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Relief for German electricity consumers as EEG levy gets axed

Tuesday, 03 May 2022

The German Bundestag (Federal Parliament) has recently passed a law whereby electricity consumers in the country will no longer have to pay the Renewable Energy Sources Act (EEG) levy from as early as 1 July 2022. As such electricity suppliers are required to pass on this reduction in full to end consumers.

According to a press release, the EEG levy will be abolished six months ahead of the originally planned date in order to provide relief to electricity consumers amidst rising energy costs further impacted by the war in Ukraine and reductions in Russian gas. This will translate into German household savings of roughly 300 Euros per year. Therefore financing of renewable energy installations will instead be paid by the Federal government from its Energy and Climate Fund (EKF) which also receives revenues from the EU ETS emissions trading scheme. 

The Federal Government had submitted the relevant draft law to the Bundestag at the beginning of March this year. On 27 April 2022, the Bundestag passed the Act with the aim of implementing it quickly as of 1 July 2022 until 31 December 2022. Approval from the Bundesrat (Federal Council) was not required. 

At the beginning of April, the Federal Government approved major amendments to Renewable Energy Sources Act under the so-called "Easter Package" and part of this is the abolition of the EEG levy from January 2023 onwards. A breakdown of the Easter package proposals and its possible impact on the Guarantees of Origin market is available here.

Electricity suppliers obliged to reduce prices according to EEG levy price

To ensure that the abolition of the levy results in a "tangible relief for end consumers in terms of electricity costs", under the law, Transmission System Operators (TSOs) are to reduce the EEG surcharge from its current level of 3.72 cents/kWh to zero cents/kWh as of 1 July 2022. As such suppliers are obliged to reduce their electricity prices by the amount by which the EEG surcharge is reduced.

The EEG levy, also known as the "green power surcharge" was introduced in 2000 to finance the expansion of renewable energy in Germany, paying the difference between the wholesale price and the market premium paid by renewable power producers. This is guaranteed by law towards renewable energy producers for a period of 20 years. The levy is included in the end consumers' electricity bills and up till this point, revenues have gone to the EEG accounts of the TSOs. As of 1 July 2022, the cost of this levy will be incurred by the Federal government through its Energy and Climate Fund (EKF) and this move will result in an approximate 6.6 billion Euro cost to the fund in the future. The EKF was established by the German government in 2011 with an aim of expanding sustainable and efficient energy supply in the country.

What are the components of the price of electricity in Germany?

In addition to the administrative costs incurred by the supply companies, the price of electricity chiefly derives from the cost of procuring and distributing electric power, fees for using the grids and state-imposed price components.

Apart from the EEG levy, the state-imposed components of the price of electricity include VAT, electricity tax and a concession fee. A detailed breakdown of this is seen in the graph below:

As per the graph above the EEG surcharge accounts for a sizable share of the bill now accounting for a 10% share of a household's electricity bill. This is a significant reduction from its corresponding share in years prior, with the renewable surcharge accounting for 20% of consumer bills in 2021.