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BNEF grossly overstates cost of renewables in Germany

A recent article published this month at Bloomberg New Energy Finance (BNEF) makes predictions for energy markets this year, at the same time "celebrating what we got right and owning up to what we got wrong" in last year's predictions. One egregious error in this year's predictions is easy to clear up.

BNEF's CEO Michael Liebreich published his 10 predictions for the energy sector in 2013 – quite a daunting task, and one that is, to be fair, likely to prove wrong in a number of respects. After all, who can see the future 10 times out of 10?

But of course, the key to seeing the future is understanding the present. Liebreich seems to get practically everything right, and his predictions are generally easy to support, though BNEF continues to see renewables from the viewpoint of large investors and the conventional energy sector. They thereby fail to comment on the one-time opportunity that a shift to distributed power production owned by citizens and communities represents – and on the challenge that potential poses for the conventional energy sector's business models to date.

For instance, Liebreich writes, "Germany has made some progress towards addressing the grid connection problems that stymied offshore wind" without pointing out that there is no consensus in the German public, much less within the German wind sector, that we need all that offshore wind. A lot of Germans want less expensive onshore wind that they can own themselves.

Not surprisingly, where Liebreich get something wrong, he reveals a bias towards big business:

The main preoccupation on the continent will be to stabilise the financial situation of the utility sector – with the big German utilities undermined by large volumes of renewable energy, and EDF still struggling to shore up the position of nuclear in Europe’s energy mix. Germany will spend the year convulsed in discussions of the “Energiewende”, or Energy Transition. Wildly popular until people realise that over half of their energy bills are driven by the cost of renewable energy feed-in tariffs and the associated grid upgrades.

 - Year over year, the cost of heating oil in Germany had risen by 10 percent as of last October, compared to a nine percent increase in gasoline, a five percent increase in natural gas, and only a three percent rise in the cost of electricity, as this screenshot from German television illustrates.
Year over year, the cost of heating oil in Germany had risen by 10 percent as of last October, compared to a nine percent increase in gasoline, a five percent increase in natural gas, and only a three percent rise in the cost of electricity, as this screenshot from German television illustrates.

Indeed, it would be amazing for people to realize that renewables and grid upgrades make up half of their energy bills. Let's start with the simple fact that there is a difference between energy and electricity. Although I do not expect every journalist to understand the difference (it's probably one of the most common things confused in mainstream journalism), I do expect the CEO of BNEF to get that right. It turns out that the price of electricity, where the effects of renewable power are mainly felt, has risen slower than prices for heating oil, gasoline, and natural gas – which, by definition, have little to do with the cost of renewable energy (see screenshot), as Renewables International previously discussed.


But even then, more than half of the renewables surcharge has to do with the way the surcharge is calculated, not with the cost of renewables. For more information, see these reports from last October and the second chart on the left.

The claim that "grid upgrades" to accommodate a greater share of renewable power is harder to quantify. This chart in German over at Wikipedia shows the composition of retail power prices in Germany since 1998. The green sliver is the renewables surcharge, but "grid upgrades" are not a clear item, being instead put under the orange part at the bottom ("transport") – and even then, general grid costs cannot be separated from what was specifically spent on expanding the grid solely for renewables.

German grid fees


So let's take a look at another chart (PDF and to the right), which shows grid fees broken down by retail customers (left), commercial customers (middle), and industry customers (right). In the first two cases, grid fees have actually decreased considerably, whereas they have remained at a stable (and quite low) level for industry customers – an outcome that is not surprising anyway, because the overall volume of investments in the grid has actually remained stable at around two billion euros in recent years.

Indeed, Germany has managed to increase its share of renewable electricity from six percent to around 22 percent without having to upgrade its grid much – because so much of this generation capacity is distributed across the country. It is central plants that require grid expansion. No one doubts that Germany will have to start changing its grid if we are to move up to 50 percent renewables by 2030 as planned, but these upgrades need to be seen in context – it's not more than what would be needed for coal or nuclear to double their share of power supply.

Overall, Germans understand that what counts is not what share of the retail rate consists of renewables, but whether the retail rate rises unnecessarily quickly – and whether the profits go to large corporations or back to citizens who have invested in renewables. Denmark seems to be doing just fine with the highest retail power rates in Europe and a 40 percent share of renewable electricity; the Danes are some of the richest people in Europe, far ahead of the UK and Germany. And if I look at the red line on this chart representing the "Big 6 Average Retail Price" for the UK, it seems that retail electricity is anything but stable in countries that are shifting to renewables much more slowly than Germany and Denmark. (Craig Morris)

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10 Comments on "BNEF grossly overstates cost of renewables in Germany "

  1. Kevin Meyerson - 19.02.2013, 16:20 Uhr (Report comment)

    I'm a bit lost as to why anyone, other than big centralised energy interests, would have anything other than great love for FITs. FITs pay for performance, they are non-tax supported, they have proven to be the most rapid and effective incentive for adoption of renewables, they are a proven method for driving down the cost of new types of energy, they have a limited time frame (unlike nuclear and fossil energy subsidies), and they have empowered a vast revolution in the form of energy democracy.
    The costs for grid upgrades have been vastly overestimated so far. I expect the trend to continue on this front.
    I think it's great that Michael admitted to his bias against FITs. I also wonder if it is Michael's background which has lead to this bias? FITs powerfully drive decentralised energy system growth which disrupts old fashioned centralised energy distribution business models. Correspondingly individuals, small farmers, and communities own power generation resources. This would certainly be unattractive to consulting companies which cater to large corporations who are getting disrupted.
    Perhaps I am off-base in my thinking here, but it seems to be that a Bloomberg company would be less than interested in having 1000s of small energy producers who cannot pay for high powered consulting companies would be a less than ideal future market for consultants.
    Just my 2cents.

