End of atomic age seen as Merkel’s biggest headache now

German Chancellor Angela Merkel faces one task above all others when she returns to her desk on the seventh floor of the Chancellery: fixing the biggest shift to clean energy of any developed country in history.

Merkel needs to keep a lid on soaring electricity bills that have provoked consumer and industry anger and clamp down on rising pollution as her government phases out nuclear reactors that have been the backbone of German energy policy. Failure risks hurting Europe’s biggest economy and would spell trouble for Merkel’s new government, whatever its composition.

The overhaul “is not only key to Germany’s economic competitiveness, it also affects the wallets of ordinary Germans,” Carsten Nickel, an analyst with Teneo Intelligence, said in a telephone interview. “Merkel will have to balance the plan’s renewable targets with making sure that energy prices don’t go through the roof.”

The chancellor said during the election campaign that her priority is changing the EEG law, a 13-year-old subsidy system that was copied around the world and helped turn Germany into Europe’s biggest clean-energy market. Reworking the rules may benefit consumers and reduce incentives for wind and solar farms, scaling back work for manufacturers such as Vestas Wind Systems A/S and Trina Solar Ltd. It could either help or hurt utilities such as RWE AG and EON SE.

Legal Incentives

Aimed at increasing the share of renewables to 80% of the power mix by 2050 from about 23% now, the EEG helped saddle Germans with the third-highest electricity prices in the European Union.

A spokesman for the German government declined to comment when contacted by phone yesterday.

Renewables no longer occupy a niche “but are part of the overall generation mix,” Merkel told lawmakers in the Bundestag on Sept. 3. “That leads to entirely new problems.”

Reforming the EEG to contain cost increases “is one of the first tasks” for a new government, she said. “It’s necessary to move the affordability of electricity into the focus of our efforts.”

In what would be a watershed move for developers of wind and solar plants, Merkel may abolish the EEG system of awarding uncapped above-market payments to developers for 20 years, according to William Pearson, the London-based director for global energy and natural resources at the Eurasia Group.

While there won’t be any retroactive changes to the support regime, “there’s a lot of talk” to move away from subsidized rates, called feed-in tariffs, for new projects “to a more market-based system” to reduce costs, Pearson said in a Sept. 17 phone interview.

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