has been no upper limit on Germany's subsidies for renewables, which means that the more solar panels and wind turbines go into operation, the higher the surcharge that consumers have to pay.

The guaranteed high return has led to a boom in investment in renewable energy in recent years. This has boosted the surcharge to a record 5.28 cents per kilowatt hour of electricity this year, up almost 50 percent from 2012 and up from just 0.88 cents in 2006. An average German household currently pays €180 ($242) per year to subsidize renewable energy. -

Altmaier wants the legislation to be passed by Aug. 1. However, it has yet to be approved by Economics Minister Philipp Rösler, chairman of the pro-business Free Democratic Party (FDP), junior partner to Merkel's conservatives in the center-right coalition. Rösler praised the plan on Monday but stopped short of giving it his blessing. And even if Altmaier gets the go-ahead from the FDP, the law could be blocked by the opposition Social Democrats and Greens who have a majority in the Bundesrat, Germany's upper legislative chamber.

The new plan could according to the Süddeutsche Zeitung "end up stopping the expansion of renewables." If that is true, Merkel and Altmaier should be congratulated for finally returning to reality with regard to energy policy. 

Merkel will certainly get the votes of those hundreds of thousands of Germans, who cannot afford to heat their houses and flats, because of the steeply growing energy prices.