Merkel's 'energy revolution' depends on coalition with social-democrats

Angela Merkel’s best hope of saving her bold energy revolution may lie in a coalition with the centre-left Social Democrats (SPD), who could agree to modest cuts to costly incentives for green power which are, paradoxically, driving up energy prices.

The German chancellor's experiment to wean Europe's biggest economy off nuclear and fossil fuels and push it into renewables is at risk because generous subsidies have proved so popular with investors in green power that the country is straining under the cost.

While a boom in renewables has boosted supply and led to a fall in wholesale power prices, the incentives, or feed-in tariffs, are paid for by end users via surcharges added to their electricity bills. These charges mean German consumers pay the second highest power prices in Europe.

Merkel has long said that a reform of renewable subsidies, will be a top priority for a third term but it is a delicate balancing act to reduce feed-in tariffs to help industry, while ensuring investment in renewables does not grind to a halt.

Merkel's 'green revolution' is widely seen as her biggest domestic policy and will be a crucial issue in any coalition talks which are expected to be long and difficult.

After emerging victorious in an election on Sunday, Merkel is searching for a coalition partner. On energy, the SPD looks like a better fit than the alternative, the environmentalist Greens, and her outgoing partner, the Free Democrats (FDP).