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German debate over renewables gets chaotic

It's hard to know where to begin if you want to explain the energy debate in Germany to outsiders. Let's start with the news that an estimated 200,000 welfare recipients in Germany had their power cut off because they could not pay their electricity bills, as a German TV news program reported at the end of May.

The power firms that cut these people off called on the government to provide welfare recipients with a bonus for power bills, which the government says it will not do; Economic Minister Philipp Rösler responded by saying that the negative impact of one subsidy would then be remedied with another one. Some politicians in the opposition voiced their outrage at these companies for having the gall to cut off the poorest of the poor and then ask the government for more money. But Germany chooses to have private firms run its grid, and they are beholden to shareholders. It's not an ethical issue; it's a question of market design.

But not all opposition politicians oppose making power cheaper for the poor. Green party whip Renate Künast is now calling for lower prices for a minimum amount of power and natural gas per person. The policy is quite common around the world, but it is nonetheless surprising to hear such a proposal from the German Greens. After all, when they implemented their eco-tax 13 years ago, they argued the exact opposite – that artificially low rates for the first chunk of energy consumed make investments in efficiency unaffordable.

 - Germany's new President, Joachim Gauck, has caused quite a stir with his comments on the country's energy transition – partly because they are so unclear.
Germany's new President, Joachim Gauck, has caused quite a stir with his comments on the country's energy transition – partly because they are so unclear.
Source: J. Patrick Fischer 

So how should the market be redesigned? That is the question that defies consensus at the moment. Almost everyone is calling for the one or the other governmental intervention – not only subsidies for the poor, but also capacity payments for dispatchable power plants. The government is now also talking about requiring investor-owned utilities to report their plans to switch off a power plant to Germany's Network Agency, which would then be authorized to reject those plans if it fears the shutdown would make power outages more likely. It's just an idea right now, not even a proposal – and we still do not know how these private firms would be compensated.

But all of these calls for the government to act have led to a debate about Germany's commitment to free markets. Up to now, Germany has been fiercely pro-market in its power sector; all consumers can switch utilities, which all compete with each other, and the government does not set retail power rates – an unimaginable situation in the United States, for instance, where utilities generally still have government-regulated monopolies.

Nonetheless, there is the old debate about quota systems (like the old Renewable Obligation Certificates in the UK or Renewable Energy Credits in the US) being more market-based than German feed-in tariffs – and that debate has reentered the foreground in Germany. Newly elected German president Joachim Gauck opened that barrel of monkeys when he stated on June 5 (transcript of speech in German) that Germany's energy transition will not be possible with "planned-economy ordinances" and "excessive subsidies" alone. Though he did not mention solar feed-in tariffs, that's what everyone heard. The Libertarian FDP, the party that has historically opposed feed-in tariffs the most, applauded, while the SPD insinuated that Gauck doesn't know what he's talking about: "The President is apparently starting to become familiar with environmental policy, but he needs to keep going," one SPD environmental expert stated. Another SPD politician claim that the comment had more to do with Gauck's opposition to planned economies from his time as an activist in East Germany than with Germany's current energy policy.

Whatever the solution is, the problem is clearly twofold: first, Angela Merkel's decision to shut down a nuclear plants changed the playing field too quickly; and second, though solidarity among proponents of renewables prevents most people from saying it, solar grew too fast in 2010 and 2011 and continues to exceed the government's target in 2012. Back in 2010, when the government stated its goal of 52 gigawatts of PV by 2020, the solar sector did not complain; after all, that was equivalent to around 3.8 gigawatts per year of growth, which the sector had just reached in 2009. Now, the sector has sustainably doubled that growth rate, so the market would have to be cut back to less than three gigawatts per year if 52 gigawatts is understood as the maximum. Furthermore, this PV boom came at a time when feed-in tariffs for solar were still high, though plummeting.

52 gigawatts is not a limit, however, but a target. Germany has blown past its targets for renewables up to now. Feed-in tariffs have created a large market on which private firms compete, whereas quota systems are only nominally based on "competition" – actually, with quotas governments decide everything about the market except the price, and bids are not open, making quotas easy to manipulate and a good way of closing markets to foreign competition, for instance.

