EU ‘must contain energy prices’ or risk losing industry

Europe must get a grip on energy prices to protect growth and stop its industry from fleeing abroad, according to two top lawmakers.

The region must reduce the cost gap with the US, where a shale-gas revolution has slashed prices, EU Energy Commissioner Guenther Oettinger told a conference in Berlin via a video link from Brussels.

German companies and consumers are shouldering costs of as much as €24 billion ($32bn) a year for clean-energy aid, the country’s economy minister Sigmar Gabriel said. Europe’s biggest economy has reached “the limit” with renewables subsidies and must contain power prices or risk “deindustrialisation.”

Germany has been one of the most ardent advocates of ambitious carbon-reduction policies that have helped drive up Europe’s power prices at more than three times the rate of inflation. Chancellor Angela Merkel has made reforming renewable-energy subsidies to reduce the cost of the country’s switch from nuclear power the top priority of her third-term government, which took office last month.

Elsewhere, Spain, Italy, Portugal and the Czech Republic have slashed aid for solar power. UK prime minister David Cameron is looking for ways to reduce utility costs after the opposition Labour party promised to freeze bills if it wins the general election in 2015.

Europe has “experienced an above-average development of power and gas prices,” just as the US benefited from declining costs, said Oettinger, who will today help outline the EU’s new climate target.

Merkel could reduce prices by cutting back fees and taxes that make up more than half of the electricity bill, Oettinger said. Germans pay more for power than residents of any EU nation except Denmark.

Germany must focus on the cheapest clean-energy sources as well as efficient fossil-fuel-fired plants, Gabriel said. It will keep pushing wind and solar power, the most cost-effective renewable sources, he said. Biomass energy is too expensive and its cost structure hasn’t improved.

Gabriel, who last month assumed control of the biggest energy overhaul of any developed country, is overseeing the shuttering of Germany’s atomic fleet by 2022, ordered by Merkel after the Fukushima nuclear disaster in Japan.

He will seek to limit aid paid to operators of land-based wind turbines to no more than 9 euro cents a kilowatt-hour in 2015 and reduce the expansion to about 2,500 megawatts a year, according to a ministry document prepared for a meeting of Merkel’s coalition on Jan 22-23. Developers will get subsidies at the current rate if their units are authorised before today and enter operation this year.

While Germany seeks to contain increases in power prices, the government can’t promise that bills will decline, Gabriel said.

While the European Commission is probing German power fee rebates to companies from Bayer AG to Linde AG on concerns they may be illegal, the EU will have to greenlight some aid that’s “necessary” to keep its industry competitive amid low energy prices in the US, Oettinger said.

— Bloomberg