Challenges The EEG has seen several reforms over the past decades. They were regularly subject to political controversies, 24 which were in part driven by economic interest groups and environmental NGOs. Rapid growth in installed RE capacity in Germany during the last few years has also resulted in a rising FiT surcharge added to retail electricity rates. As this surcharge increased, it incurred criticism that promotion of RE sources was resulting in excessive electricity prices in Germany, with various undesirable consequences. From a distributional perspective, the FiT has been accused of being akin to a regressive tax, with negative impacts particularly affecting low-income households. 25 The exemption of energy-intensive, trade-exposed industries has only exacerbated the distributional challenges, and while it was introduced to address another concern of rising electricity prices – a potential impact on the competitiveness of German manufacturing industries – it has come under scrutiny by both domestic and EU regulators as a potentially illegal form of state aid and a politically unpopular mechanism shifting the burden of economic decarbonization to households and small­and medium-sized enterprises 26 . A future revision of the EEG is likely to address these criticisms by reducing or eliminating the preferential treatment of certain industries, and thus distributing the cost of RE expansion more evenly across the German economy. Another growing concern under the EEG relates to the market design and structure, and notably the ability of the current electricity market to accommodate further increases in the share of RE electricity without undue economic and technological disruption. 27 As the share of RE sources has grown in the German electricity mix, it has not only begun eroding the market share of incumbent utilities, but more importantly, the low to negligible operating cost of most RE sources has substantially altered wholesale electricity pricing by displacing fossil fuel powered generation capacity with higher operating cost, and by providing ample low-cost electricity at peak demand times which traditionally offered the highest profit margins. Many traditional electric utilities are therefore facing an existential crisis, with a substantial part of their power plant fleet – notably natural-gas-fired generating capacity – becoming less profitable or even generating losses. Aside from the short-term economic disruption caused by this transition, potential threats to grid stability and the security of electricity supply may arise from a shrinking share of dispatchable generation capacity(such as that from gas-fired power plants) to balance variability 24 See also Mehling et al.(2013), p. 40. 25 Bardt et al.(2012), pp. 22 sqq.; Neuhoff et al.(2012), pp. 1 sqq. 26 Requesting respective reforms, e.g., Agora Energiewende(2013b). 27 See, e.g., Diekmann et al.(2012), p. 20. 13