  2. Photomofo - 18.02.2013, 16:03 Uhr (Report comment)

    Ahh... Well... Some people just don't get it. Liebreich is clearly taking heat for looking like he doesn't get it and his reply here is hard to decipher. Koodos to your site for getting a reply from Michael. if he wants to keep his recently earned star status he's going to need to kick things up a notch. If you don't like FiTs as they are think about how to fix the part you don't like. If there isn't a fix say that. The Germans and everybody else have modified their rules as they've gone along - some better than others. All sorts of parties have figured out ways to dance the FiT with the market. The great thing about FiTs is that the structure is easy to modify because you know, with confidence, what the product you're trying to support costs if you pay attention to the market. Yes they cost money but so does everything. At least FiTs have delivered a lot of PV and Wind at prices that are progressively competitive. The dance ends smoothly with head-to-head competition. That's exciting and completely market oriented. No other program delivers this smooth transition. Name one structure?
    God knows why Altmaier is screwing around with incomprehensible changes to a program that is winding its way down? I can't figure it. Very curvy, un-German and strange. I'd like to hear more of your thoughts on why he's fighting this un-winnable battle. Who are they courting?

  3. Christian Roselund - 18.02.2013, 15:24 Uhr (Report comment)

    Dear Mr. Liebreich,
    I hate to be the guy to call someone on something that they say in an admission of error, which is a decent and important thing to do. Your statement about suppression of price signals is taken, however, the statement that feed-in tariffs "burst through budgets" is not accurate in this context.
    While I do not read German, my understanding of the EEG and feed-in tariffs based on it is that they pass the cost on to consumers, and thus have no impact on budgets. The American press often misses this point, leading to distorted discussions around this policy.

  4. Craig Morris - 18.02.2013, 15:06 Uhr (Report comment)

    Photomofo, I mean that feed-in tariffs work in practice. Some people cannot merge that fact with their economic theories, however.

  5. Photomofo - 18.02.2013, 15:04 Uhr (Report comment)

    I'm not sure what you mean Craig? Theory? FiTs, as you know, have worked with PV better than any other scheme. Specifically because, when properly designed, they minimize the issues Michael cites as FiT's shortcomings. PTCs have worked well with Wind... at least in the US. That probably has more to do with RPS goals and the relative cost of wind vs. other renewables. As far as subsidies go I think it depends on the technology and the goal. Is the goal to install product or to install product progressively cost effectively? FiTs won't naturally deliver a progressively cost effective product unless the product can cut the mustard. For all its wonders nuclear wouldn't work well with FiTs - the deployment schedule is unpredictable, bulky and there's no cost control. Coal is also bulky and there's certainty on input costs. Bio-you-name-it relies on input costs as well. You need a product that's moderately sized with a short deployment schedule and predictable fuel costs. What else is there besides PV and Wind that FiTs would really work with... in theory.... Nothing comes to mind.

  6. Sandra Henning - 18.02.2013, 14:37 Uhr (Report comment)

    In addition its quite interesting, that Denmark has forbidden oil- and gas-heating in new houses: http://www.energie-experten.org/experte/meldung-anzeigen/news/daenemark-verbietet-oel-und-gasheizungen-4093.html And from 2016 on, its forbidden to heat in existing houses with oil, if u got the alternative to connect to a heating grid or switch to biogas. A political decision, may be as important as the german nuclear phaseout.

  7. Craig Morris - 18.02.2013, 13:49 Uhr (Report comment)

    Guys, the criticism of feed-in tariffs is pretty easy to sum up: they work in practice, but do they work in theory?

  8. Photomofo - 18.02.2013, 13:47 Uhr (Report comment)

    You can build a FiT with a controlled budget Michael. LA's is controlled. Price signal suppression and rents aren't unique to FiTs. Name a subsidy scheme that works better. PTCs, RPSs, ITCs, Grants and so on all screw with price signals and lead to rents. At least with FiTs the rents fall over time in a predictable way.

  9. Michael Liebreich - 17.02.2013, 21:29 Uhr (Report comment)

    Ed, you're right to call me out on this, it was a poor choice of words. The point I was trying to make is that this year for the first time more than half of German retail electricity bills (oops, not energy bills - embarrassing!) look like consisting of some sort of non-market levy, relating either to the feed-in tariff or to grid charges of all sorts (oops again - not just those caused by renewable energy!). At best that is bad economics, since it removes utilities incentive drive down costs at worst it over-emphases the cost of renewable energy. However, I stand by my main point that Germany is going to spend the year debating the speed of the Energiewende, its cost, and how that should be divided up. I don't think my sloppy wording had anything to do with a "bias towards big business". I love energy efficiency and distributed renewables. On the other hand, I confess I do have a bias against feed-in tariffs, because of the way they suppress price signals, allow renewable energy providers to extract rents, and result in extreme policy uncertainty as they burst through budgets.

  10. James Wimberley - 15.02.2013, 17:24 Uhr (Report comment)

    Liebreich on the Energiewende: "Wildly popular until people realise that over half of their energy bills are driven by the cost of renewable energy feed-in tariffs and the associated grid upgrades." This si sworse than you imply, an irresponsible and ignorant howler. The renewables surcharge is around 5c/kwh, out of around 25c/kwh. So at most 20% of German eelctricity bills could be attributed to FITs as you regularly point out, the real share is half that, say 10%. Where is Liebreich's evidence that the German public - the world's most informed on energy policy - don't understand and accept this?

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