14.06.2013
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Do the math!

Energy transition cheaper with citizen investments

Yesterday, we saw that citizens do indeed have the capital required for an energy transition, both in the US and in Germany. Today, we take a look at what the cost impact would be overall.

Citizens would be happy to get the returns only offered to corporations up to now. Investments in renewables funded with feed-in tariffs have generally had a calculated return of around six percent, but this return is by no means guaranteed as at least one of my readers misunderstands ("FITs remove all commercial risk"). On the contrary, if you invest in a solar array, wind turbine, or biomass facility in Germany, you only get paid for the kilowatt-hours you generate. Otherwise, you run basic business risks: natural disasters (floods), improper installation, etc. And of course, if the sun doesn't shine and the wind doesn't blow, no one compensates you for a lack of resources.

Indeed, Germany's "reference turbine" (on which the calculation for feed-in tariffs for wind power is based) is a bone of contention. Actual wind conditions in Germany have proven to be below what was originally calculated, so a lot of German (community-owned) wind farms are struggling to break even financially. And of course, the country has only received around two thirds of its normal amount of sunshine in 2013, so solar investors can also expect to be in the red for their investments this year.

Nonetheless, the possibility of a six percent return on average is extremely enticing for German citizens; after all, who else can offer such a return with any level of reliability?

In contrast, industry generally is not interested in single-digit returns. As we recently explained, the returns in the offshore wind sector (owned by corporations) are twice as great as those in the onshore sector (generally owned by citizens in Germany), and that situation is not unusual. In 2011, Germany's Network Agency announced that the equity return for grid upgrades would be calculated at 9.05 percent starting in 2014 (after trade tax but before corporate tax). Keep in mind that these returns are indeed guaranteed; firms sit down with the network agency and review the books to determine what price can be charged to produce that return. And starting this year, the equity return for investments in new gas networks is set at 9.29 percent. But corporations are not satisfied with this return and are suing in court to receive more than 11 percent.

The conclusion is clear – contrary to what Caperton believes, citizens easily have the capital for a switch to renewables, and citizen investments would help spread the wealth and promote energy democracy. The much smaller returns that citizens are happy with would also make the entire transition more affordable.

Outsiders sometimes claim that Germany's energy transition comes at a high price, with a tremendous impact on the poor. In reality, Germany is giving its citizens a way of safely investing even relatively small amounts of money, such as 500 euros, outside of the casino that our stock markets have become. (Craig Morris)

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8 Comments on "Energy transition cheaper with citizen investments "

  1. heinbloed - 17.06.2013, 12:21 Uhr (Report comment)

    According to this article
    http://www.ilsr.org/texas-muni-utility-explains-40-renewable/
    1 in 7 US-American citicens is served by community owned utilities.
    Or did I get something wrong ?

  2. Todd Millions - 15.06.2013, 23:44 Uhr (Report comment)

    "You Can make money in a bull,you can make money in a bear,But-Pigs get Slaughtered!" From a CBC tv movie -1980's, name escapes me.Over 10% annual averaged yeilds,over time tend to gut out the firms that'post'them it seems to me. This is with reasonalble compensation that is structured not to encourage looting.

  3. heinbloed - 15.06.2013, 23:25 Uhr (Report comment)

    @ James Wimberley:
    What is going on in the USA isn't an anecdote. It is present. Talking about anecdotal energy managment - do you have a link or some literature recommendation why community owned and -managed power generation and distribution doesn't work? Other than propaganda ? Or is that just some trolling you are putting in?
    Reality shows that most distributed power generation was started community owned. From the distribution of timber to coal to sharing the water suply to electricity distribution. Some is so since the first cable was laid a 100 years ago 'till today, uninterrupted and still in the hands of the people. SWM ( http://en.wikipedia.org/wiki/Stadtwerke_M%C3%BCnchen) Munich ( http://www.swm.de/english.html ) is building wind generators in Sweden (community owned) since they do not trust federal legislations nor privateering banksters .... Munich being just 1 sample , Berlin for more than 100 years with a short interruption of the last decade, the very most of Germany in fact has seen community owned generation and distribution. And Austria, Switzerland and so on .... If it hadn't been for WWI and WWII most of Europe's power distribution would have been still community owned. And not having been sold to equip their children with guns.

  4. James Wimberley - 15.06.2013, 21:13 Uhr (Report comment)

    Heinbloed and the OP: the claim is not that community projects are desirable and sometimes feasible, but that they can replace conventional corporate finance entirely. "Doing the math" is not pointing to anecdata about community-owned projects. It would involve an analysis (which you have not done) of the total investment required, and the potential capacity of the whole range of savings channels, from DIY through community to corporate and governmental. Frankly, I think the idea you can replace corporations for a range of large, complex and fairly risky projects - pumped storage hydro, CSP, tidal, geothermal, offshore wind, wind-to-gas, commercial rooftop - is no more sensible than suggesting the technology can be developed by home inventors.

  5. heinbloed - 15.06.2013, 19:45 Uhr (Report comment)

    Not only the generators can be owned by communities or the local transmission grid but international high-voltage power lines as well. The German utilities are now starting to sell shares to locals in the vicinity of high-voltage power lines. This makes these lines more acceptable to the locals.
    http://www.klimaretter.info/wirtschaft/nachricht/13894-startschuss-fuer-buergeranleihen
    I doubt if this step will actually lead to a community-owned international line, but the numbers of complaints will be reduced. Divide et impera.

  6. heinbloed - 15.06.2013, 19:41 Uhr (Report comment)

    @ James Wimberley:
    About community solar projects in the USA read here:
    http://www.greentechmedia.com/articles/read/the-coming-u.s.-distributed-solar-boom
    and here for Minnesota:
    http://www.midwestenergynews.com/2013/05/29/minnesota-plants-seeds-for-community-solar-gardens/
    and here for Colorado:
    http://www.pv-tech.org/news/rec_solar_completes_first_community_solar_project_in_colorado
    Try the search engines for more.

  7. James Wimberley - 14.06.2013, 00:53 Uhr (Report comment)

    "Yesterday, we saw that citizens do indeed have the capital required for an energy transition, both in the US and in Germany." You have supplied no evidence for this claim on the US side. I too would like it to be so, but I explained why it's unlikely.

  8. photomofo - 14.06.2013, 18:01 Uhr (Report comment)

    The Center for American Progress is an extremely powerful bonehead magnet. The policy positions they take on renewables are farcical. As of June 2013 they're still promoting CSP like it's 2008 and we haven't learned anything.

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