Germany Decides to Cut its Renewable Energy Subsidies

In 2011, after the Fukushima disaster in Japan, Angela Merkel, the Chancellor of Germany, made the surprise decision of scrapping nuclear power in order to focus on renewable energy sources. This move placed huge pressure on the country’s energy sector and raised questions as to how this new clean energy drive would be financed.

The answer was subsidies. Germany set up schemes that offered generous subsidies to encourage the development of renewable energy installations. Now, just three years later, and in part due to the soaring costs, Germany’s new energy minister, Sigmar Gabriel, has outlined a new plan to cut subsidies offered to producers of renewable energy.

The cuts will be part of a new reform to be discussed by Merkel’s new coalition cabinet with the Social Democrats, and which have already attracted lots of criticism from opposition MPs and the country’s solar sector.

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The problem was that the costs of renewables, such as solar, wind, and biogas, and the subsidies supporting them, have driven up energy prices until they are now some of the highest in Europe.

The new subsidy scheme changes will come into effect on the 1st of August, but Minister Gabriel has already had to warn in an interview on ZDF public television that the new proposals will not cause energy prices to fall as many consumers are hoping. “Falling electricity prices there will not be, but we will finally put the brakes on the increase.”

Subsidies for new producers of solar and wind will be reduced, whilst those for biogas will almost disappear. The producers would also be gradually forced to sell their energy on the open market in competition with other forms of energy generation, and without the guaranteed prices that they benefit from at the moment.

Simone Peter, the leader of the Green Party has accused the new proposals of endangering Germany’s transition to a clean energy economy, and in 2012, when an initial round of subsidy cuts were introduced, the solar energy sector also voiced their concerns that more harm would be done than good.

Germany aims to generate 80% of its consumed energy from renewable sources by 2050, compared to just 25% at the moment.

By. Joao Peixe of Oilprice.com