German Set to Embark Renewable Energy Reform

The German government will give its blessing on Tuesday to a sweeping reform of renewable energy laws designed to slow cost increases as Europe's largest economy moves to nearly double its green power share to 45 percent by 2025.

Chancellor Angela Merkel's cabinet will adopt reforms to put the 'Energiewende', or transition to renewable energy, on a sustainable path as Germany attempts to wean itself off of nuclear energy and fossil fuels without killing off industries and jobs.

The reforms will slow the rapid expansion of green power, which already accounts for 25 percent of Germany's electricity; force new investors in green power to take some risk; and protect households from bearing the brunt of future cost rises by forcing industry to pay more.

Merkel has made the overhaul of renewable energy laws a centre-piece of her four-month-old 'grand coalition' government, saying its passage into law, due in August, is urgently needed to keep power prices from spiralling out of control.

The reforms are a collection of compromises that analysts say should slow the rise in household power prices, which are among the highest in Europe, at the expense of causing pain to some companies and to the renewable energy sector.

Exemptions
Germany's wholesale electricity prices are among the lowest in Europe thanks in part to a surge in wind, solar and biofuel capacity in recent years. The boom in renewables also helped drive down wholesale prices in Europe as Germany has become a major exporter of green electricity.

Existing green power plants are exempted from the reforms, which will put new upper limits on on-shore wind power expansion (at 2.5 gigawatts in capacity per year), photovoltaic (2.5 GW per year) and offshore wind plants (6.5 GW to 2020).

The government plans to increase the share of renewable sources to 40-45 percent of total electricity production by 2025 and to 55-60 percent by 2035. This is needed to offset the elimination of nuclear power by 2022.

Economy Minister Sigmar Gabriel has negotiated exemptions in Brussels that will continue to shield some heavy industrial users of power from a renewable energy surcharge, which adds 6.3 cents per kilowatt-hour to the power bills of ordinary consumers.

He plans to cut the number of companies exempted from the surcharge to around 1,600 from Germany's 2,100 biggest users.

"The expansion of the number of companies exempted was too much. We have to reduce that," said Gabriel, who has managed to cut through the resistance from lobbyists that plagued his predecessors.

Despite fears that the European Commission would thwart the exemptions, Gabriel has helped ensure that the remaining 1,600, such as BASF and ThyssenKrupp (TKA.F), are likely to continue to be exempt, saving them some 5.1 billion euros per year.

The final details still have to be worked out with Brussels, but Competition Commissioner Joaquin Almunia has said he is confident the new German laws will conform with EU guidelines.

His intervention means that all EU member states should get a chance to support their own transitions to green power by exempting industries from renewable energy surcharges.

Consumer advocates say too much of the burden falls on private customers, whose bills have gone up by 60 percent in the past 10 years.

(By Markus Wacket; Writing by Erik Kirschbaum; Editing by Vera Eckert and Jane Baird)