Last week, the SPD, CDU and CSU reached an agreement to set up a new government in Germany. The business world was looking at the program of this new government with fear. The conservative CDU/CSU have traded their pro-business but electorally nullified partner FDP for the socialist party SPD. Many feared that the changes in energy policy, for example, would mean extra costs for German business (see my previous blog article). I therefore read the energy part of the coalition contract with much interest. What happens in Germany is not only important for German business. The rapid transition towards renewable energy (Energiewende) has impacted energy markets all across Europe. So, what will the new government do to Germany’s (and Europe’s) Energiewende?
When the two big German political families make a government together, they call it a ‘Grand Coalition’. Not much than can be dubbed ‘grandiose’ in this coalition contract, however. In such a coalition of parties with very different ideologies, every piece of policy is the result of a carefully crafted compromise. That means that it’s often hard to find a clear line of policy. On the other hand, it also means that policies are often well balanced and don’t produce too much unwanted effects. This is very obvious in the energy policy of this new government. On energy, the coalition contract is often more clear in what it’s not saying, then in what it is saying. Many items seem to be open still for discussion and the text leaves many openings such as ‘we’ll only do that if it’s not producing adverse economic effects’. So anyone saying that he/she has a clear idea of the new German energy policy after reading these ten pages is clearly over-interpreting. Nevertheless, I’ll attempt to summarize what can be read:
1. On the sensitive subject of EEG, the feed-in tariffs paid to renewable power producers that are to be compensated by the EEG tax on consumer’s bills:
The above could boil down to a complete overhaul of the German system of subsidizing renewable energy. But much remains to be researched, so it could still be watered down.
2. On the reduction on EEG payments for energy-intensive consumers
The important thing is here that the text clearly states that the government wants to keep the reduction, albeit with some changes:
3. On climate change
4. Capacity payments
The government thinks that as of 2020 there will be a shortage of conventional (coal and gas-fired) power production to deal with the intermittency issues of renewable energy. Therefore it wants to support smart energy applications. But it also wants to give support to owners of fossil fuel-fired power stations to keep them open. I presume this will mean the handing out of capacity payments to keep unused power stations warm. Again, the text is very vague, but it’s important to follow up on this, as such capacity payments would mean the creation of a new cost that is to be passed through to end consumers.
5. Grid infrastructure
6. Natural gas
Is prominently present in the coalition contract by not being present. This means that the German government doesn’t see the necessity of developing the gas market. Oh yes, gas is mentioned once. Fracking for producing the German shale gas reserves will not be permitted as long as chemicals that are toxic for the environment are to be used.
7. Other topics
The new Merkel government’s energy policy might be anything from a serious transformation of the Energiewende to a continuation with small adaptations of the current policy. Immediately after the publication of the coalition contract, many observers questioned its financial solidity. This is certainly true for the energy policy part. Some of the topics could have severe cost-increasing effects. How does that match with the goal of keeping energy affordable? So it’s important to stay updated as the vague coalition contract text finds its way into legislation in the next months and years.