Sector coupling: New design of EEG levy and electricity tax could make electricity-based technologies more attractive

August 12, 2020

Electricity-based technologies should replace fossil fuels in heat production and transport in the near future. However, these technologies are at an economic disadvantage compared to conventional technologies, among other reasons, due to the EEG levy and the effect this has of increasing the electricity price. This is hindering the decarbonization of these sectors. In a research project, Fraunhofer ISI analyzed how redesigning the EEG levy and electricity tax affects the competitiveness of electricity-based technologies, and what financial impacts this could have on transport, industry, households and the service sector. The final report shows that some technologies require less financial support, others more. It therefore seems to make sense to apply individual, financial support depending on the sector and technology.

The study Auswirkungen klima- und energiepolitischer Instrumente mit Fokus auf EEG-Umlage, Stromsteuer und CO2-Preis examined the competitiveness of three key electricity-based technologies (heat pumps, e-cars for commuters and non-commuters, and electrolyzers to produce hydrogen) in five different scenarios (low to complete CO2-based shift of the EEG levy and electricity tax to fossil final energy sources) up to 2030. The analysis clearly showed that there are some significant gaps to market parity and, simultaneously, large differences in the need for support depending on the technology and scenario.

Individual, technology- and sector-specific funding is required

Whereas e-cars can be profitable in the future even without shifting electricity price components, small heat pumps for private households require at least a partial shift to be able to compete with conventional gas boilers. Hydrogen electrolyzers would probably not be economically viable without additional financial support, even assuming a complete shift by 2030.

"This can be interpreted as an indicator of the necessity for time-variable and technology- or at least sector-specific funding," says Jan George, a researcher in the Competence Center Energy Policy and Energy Markets. "With a technology-specific funding approach, technologies could be supported that are still expensive today, but that are required in the long term to achieve climate goals".

Additional burdens on households and transport

Shifting the EEG surcharge and electricity tax has different impacts depending on the industry and sector. The final report shows that the general tendency of such a shift is to ease the burden on industry and the service sector, but increase that on transport and private households.

Households, in particular, with their high demand for space heating and commuting, and low-income earners might have to shoulder a heavier financial burden. How much this is depends on the individual energy mix, among other things. In lower income groups, the risk of energy poverty increases slightly, which is why accompanying measures to cushion any negative social effects seem to make sense.

"Our study showed that a CO2-based shift of at least some parts of the EEG levy and the electricity tax to coal, natural gas, oil, gasoline and diesel can help to reduce competitive distortions and internalize the cost of CO2 emissions to a greater extent," says Anne Held, Head of the business unit Renewable Energies in the Competence Center Energy Policy and Energy Markets. "However, this must consider that relieving burdens in one area always increases those on other parties or technologies. It needs to be weighed up whether the additional burdens on households and transport or affected parties appear acceptable and, if necessary, whether these should be supplemented by additional instruments to relieve especially vulnerable households."

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.