Germany adjusts support for renewables due to high costs: impact on energy transition

Germany cuts public subsidies for renewables due to their high cost Germany has taken a crucial step in its energy policy by announcing cuts and reforms to subsidies for renewable energy producers. This move, driven by the coalition government led by Chancellor Olaf Scholz, aims to address the growing economic impact of the rapid expansion of solar energy in the country. One of the most notable measures is the elimination of subsidies for medium and large installations when electricity prices are negative, a decision that will come into effect starting January 2025. While this measure aims to alleviate the financial burden that renewable subsidies represent for the federal budget, experts warn that it could create uncertainty in the sector and affect future investments. The German government's commitment to guarantee a minimum price to renewable energy producers has led to the need to pay the difference when wholesale electricity prices fall, a situation that is becoming more frequent due to the imbalance between supply and demand in the energy market. The expansion of renewable energies, particularly photovoltaics, has led to more frequent occurrences of negative electricity prices. Recently, a record of eight consecutive days with prices of zero euros or less was reached in May in Germany. This situation has led the German state to anticipate payments of up to 20 billion euros to wind and solar operators by the end of this year, double the initially projected amount. The proposal to stop remunerating production with negative prices has been driven by the liberals, who are part of the coalition government and argue that taxpayers end up paying twice in these circumstances. Despite the importance of renewable energies in meeting Germany's climate goals, the government also plans to reform payments through subsidies based on investment costs rather than a guaranteed price for production, which has raised concerns among some experts. Claudia Kemfert, an energy specialist at the German Institute for Economic Research, has warned about the possible consequences of this decision, pointing out that it could create uncertainties in investments and jeopardize the energy transition and the country's climate goals. Although initially the gradual elimination of subsidies in case of negative prices was planned for 2027, the need to comply with the debt limit has forced this measure to be brought forward. The German government has approved a budget project that includes a spending of 480.6 billion euros, with 78 billion euros allocated for investments. Although it has been denied that this is a budget of cuts, the reduction of some items, such as humanitarian aid, reflects efforts to meet the country's fiscal targets. In this context, additional measures have been proposed to improve the flexibility of the electrical system, such as expanding the grid and installing smart meters and electricity storage systems. The government also plans to lower the threshold for renewable energy producers to directly market their electricity, which will be implemented in phases starting January 2025. While these measures aim to balance the transition to a more sustainable energy system, their short and long-term impact continues to generate debate in Germany. The need to find a balance between promoting renewable energies and economic and fiscal sustainability poses significant challenges for the country and its path towards greater energy independence and a smaller environmental footprint.