But as the current debate shows, terms are being confused, and the issue is chaotic. The combination of a rushed nuclear phaseout and a PV boom has changed the power market too much, too quickly, and now everyone is rushing to react to events they no longer shape. (Craig Morris)

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4 Comments on "German debate over renewables gets chaotic "

  1. Alfred Körblein - 20.07.2012, 13:16 Uhr (Report comment)

    Hi, you find the latest version of my Excel spreadsheet solarstrom.xls here: www.umweltinstitut.org/download/solarstrom.xls So you can check for yourself whether our results are compatible. Best, Alfred (Koerblein)

  2. Photomofo - 19.06.2012, 00:17 Uhr (Report comment)

    You can use my spreadsheet linked at the bottom. If you don't trust my spreadsheet you can track down Dr. Alfred Körblein's model (in German) and use that. I haven't looked at his model in over a year so I don't know how he's treating self-consumption these days or even if he's kept it updated. I recently saw a comment of his on PV Magazine and he thinks the new FiT rates in Germany are fine. That tells our models are kicking out similar results.
    To use the model go to the Input Parameters page and enter in the current system prices, O&M, kWh/kWp, interest rates, discount rate, etc in the gray fields. The input data needs to be in per KWp increments. You have to be careful but it's hopefully intuitive - if not I'll write up some instructions. The default values are all referenced and are specifically set to model the current situation in Germany. The results pop up in the Orange box.
    The most under-appreciated parameter is the self-consumption rate. You can vary that from 30% to 50% and see what I mean.
    We often hear that FiTs are set to deliver an 8% return on investment. You can play with the model yourself to see how system prices and FiT rates conspire to deliver X% rate of return or Y net present value based on the inputs.
    When I play with the model it's clear to me the FiT rates for the sub-10 kW tranche can come down significantly. The FiT rate is actually a secondary concern - you could set it at 10 cent/kWh and still have the economics work out. The FiT used to be about making money - now it's about saving money. A counter argument here is that retail rates may come down in the future and this would impact the profitability of your system. That's absolutely true but there's a hedged risk here. If electricity prices go up you save money with PV. If they go down you lose money on the PV investment but you save money on utility bills. The only showstopper would be if electricity rates dropped sharply over a short time period but that seems unlikely to me.
    I'm guesstimating prices for small and medium sized system come down to 1500 Euro/kWp in the near term and stabilize around there. If system prices get down to this level your production costs (the LCOE) are at 10 ct/kWh. This gives you a lot of room to chop the FiT rates. Things very much depend on your self-consumption profile.
    An additional thought here is that the FiT shouldn't necessarily be based on installed kW. Another way to go about it would be to base the rate on total backfeed. This structure would encourage economies of scale and overall system integration (generation matched to load) at the same time. I like that. We shouldn't unnecessarily punish a roof that's good for 12 kW when a 10 kW system may actually back feed more. Make the top FiT tranche apply to the first 10 MWh of back feed per year. The next tranche would apply to the next 90 MWh and so on.
    It's my belief that the BSW should be putting out a model like this themselves. Things need to be transparent. The Government should be using the exact same model to set FiT rates so we're all on the same page and everybody's held accountable. People will still complain but at least we'll be clearer on what's being complained about.
    Disclaimer: I think my model works but some bugs and brain farts may have slipped in.

  3. SolarWriter - 19.06.2012, 20:25 Uhr (Report comment)

    Photomofo - This is an important discussion, also for countries considering FiTs. Can you point me to information on suggestions for specific FiT cuts for specific tranches? Do you have suggestions of your own? Thanks -- and thanks, Craig, for bringing this up.

  4. Photomofo - 19.06.2012, 20:15 Uhr (Report comment)

    I see your point regarding solar growing too fast. Another thing that people don't want to say is that the FiT for PV can be cut more in certain tranches and it won't have a devastating effect on the industry. The industry should come to the table with cuts of their own to try and diffuse things. PV is more competitive that the industry is letting on. The models are quite clear in this.
    Now... Northern Sea off-shore wind? Why bother with that stuff? It's permanently centralized, permanently expensive and it exacerbates the North-South inter-tie overloading problem. Three strikes you're out.

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