German Agreement on Financial Package: The €100 Billion Energy Transition Costs Too Much

 

"The heads of RWE and Eon see enormous savings needs. There is support from researchers. But politicians are reducing the pressure for reform with the special fund.

 

A debate has erupted in Germany about how the energy transition can be made more efficient – ​​and whether the €100 billion from the new special fund intended for the Climate and Transformation Fund (KTF) might actually have the opposite effect of cost-consciousness. "The immense debt that is now being incurred is likely to significantly slow down the enthusiasm for reform," fears Veronika Grimm, a member of the German Council of Economic Experts. "Who would support a strenuous reform agenda when the problems can alternatively be solved with a lot of money?"

 

The right approach for climate and energy policy would have been the other way around, she believes: First, reforms should have been designed and only then considered where additional funds were needed to make them politically feasible. "I fear that we're creating a flash in the pan now, but neglecting cost efficiency," Grimm told the Frankfurter Allgemeine Zeitung.

 

"But then there will also be less investment in Germany, because companies know that the subsidies are unsustainable in the long term."

 

Grimm advocated for a "reorientation in climate policy." "Direct and indirect subsidies should be consistently reduced." Instead of relying on state aid, emissions trading should be the leading instrument for climate protection.

 

Electrification slower than expected

 

The economic expert suggests rethinking the oversized and therefore overly expensive expansion of renewable energies and grids. Electrification is progressing more slowly than expected; for 2030, the Nuremberg professor of energy systems and market design expects consumption of 600 instead of 750 terawatt hours. This could result in grid expansion being smaller than intended. It could focus on bottlenecks, and overhead lines would have to be laid instead of complex underground cables. "This would enable cost savings in the hundreds of billions," Grimm said.

 

She thus confirms the estimates of Leonhard Birnbaum and Markus Krebber, CEOs of the energy companies E.ON and RWE. In an interview with the Frankfurter Allgemeine Sonntagszeitung, they said that if the energy transition is "handled skillfully," "according to our cautious estimate, a hundreds of billions of euros could be achieved." Billions in energy costs." There is no way around the energy transition and the restructuring of the energy system, but both must be done more carefully.

 

Excessive Grid Expansion

 

Instead of trusting the market, the market is overregulated. Like Grimm, the DAX executives believe that the grid expansion is excessive, and that the individual kilowatt hour could become "unaffordable." Germany needs fewer north-south power lines than planned and also fewer offshore wind turbines. Furthermore, it makes no sense to "expand a hydrogen network to every corner" right from the start.

 

Because of the government's blanket expansion targets, wind and solar farms are being built even where the grid is incapable of absorbing the electricity. The two CEOs therefore propose a "grid traffic light" that designates only those areas as green where expansion makes sense. In their opinion, solar systems on private homes should no longer receive any subsidies, and the guaranteed purchase price "we can immediately eliminate without replacement" in order to ease the burden on the federal budget. It is also worth considering requiring green energy suppliers to contribute to the grid connection costs.

 

The special infrastructure fund planned by the CDU/CSU coalition with the help of the Greens must be carefully considered for the energy transition to avoid wasting public money. "We shouldn't use this €500 billion fund to finance anything in the energy sector that can't also be financed privately," Birnbaum demanded. "If we pay significantly more attention to the costs of the energy transition in the future, a lot is possible."

 

"Not helpful for structural reform in the energy transition"

 

In negotiations with the CDU/CSU and SPD, the Greens had secured a fifth of the special fund to benefit the KTF. The Bundestag's Budget Committee planned to approve the corresponding amendments to the Basic Law on Sunday. There is resistance to this. "Simply pouring €100 billion into the KTF is not helpful for structural reform in the energy transition," says Bernd Weber, founder of the Berlin think tank Epico Klima-Innovation. The fund can be used much more efficiently than before.

 

Because the installation of a heat pump, for example, is subsidized on a percentage basis rather than an absolute amount, the prices in Germany are between €24,000 and €34,000. In Great Britain, where a fixed amount is granted, it’s only 9,000 euros. Over the twelve-year term of the special fund, this conversion alone could save almost 17 billion euros.

 

A lot of money would also be freed up if the public sector, as in Norway, promised companies default guarantees for the subsidy-free expansion of renewable energies instead of subsidies: "We need something like Hermes guarantees for the energy transition."

 

According to Weber's analysis, the reduction in electricity prices for industry by five cents per kilowatt hour, along with halving transmission grid fees, planned by the CDU/CSU coalition, will cost ten billion euros annually. This amount could be halved through a variable federal subsidy to stabilize grid costs. Previously, the President of the Network Agency, Klaus Müller, announced proposals for eliminating perverse incentives in the energy transition in the Frankfurter Allgemeine Zeitung (FAZ) for early summer.”