German electricity prices could rise by 20 percent due to coal withdrawal

The phasing out of coal-based power generation in Germany could push up electricity costs by 20 percent, according to experts.

German electricity prices could rise by 20 percent due to coal withdrawal
LEAG power station in Brandenburg. Photo: DPA

That's the findings from the RWI Institute who say Germany's exit from coal is going to be expensive for consumers and taxpayers, the Rheinishe Post reported Tuesday.

Germans are already paying the highest prices for electricity in Europe, the newspaper reported. It came as around 9,000 employees of energy giant RWE Power wait for details on job cuts.

SEE ALSO: Germany should phase out coal mining by 2038: Commission

“According to various studies on this topic, the phasing out of coal could raise the price of electricity on the stock exchange by around 20 percent or one cent per kilowatt hour,” Manuel Frondel, energy expert at the RWI Leibniz Institute for Economic Research in Essen, told the Rheinishe Post.

For a three-person household with an annual consumption of typically 4000 kilowatt hours, this would mean €40 in additional costs per year.

“Electricity will be more expensive anyway, because the expansion of renewables will be financed by the EEG (Renewable Energy Sources Act) levy and grid fees will rise,” said Thilo Schaefer of the Institute of German Business.

Schaefer also said that in the medium term, getting rid of plants that use lignite or brown coal will eliminate a cheap way of generating electricity.

As The Local has reported, the Coal Commission has recommended phasing out coal by 2038 and shutting down around 12.5 of the 43 gigawatts of coal-fired power plant capacity by 2022.

SEE ALSO: Energy giant warns of significant job losses over Germany's coal phase out

The commission's findings will now be passed on to the government, which is expected – barring a surprise – to follow the recommendations of the panel it set up.
Under the plan, several plants that use lignite or brown coal, which is more polluting than black coal, will be closed by 2022. Other plants will follow until 2030, when only 17 gigawatts of Germany's electricity will be supplied by coal, compared to today's 45 gigawatts. 
The last plant will close in 2038 at the latest, the commission said, but did not rule out moving this date forward to 2035 if conditions permit.
The affected regions, where tens of thousands of jobs directly or indirectly linked to brown-and black-coal energy production, will receive €40 billion as compensation over the next two decades.

Although more and more wind turbines and solar plants are being installed, they often do not supply enough electricity because they depend on weather conditions.

Can electricity consumers be relieved?

The Commission advises the federal government to relieve consumers of two billion euros in network charges. But it is still unclear how this will be done and whether the EU will participate. According to RWI expert Frondel, electricity tax could be reduced by around a third with two billion euros, i.e. from two cents per kilowatt hour to around 1.3 cents. “But it is still unclear how electricity consumers will be relieved,” Frondel said.

However, this would not assist the industry, experts say. “If the €2 billion were used to reduce the electricity tax, for example, the industry would not be helped because of its exemption from the electricity tax,” said Frondel.

The CDU Economic Council is also concerned. They say the electricity supply must remain secure and affordable and that the expansion of the grid must be accelerated. Only one eighth of the 7700-kilometre electricity grid expansion in Germany has been completed. Meanwhile, German consumers already currently pay the highest prices for electricity in Europe.

“The government will do everything it can to protect consumers from rising electricity prices by switching from coal to renewable energy,” said Federal Minister for Economic Affairs and Energy Peter Altmaier, of the centre-right Christian Democrats (CDU).

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German government announces fresh relief package for high energy costs

With Russia's invasion in Ukraine exacerbating high energy and petrol prices, Germany is set to introduce a second relief package to limit the impact on consumers.

German government announces fresh relief package for high energy costs

The additional package of measures was announced by Economy and Climate Protection Minister Robert Habeck (Greens) on Sunday.

Speaking to DPA, Habeck said the wave of price increases throughout the energy sector were becoming increasingly difficult for households to bear.

“Extremely high heating costs, extremely high electricity prices, and extremely high fuel prices are putting a strain on households, and the lower the income, the more so,” he said. “The German government will therefore launch another relief package.”

The costs of heating and electricity have hit record highs in the past few months due to post-pandemic supply issues. 

This dramatic rise in prices has already prompted the government to introduce a range of measures to ease the burden on households, including abolishing the Renewable Energy Act (EEG) levy earlier than planned, offering grants to low-income households and increasing the commuter allowance. 

READ ALSO: EXPLAINED: What Germany’s relief package against rising prices means for you

But since Russia invaded neighbouring Ukraine on February 24th, the attack has been driving up energy prices further, Habeck explained.

He added that fears of supply shortages and speculation on the market were currently making the situation worse. 

How will the package work?

When defining the new relief measures, the Economics Ministry will use three criteria, Habeck revealed. 

Firstly, the measures must span all areas of the energy market, including heating costs, electricity and mobility. 

Heating is the area where households are under the most pressure. The ministry estimates that the gas bill for an average family in an unrenovated one-family house will rise by about €2,000 this year. 

Secondly, the package should include measures to help save energy, such as reducing car emissions or replacing gas heating systems.

Thirdly, market-based incentives should be used to ensure that people who use less energy also have lower costs. 

“The government will now put together the entire package quickly and constructively in a working process,” said Habeck.

Fuel subsidy

The three-point plan outlined by the Green Party politician are not the only relief proposals being considered by the government.

According to reports in German daily Bild, Finance Minister Christian Lindner (FPD) is allegedly considering introducing a state fuel subsidy for car drivers.

The amount of the subsidy – which hasn’t yet been defined – would be deducted from a driver’s bill when paying at the petrol station. 

The operator of the petrol station would then have to submit the receipts to the tax authorities later in order to claim the money back. 

Since the start of the war in Ukraine, fuel prices have risen dramatically in Germany: diesel has gone up by around 66 cents per litre, while a litre of E10 has gone up by around 45 cents.

READ ALSO: EXPLAINED: The everyday products getting more expensive in Germany

As well as support for consumers, the government is currently working on a credit assistance programme to assist German companies that have been hit hard by the EU sanctions against Russia.

As reported by Bild on Saturday, bridging aid is also being discussed for companies that can no longer manage the sharp rise in raw material prices.

In addition, an extension of the shorter working hours (Kurzarbeit) scheme beyond June 30th is allegedly being examined, as well as a further increase in the commuter allowance.