Germany must curb runaway retail prices for sake of green power -IEA

Fri May 24, 2013 9:00am BST

* Power price rise may hit consumer support for green energy

* IEA says investors must be given stable policy framework

* IEA criticises German go-it alone approach

By Vera Eckert

FRANKFURT, May 24 (Reuters) - Germany must rein in runaway retail prices for electricity or risk a consumer backlash that could undermine support for a massive shift toward green energy, the International Energy Agency (IEA) said on Friday.

The Western world's energy watchdog pointed to weaknesses in Germany's effort to move away from nuclear and fossil-fuel energy towards a low-carbon economy, a move that was accelerated by Chancellor Angela Merkel's decision in 2011 to exit nuclear power altogether.

"Household consumers carry a disproportionate share of the burden," the IEA said in its country report on Germany.

"The fact that German electricity prices are among the highest in Europe, despite relatively low wholesale prices, must serve as a warning signal," IEA executive director Maria van der Hoeven added.

The mass-circulation Bild newspaper decried a 12 percent jump in household power prices earlier this year as renewable energy tariffs kicked in, while many industries were exempted from the cost.

The IEA said retail power must remain affordable to ensure the public acceptance that a transition to a low-carbon economy required.

Europe's biggest economy gives huge subsidies to support the government's plan to boost renewables to 35 percent of output by 2020 and to 50 percent by 2030, guaranteeing investors prices above market levels for up to 20 years.

Critics say this causes costly and damaging distortions in the power sector, where renewables grow alongside the rising taxes and fees that support them.

This year's surge in power prices compares with a 60 percent rise over the previous 10 years. The state's share of the retail bill amounts to 50 percent, most of it going to renewable energy subsidies.

The IEA also said Germany must manage its policy in a more predictable way to secure the billions of euros needed to build new transmission networks to bring green power from remote locations to centres of consumption.

"Sudden changes can undermine investor confidence and will drive up costs in the long term, because of increased risk premiums," the report said.

The Paris-based IEA also pointed out that German policy decisions inevitably affect its neighbours, and called for "close consultation" with them.

Polish and Czech transmission firms have complained about unmanageable flows of German green power into their systems at times of weather-driven oversupply. (Reporting by Vera Eckert; Editing by Kevin Liffey)