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Following the example of Wien, Austria and Zürich, Switzerland, the City of Saarbrücken introduced a linear and time-variable electricity charge in 1991.
The City of Saarbrücken is the capital of the German State* (”Bundesland”) Saarland which is situated in the western part of Germany bordering on Luxembourg and France. With its surface of 2500 km2 the Saarland is one of the smallest states in Germany and half of it is cover by forest.
The city with its almost 200,000 inhabitants is an old centre of coal mining industry but now dedicated to sustainable development.
Most rate structures for energy charges do not provide many price incentives for the client to save energy. This is because of high standing charges that have to be paid by the consumer, independent of the actual consumption levels. The utility of Saarbrücken recognised that this does not correspond with the principles of sustainable development and that there was a need to reform the rate structure. Their intention was to motivate people to save resources and money at the same time. Of course, any new tariff structure could not increase costs for the utility so this led to the introduction of a linear and time-variable rate structure.
The utility initiated a model calculation for a new tariff system and investigated the possible social impacts. A working group with the utility, the municipality and other utilities in the region discussed all problems concerning the rate structure and decided to give it a try. The model project was successful and the linear time-variable tariff was implemented in full once it had been approved by the state government (being the authorising body for price control).
Results have shown that clients are reducing energy consumption in order to cut their bills. The policy is contributing to Saarbrücken’s aim of staying independent of nuclear energy and, in the long term, rely exclusively on renewable energy.
The old system of the divided tariff meant that consumers had to pay for the standing expenses of electricity supply (basic charge) regardless of how much energy they actually used. This model has numerous disadvantages. First of all there is less incentive for the user to save energy because of the lower price for each unit of energy. Secondly, this system does not consider the effects of total load capacity and simultaneous use. Moreover the price structure and rating system was hard to comprehend and did not reflect the real costs.
In 1990 a new scale of charges became law in Germany which allowed utilities to introduce a linear tariff. The basic charge can be reduced to a very small amount to cover the costs of the electricity meter, leaving the rest to be paid through the electricity charge.
Energy efficiency means delivering maximum service to meet human needs (e.g. cooling food, easing communication, ...) with the minimum input of energy resources. The aim of a linear electricity charge is to influence consumer behaviour by giving financial incentives to save energy. Adjusted charges should support anybody who uses energy less or at non-peak-times and to charge more from large scale users using energy at peak times. Benefits may also be included in a comprehensive tariff system to reward those who provide renewable or highly efficient energy sources. Moreover, the linear tariff represents a simple system which can be introduced easily, because there is no need for new equipment or extra staff.
To increase the economic efficiency of the energy supply it is reasonable to introduce not only a linear but also a time variable tariff. Electricity cannot be stored in large quantities so it has to be consumed as soon as it is generated. Because at night the demand for electricity is much lower than during the day, power stations stand still or produce at over-capacity. It is economically sensible, therefore, to sell electricity cheaper at night in order to create an incentive to use the basic capacity of the power stations rather than to produce additional energy at peak time.
In response to the global challenge of climate change, the municipality and the utility of Saarbrücken developed a strategy (cf. Stadtwerke Saarbrücken, 1992) to position the enterprise and the city among the first movers. From the strategy a six-point-plan was derived:
Plan and Remarks
• Energy production without nuclear power.
( Uranium is a
limited resource and there remains a risk of nuclear power plants and
the burden of nuclear waste )
• Reduction of CO2
emissions by at least 25% until the year 2005.
( According to the target of the federal
government to protect the
atmosphere )
• Promotion of renewable energy sources by subsidising private investors.
( Renewable energy
sources , e.g. wind/ sun/
water creates more jobs and
generate much less pollution )
• Communication strategy.
( Serves to raise awareness on
the importance of saving energy and to change consumer’s
behaviour )
• Decentralisation of energy supply system.
( Combined heat
and power systems prevent loss of energy at the source, local utility
is closer to consumer needs )
• Support for a national and an international framework
for all these activities.
( e.g.
energy tax that includes the external costs of
consumption of the environment which has to
be introduced nation-wide or Europe-wide )
In 1988 the linear time-variable tariff was tested in a pilot project of 1,500 households. In 1991 the scheme was officially introduced by the utility of Saarbrücken, and applied to all 90,000 households.
