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Europe vs. the U.S. – Will America’s low power prices come back to haunt it?

By: SmartGridNews.com |

The difference between residential electricity prices in the U.S. and Europe is ‘dramatic,’ a new report from research and consulting firm GlobalData says, noting that residential customers in Germany pay over 2.5 times what American customers did in 2012.

As SGN founder and chief analyst Jesse Berst observed above, Germans pay some of the highest electricity prices in the world because they directly subsidize the country’s ambitious solar and wind energy programs.

Jonathan Lane, GlobalData head of consulting for power and utilities, explains why Americans pay so much less. “Consumption taxation across most goods in the U.S. is relatively limited and electricity is no different, with very few states applying a sales tax. The major renewable support scheme in the U.S., the production tax credit (PTC), is financed by the tax system rather than recovered through electricity pricing, so there are very few extra charges for consumers to pay. The wholesale price in the U.S. is even better news for consumers, as high hydro production and low gas prices stemming from the shale gas glut feed through to lower wholesale electricity prices.

“In contrast, Germany suffers from some of the highest residential electricity prices in the world due to the high cost of subsidizing significant solar and wind generation via the Erneuerbe-Energian-Gesetz (the German Renewable Energy Act) and 19% VAT, though German consumers are able to sustain these costs through high GDP per capita. However, German wholesale electricity costs are actually rather low, reflecting low coal and carbon costs.”On the other hand, Italy pays similar high costs but for entirely different reasons, Lane said. Prices are driven by high wholesale costs from high gas prices established by long-term, oil-indexed import contracts in a country that is intensely dependent on gas-fired power. And Italian customers also pick up a large part of the tab for solar subsidies. He added that Spain should have prices similar to those in Italy or Germany but the Spanish government has kept prices low in the regulated electricity market for some time, which has left a substantial “tariff deficit” that the government is planning on cutting with a new 6% tax on all forms of energy generation, including renewables, and a “Green cent” tax on coal, fuel oil and natural gas.

And while British electricity customers pay fairly low prices because of a low VAT rate of 5%, they do pay additional charges in the form of a Renewables Obligation, an Energy Company Obligation and a small-scale renewables feed-in tariff.