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The Effect of the German Renewable Energy Act (EEG) on "the Electricity Price"

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  • Bode, Sven
  • Groscurth, Helmuth-Michael

Abstract

Many technologies that produce electricity from renewable energy sources are currently not competitive. This is due to the fact that their generation cost is higher than that of conventional thermal power plants. Nevertheless, since using renewable energies has a number of positive effects, these installations have been supported by German public policy for many years. This support is currently demonstrated very successfully by the German Renewable Energy Act (EEG), which provides for fixed feed-in tariffs (FITs). The costs of this support scheme are distributed to the electricity consumers. Due to the so-called EEG levy, electricity costs of industry are increased and as a result their competitiveness is decreased. Consequently, electricity intensive enterprises have protested against the levy on a regular basis and finally achieved a reduction of the levy. However, the potential effect of the EEG on the wholesale price for ele ctricity has not yet been considered. Against this background, we analyze the effect of the EEG on electricity prices in a perfect market. We will show that the support of electricity production from renewable energy decreases the wholesale price of electricity. Consequently, electricity costs of companies that are subject to the reduced EEG levy may decrease too.

Suggested Citation

  • Bode, Sven & Groscurth, Helmuth-Michael, 2006. "The Effect of the German Renewable Energy Act (EEG) on "the Electricity Price"," HWWA Discussion Papers 358, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:358
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    References listed on IDEAS

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    1. Meyer, Niels I., 2003. "European schemes for promoting renewables in liberalised markets," Energy Policy, Elsevier, vol. 31(7), pages 665-676, June.
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    Cited by:

    1. Nicolosi, Marco, 2010. "Wind power integration and power system flexibility-An empirical analysis of extreme events in Germany under the new negative price regime," Energy Policy, Elsevier, vol. 38(11), pages 7257-7268, November.
    2. Herrmann, J.K. & Savin, I., 2017. "Optimal policy identification: Insights from the German electricity market," Technological Forecasting and Social Change, Elsevier, vol. 122(C), pages 71-90.
    3. Herrmann, Johannes & Savin, Ivan, 2015. "Evolution of the electricity market in Germany: Identifying policy implications by an agent-based model," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112959, Verein für Socialpolitik / German Economic Association.
    4. Fais, Birgit & Blesl, Markus & Fahl, Ulrich & Voß, Alfred, 2014. "Comparing different support schemes for renewable electricity in the scope of an energy systems analysis," Applied Energy, Elsevier, vol. 131(C), pages 479-489.
    5. Jain, Sourabh & Shrimali, Gireesh, 2022. "Impact of renewable electricity on utility finances: Assessing merit order effect for an Indian utility," Energy Policy, Elsevier, vol. 168(C).
    6. Sébastien Phan & Fabien Roques, 2015. "Is the depressive effect of renewables on power prices contagious? A cross border econometric analysis," Cambridge Working Papers in Economics 1527, Faculty of Economics, University of Cambridge.
    7. Alsaleh, Mohd & Abdul-Rahim, A.S., 2018. "Determinants of cost efficiency of bioenergy industry: Evidence from EU28 countries," Renewable Energy, Elsevier, vol. 127(C), pages 746-762.
    8. Abban, Abdul Rashid & Hasan, Mohammad Z., 2021. "Solar energy penetration and volatility transmission to electricity markets—An Australian perspective," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 434-449.

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    More about this item

    Keywords

    Renewable Energy Act; EEG levy;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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