According to the actual capacity utilisation rate of the power plants, the linear tariff is divided into different time zones. During times of peak demand (between 0900 and 1300) each kwh costs 0.19 Euro. In times of low demand (between 2000 and 0600) the kwh costs half the price – only 0.10 Euro. The low tariff is also valid during the weekend. The regular tariff of 0.14 Euro is offered between 0600 and 0900 as well as between 1300 and 2000. The cost of the electricity meter is the only fixed amount that has to be paid by the customer, but it represents only 10 % of the overall bill.
Each household has to pay for its consumption:
simple linear tariff
up to 6000 kwh/a : 0.12 Euro/kwh
more than 6000 kwh/a : 0.14 Euro/kwh
credit price for the meter : 1.66 Euro/monthr
time variable linear tariff
peak 0.19 Euro/kwh
normal 0.14 Euro/kwh
non-peak 0.10 Euro/kwh
credit price for the meter : 3.66 Euro/monthr
To support the new tariff scheme during the transitional period an energy saving package was provided. For every new household appliance a subsidy of 25 Euro was granted. The switch from electricity flow-heaters to modern gas devices and from electric cooker to gas cooker was reimbursed with 50 Euro each. Using energy saving bulbs reduces the amount of energy needed for lighting five times. Households on social security were offered one of these bulbs for free, because the price of 15 Euro was more expensive than a normal bulb.
Energy saving is most effective if people are aware of the available options. The utility therefore introduced several awareness raising programmes for their customers.
As a pilot project, the system for energy-saving management (SESAM) was developed which is a device to measure and control electricity consumption. SESAM measures the electricity consumption every quarter of an hour and provides information to the client about energy saving and the rate structure. The client can recall data about the current consumption compared to the previous month and other comparative data. Moreover the device shows to the client the price for each unit of electricity in the different time zones and indicates how much money can be saved when using energy during the low-price tariff period. This system helps to save energy because it shows exactly how much money can be saved by the client. About 300 households have already been equipped with this device within the pilot project. Since then it has been operating successfully and the utility is now planning to improve the device and provide all households with it in the next year.
The utility also started an extensive advisory service for its clients to promote energy saving. This includes consulting at either an office based info-centre or a mobile ‘info-bus’. Energy consultants are available on demand to visit customers at home and develop an energy-saving plan for every single house. They also initiate seminars for consumers on special issues like the use of renewable energy sources.
An essential part of the energy concept was the close cooperation with local and regional stakeholders.
The utility of Saarbrücken and the state government established the Saarland Energy Agency (SEA) to plan, finance and implement energy saving measures. The state government also started a programme to promote alternative energy sources by giving a subsidy to those that invest in renewable energy sources. The utility of Saarbrücken additionally helps to promote solar energy by reimbursing each kwh produced as solar energy for the grid with 0.275 Euro.
Supported financially by the Ministry of Economic Affairs of the Saarland the four utilities of this state united to establish a working group on the introduction of a linear time-variable tariff.
To realise the linear tariff scheme no extra expenses were needed.
An important factor for the introduction of the linear tariff was a change of the legal conditions by the German government. According to the federal scale of charges (”Bundestarifordnung”) until 1989 electricity charges had to be divided into
a) a basic charge, to cover the standing expenses of the supply system
b) an electricity charge, dependent on the amount of electricity consumed
This so called ”divided tariff system” effectively worked like a discount. The more energy was consumed, the lower the unit price of energy supplied. Saving energy only reduced the electricity charge, but the basic charge remained high.
Some effort, time and money was invested by the utility to develop the SESAM-device which was necessary to implement the time variable charge system.
It was made possible only by the change of the legal framework (re-structuring the scale of charges) allowing now the introduction of a linear tariff.
For more than 70% of all clients, electricity became cheaper. Only for less than 30% electricity bills increased with the new tariff system because of a higher energy price for big consumers. The trend is clear: The vast majority of clients took advantage of the linear tariff.
The amount of saved energy costs depends on the equipment and social structure of each household. The average saving of 7% corresponds with 29 Euro for a yearly spending of 410 Euro for each household. At the same time the peak load could be reduced significantly. The reduction of energy use is between 1–20% depending on the number of connections of the household. Converted to an energy balance, this means a saving of power of 0.25 kW or 37.5 Euro for each household.
