Germany Plans to Cut Renewable Subsidies as State Costs...

Germany Plans to Cut Renewable Subsidies as State Costs Soar

Petra Sorge
Wed 17 July 2024

(Bloomberg) -- Germany plans to cut and reform subsidies it pays to renewable energy producers because of rising costs for the government, a move which may fuel uncertainty over future investment.

From January, payments for mid-size and large projects will be canceled if electricity prices fall below zero, according to a draft budget law approved in the cabinet Wednesday. Negative prices occur when power supply exceeds demand, for example when weather conditions cause wind and solar generation to peak.

The government currently ensures renewables producers get paid a guaranteed minimum price, and has had to shell out the difference as wholesale power prices fell since the worst of the energy crisis. The state has estimated it will pay as much as €20 billion ($21.8 billion) to wind and solar operators through the end of this year, twice what grid operators had forecast in October.

Renewables are a key part of Germany’s climate goals and Europe’s biggest economy wants them to account for about 80% of power production by the end of the decade, up from around 50% now. Cutting subsidies could potentially create uncertainty over operators’ future investments in projects.

The government had previously planned to gradually phase out subsidies by 2027 when prices turn negative.

On Wednesday, the government also pledged to generally reform payments in the future by introducing subsidies based on investment costs rather than a guaranteed price for output. That’s part of a larger effort to overhaul the power market, build new gas-fired plants and create a capacity mechanism by 2028.

According to the draft law, renewables producers will stop getting subsidies once the power market “is sufficiently flexible and sufficient storage capacities are available.” The government also proposed making it easier for renewable operators to market their own output.

Renewables developer GP Joule expects the government to make these awards reliable. “Otherwise, we have to recalculate” our costs again, said Fabian Faller, the firm’s head of public affairs.

Any changes to the support mechanism should be implemented with sufficient lead time, Kerstin Andreae, chair of Germany’s energy group BDEW said in a statement. “Uncertain framework conditions can lead to a slump in the expansion of renewable energy systems.”