Self-use – a model for tax savings

Self-consumption of electricity. In Germany, about five million households have photovoltaic systems installed on their roofs. The active participation of such a large number of people in climate protection is undoubtedly a great achievement. Many of these systems generate electricity directly for self-consumption, with only surplus power being fed into the grid. However, many people do not realize that even electricity for self-consumption enjoys huge subsidies.

Hidden subsidies. For individual households, this self-generation is economically attractive: at a price of 30 cents per kilowatt-hour, this is exactly the amount of money saved for each kilowatt-hour of self-generated electricity. Thus, the private value of solar power is 30 cents per kWh. However, the true economic value of electricity is measured by the market value, i.e. the value of solar energy on the stock exchange. Currently, that price is less than 5 cents per kilowatt-hour. The difference of 25 cents per kWh is an implicit subsidy.

Everything has its source. This can be illustrated by comparing it to the feed-in tariff. For example, if you receive a feed-in tariff of 8 cents per kWh, 5 cents of that comes from market revenues from solar power. The remaining 3 cents is a subsidy. This subsidy comes from the federal budget and is therefore funded through taxes. The same is true for self-consumption, except that here the “compensation” is 30 cents (in the form of a lower tariff). For self-consumption, the same 5 cents comes from the market value. The remaining 25 cents must come from elsewhere – paid by neighbors who do not have PV systems.

The value of solar energy: appearance and reality: The private financial value of solar energy corresponds to the savings resulting from the reduction in electricity consumption (about 30 cents per kWh). The economic value is the market value on the stock exchange (about 5 cents per kWh). The difference is the implicit subsidy (about 25 euro cents per kWh). The actual price of electricity varies from supplier to supplier and is often even higher. According to the German Energy Federation (BDEW), the actual price of electricity is currently close to 40 euro cents (including the benchmark price).
Graphic: Lion Hirth

Fixed prices. However, unlike feed-in tariffs and market premiums, these subsidies do not appear in the energy efficiency (EEG) accounts, but rather in the form of reduced revenues for suppliers, grid operators and the federal budget. As such, they are hidden and less transparent. There are two mechanisms behind these hidden subsidies: first, most customers are on fixed-price tariffs. Although self-generating households purchase electricity from the grid mainly when market prices are high (in winter as well as early and late in the day), they pay the same price as regular users. These additional costs are cross-subsidized by other users.

Community costs. Another reason is that self-generated electricity is not subject to electricity taxes, grid charges, levies and surcharges. It is sometimes argued that lower grid tariffs are justified because the grid is less utilized. However, this argument is false because the grid is designed to cope with peaks in electricity use during winter nights, when PV system users are already fully utilizing the grid. Self-generated electricity systems do not save grid costs. Therefore, community costs must be borne by other electricity consumers and ratepayers. Self-generated power automatically increases grid fees, levies and surcharges for everyone else. As self-generated power succeeds, the financial burden is spread to fewer and fewer people. It also tends to be a form of upward socio-economic redistribution as PV systems are primarily installed in upper-middle class single family homes. As such, self-generated electricity can be characterized as a tax-savings model (or “grid fee savings model”).

A lot of money. It’s a considerable amount of money. According to estimates by Bruno Burger of the Fraunhofer ISE, last year’s self-generated solar power could have amounted to more than 12 terawatt-hours. This corresponds to an implicit subsidy of about 3 billion euros per year. A rough calculation suggests that without self-generated consumption, the price of electricity for all German households would be 1 euro cent per kilowatt hour lower. In addition, industrial self-generation from gas and coal-fired power plants is also a factor.

Contrast. The implicit subsidy per kWh for self-consumption is much higher than the direct subsidy for new PV systems. The subsidy for self-consumption is about 30 cents per kWh, while the average feed-in subsidy for EEG systems installed last year was less than 8 cents per kWh. Thus, from an economic perspective, captive power is the most expensive of all subsidized systems.

Expensive solution. It is these high implicit subsidies for captive power that make even expensive solutions economically worthwhile. Small rooftop photovoltaic systems cost about three times as much as solar farms due to high investment costs, and home energy storage systems are also much more expensive than large batteries – but they are still good value since the cost of storage is about 30 cents per kWh of self-consumption.

Solution. To ensure that self-consumption does not come at the expense of others, grid-connected energy and self-generation should be treated roughly equally. This requires solutions on three fronts:

• Taxes and surcharges: Consideration could be given to imposing electricity taxes, surcharges and surcharges on self-generation. A more generous approach would be to reduce these charges for all consumers. In this context, the fact that the new federal government is currently discussing such reductions is welcome.
• Energy: The fixed tariffs are set by the suppliers on the basis of a standard load curve, which previously did not take into account the self-generation and self-consumption of photovoltaic systems. This changed two months ago: The German Energy Federation (BDEW) introduced a new standard load curve that distinguishes between households with and without photovoltaic systems. This enables cost-reflective pricing for both types of households for the first time. Grid operators and distributors should apply these standard load curves uniformly.
• Network charges: Various approaches are being discussed here, including higher base prices, additional payments for generators and dynamic network charges.

Taxes and surcharges: Consideration could be given to imposing electricity taxes, surcharges and surcharges on self-generation. A more generous approach would be to reduce these charges for all consumers. In this context, the fact that the new federal government is currently discussing such reductions is welcome.
Energy: The fixed tariffs are set by the suppliers on the basis of a standard load curve, which previously did not take into account the self-generation and self-consumption of photovoltaic systems. This changed two months ago: The German Energy Federation (BDEW) introduced a new standard load curve that distinguishes between households with and without photovoltaic systems. This enables cost-reflective pricing for both types of households for the first time. Grid operators and distributors should apply these standard load curves uniformly.
Network charges: Various approaches are being discussed here, including higher base prices, additional payments for generators and dynamic network charges.