As the Fraunhofer Institute in Karlsruhe calculated, the linear tariff makes energy saving devices more cost effective in terms of payback. For example buying an energy saving bulb pays back in saved energy in 1.1 years, instead of 1.5 years under the previous tariff. Replacing old household appliances with modern ones can reduce energy costs by about 40%. For an average household of four persons this means a reduction of 1500 kwh per year.
The introduction of the time-variable tariff was accompanied by research projects of sociologists. They examined two questions. Which groups would expect higher or lower electricity bills? Would there be a shift in demand? More than 77% of the households, asked during the project, said it was possible to shift energy use to times of reduced tariff. The biggest shift potential was recognised in households of persons aged up to 35 years, in households with high consumption (more than 4000 kwh), and in households with three and more members.
The divided charge is still the most commonly used charging system for electricity in Germany. It was introduced to support energy consumption in times when electricity was new and was mainly used for lighting. Normally, a utility is interested in selling as much electricity as possible to make as much profit as possible. Big energy suppliers in Germany currently offer lower prices the more electricity a customer demands. Until now, this charging system was justified to cover the standing expenses for energy supply (running the power stations). They want to keep a certain minimum price to ensure a constant income.
The utility of Saarbrücken decided not to follow this principle, but to provide the benefits from energy use as a service (e.g. warm houses, lightning) without the intention of selling as much energy as possible. In fact, the introduction of the linear tariff bore no financial risk for the utility, because the costs can be covered by the receipts of the electricity charge. The drop of receipts caused by energy saving of the customers is significant in ecological terms, but still quite small in economic terms: the amount of energy saved since the introduction of the new tariff scheme comes to 3 or 4% of the overall amount of energy supplied. The resulting losses in financial turnover were compensated by introducing higher charges for each unit of electricity. This again means a strong incentive to save energy.
This applies as long as the local utility holds a monopoly on the local energy market. This situation could be disturbed by the new national energy-economy-law, introduced in 1997. Big electricity suppliers could now start to sell off their excess-capacity cheaply to big customers. The effect this will have on the utility of Saarbrücken is as yet unclear.
While this could turn out as a problem for the profitability of the utility as an enterprise, the economic advantage for the community is obvious from the previous section: the majority saves money and energy, the standard of living increases.
Energy saving and use of renewable energy will not make power utilities obsolete. Even in the medium term, power utilities will continue to play an important role for energy supply, because the technology is not yet available for every household to generate its own solar power.
At the first glance the energy market in Germany does not provide an incentive for utilities to enforce energy saving. It even seems more profitable to include the costs of the unsold excess capacity in the electricity charge via a high basic charge.
The Saarbrücken case shows that it is possible to reduce costs of energy production by saving energy. Moreover, the utility learned that environmentally friendly consumer behaviour can be fostered by price incentives.
The saving of energy makes sense both economically and ecologically. The case of Saarbrücken here showed that the shift in the rate structure for energy leads to lower demand of power and to a better capacity utilisation. Finally, this results in a reduction of costs for energy supply companies and clients.
Dr. Jürgen Lottermoser
City of Saarbrücken
Dep. for Energy and Environment
Richard-Wagner-Str. 14-16
D - 66104 Saarbrücken (Germany)
telephone: +49 - 681 - 905 1576
facsimile: +49 - 681 - 905 1763
email: UMWELT39@aol.com
taken from:
First Mover Advantage by Eco-efficiency - local incentives for environment and employment, Guide on economic instruments for local and regional authorities, An ICLEI "Policy & Practice Series" Publication, Including a foreword by Ritt Bjerregard, European Commissioner
Publishers: The International Council for Local Environmental Initiatives (ICLEI), Congress of Local and Regional Authorities of Europe (CLRAE), Editor: Konrad Otto-Zimmermann (responsible), Authors: Christoph Erdmenger, Sandra Schreckenberger
Paperback, DIN A4, 114 pages, 30 DM
See also http://mail.iclei.org/store1/merchant.ihtml?pid=103&step=4
© ICLEI, Freiburg, 1998