Germany may slash electricity taxes to near-nothing amid flagging heat pump sales, a move backed by liberal and conservative politicians as well as the renewable energy lobby.
From 2024, Germany wants to see 500,000 heat pumps installed per year. With a wide-ranging fossil boiler ban delayed until 2028, heat pumps stand to benefit from a government push to reduce taxes on electricity.
Germany’s Ministry of Economy and Climate Action regularly brings together manufacturers and other groups to discuss ways of supporting the ramp-up of heat pumps.
What started as a bid to ensure sufficient production capacity on German soil has become a forum to ensure that households get sufficient incentives to buy the devices.
In particular, the heat pump’s fuel – electricity – has come under scrutiny for being too expensive. “The electricity tax, in particular, is a relic of the past and today works against the climate goals,” stressed Martin Sabel, the CEO of the heat pump association BWP, after the third heat pump “summit” in Berlin on Tuesday (19 September).
“We are not calling for special treatment, but for fair, competitive conditions so that the switch from gas and oil to heat pumps pays off quickly through favourable operating costs,” he stressed.
While Germany is locked in a row over potential power subsidies to industry, a proposal by the liberal party (FDP) is gaining traction: dramatically slashing taxes on electricity down to the EU minimum.
“I am committed to reducing the electricity tax to the EU minimum,” says Bettina Stark-Watzinger, the country’s federal education minister who hails from the FDP – a position backed by the parliamentary arm of the party.
Germany’s electricity tax has remained unchanged since 2003, when the EU adopted its Energy Taxation Directive imposing bloc-wide minimum rates on energy products. The absolute bottom rate for electricity taxation is €0.5 per Megawatt-hour (MWh) compared to today’s rate of €20.5 per MWh – meaning the envisaged reduction could reach about 95%.
The idea is gaining momentum in the public debate. “The step would benefit households and businesses alike, complicated exemptions would be eliminated,” argues Frankfurter Allgemeine Zeitung, one of Germany’s most influential newspapers.
“Electricity is far too expensive in Germany,” agrees Jens Spahn, speaking on behalf of the conservative CDU party. The party is also expected to propose slashing taxes down to the EU minimum on Thursday.
“It is nice that the Union is now taking up our long-standing BEE proposal,” said Simone Peter, CEO of renewables lobby BEE.
Boost needed
With lower electricity prices, the government hopes that households will increasingly turn to heat pumps rather than fossil boilers.
Sales of fossil heaters have surged on the back of the government’s announced ban, with 667,500 units sold in the first half of the year, a massive uptick of 44% compared to last year.
Germany levies a lot of taxes and tariffs on electricity, see this from Clean Energy Wire:
Power price composition 2022 (2nd half of year)
Total price: 40.07 ct/kWh*
Supplier’s cost (51.5%)
The profit margin and supplier’s cost of purchasing electricity on the wholesale market – 20.64 ct/kWh
Grid fees (20.2%)
Charges for the use of the power grid, set by the Federal Network Agency (BNetzA) – 8.08 ct/kWh
Sales tax (VAT) (16%)
The sales tax is 19 percent on the pre-tax price of electricity. It makes up 16 percent of the price after tax – 6.4 ct/kWh
Electricity tax (5.1%)
A tax on the consumption of power, also known as ’ecological tax‘ in Germany – 2.05 ct/kWh
Concession levy (4.1%)
A levy on the use of public space for power transmission lines that the utility passes on to the consumer – 1.66 ct/kWh, depending on the size of the affected area.
Offshore liability levy (1.1%)
Grid operators must pay damages if they fail to connect offshore wind farms in a timely manner in order to sell the power they produce. Operators can pass these costs on to consumers through this levy – 0.4 ct/kWh.
Surcharge for combined heat and power plants (0.9%)
Operators of combined heat and power (CHP) plants receive a guaranteed price on the electricity they sell. The difference between the guaranteed price and the actual price they receive on the market is financed through this surcharge – 0.37 ct/kWh.
Levy for industry rebate on grid fees (1.1%)
Large power consumers are partially or totally exempt from grid charges. These costs are distributed among consumers via this levy, amounting to 0.43 ct/kWh.
[*Difference to 100% due to rounding. Source:BDEW 2022]
BEE in this context stands for the Bundesverband Erneuerbare Energien, aka the German Renewable Energy Federation.
(How ’bout them Germans? The have a different word for everything!)
One downside of tiered electricity pricing for households is staving people off from converting from fossil fuel to electricity. I charge my EV at home, and that is enough in some months to push me into a higher tier of electricity rates. I also switched from a gas furnace and water heater to heat pump technology. Of course there are other advantages to not having to buy gasoline or burn gas in my house, but that doesn’t have an explicit line item reminder on my electricity bill.
Ontario Canada employs time-of-day billing. So, my next door neighbor charges his Tesla at night when the rate drops from 15 cents per kWh (weekday days) to 7 cents per kWh (weekday evenings and all weekend).
Last month the water utility here installed a smart meter, but I’ve been waiting a long time to get Austin fitted out with smart electricity metering.
(I automatically put my car to charge on delay, and I do most of my laundry between 8:30pm and 2am in the summer, but we need to give more normies the financial incentive to shift their electrical use.)