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)