The Energiewende Cost Index
Germany's Institute of Applied Ecology published two scientific studies this month in German investigating the complicated issue of what renewables actually cost. Here, we take a brief look at a few of the charts and try to explain the findings.
Understanding the cost impact of the switch to renewables is not easy. First, there is a matter that seems paradoxical at first glance: renewables make themselves more expensive by lowering prices on the power exchange. And then there are a slew of other confusing parameters, such as the price of carbon and industry exemptions for the renewables surcharge.
This month, the Institute of Applied Ecology (Ökoinstitut) published two studies in German that take a deep economic look at how all these calculations are made – and what the Energiewende will actually cost. The result is what the Institute calls the "Energiewende Cost Index."
The findings are not surprising, but rather in line with what others have also calculated; the difference is that the Ökoinstitut goes into much greater detail.
We cannot do justice to the complexity of the Institute's explanations here, so we will focus just on a few charts that will interest international readers.
Figure 1
The first study's (PDF in German) title could be translated as "Itemizing cost components in the EEG surcharge" (EEG = the German Renewable Energy Act). Here, the researchers demonstrate what a lot of experts are saying – the cost impact of future PV installations will be negligible. In other words, we can continue to install solar without worrying about raising power prices significantly.
Basically, photovoltaics has become two thirds less expensive over the past six years alone. As our Figure 1 to the left shows, 86 percent of the solar power generated in 2012 (first bar from the left) came from systems installed up to 2011, with 14 percent coming from solar arrays installed that year. The amount of power from systems installed in a given year increases by roughly 50 percent the next year, however, because the systems are not installed on January 1, but instead start producing power at various points during the year – which explains the one-off growth of the red, green, and purple areas in the first full year of operation. The percentages given indicate that, as the total volume of the solar power generated increases, the share of old systems decreases assuming a constant level based on the data from 2011.
Figure 2
But that is power generated – now, let's take a look at the Institute's chart for the cost impact in Figure 2, and we will keep in mind that the old systems installed in 2006 were three times as expensive as systems installed in 2012. Here, we see that the 86 percent of our solar power in the first chart actually took up 93 percent of our payments for solar in 2012. And going forward, the price reductions are dramatic. Systems installed in 2012 will provide us with 21 percent of our solar power next year but only make up 12 percent of the cost. Just a few years from now, systems installed in 2015 will provide us with eight percent of our solar power in 2016 but only make up two percent of the expenses for solar power.
Figure 3
Figure 3 expresses this cost impact as the share of the EEG surcharge directly attributable to photovoltaics. As we see, photovoltaics continues to cost something, but the increase is diminishing. Keep in mind that these figures are based on tremendous growth. At the end of 2011, Germany had roughly 25 gigawatts of photovoltaics installed, and these charts are based on the assumption of further growth at the current level, which would put Germany at its target for photovoltaics of 52 gigawatts in June 2015 – equivalent to 27 gigawatts of newly installed capacity in the 3 1/2 years starting in 2012. At that rate, incidentally, Germany would be installing some 7.7 gigawatts per year on the average, enough to make it the largest photovoltaics market for the midterm – even larger than China.
Figure 4
Finally, let's take a look at the Institute's other study, which calculates the Energiewende Cost Index (PDF in German). Figure 4 shows us the price of retail power in Germany over the past decade. We have seen such charts before in absolute terms, with power prices starting a bit lower at around 17 cents per kilowatt-hour instead of the roughly 19 cents indicated below; that's because this chart is adjusted for inflation. This approach is good because it helps illustrate that the price of electricity is actually not rising as fast as a review of absolute numbers would suggest – in fact, prices for oil and natural gas are rising faster than the price of electricity in Germany. The area in red represents wholesale power prices, followed by grid fees (blue), sales and margins (grey), the surcharge for renewables and cogeneration (the two green areas), and the brown areas representing taxes. Adjusted for inflation, the retail rate in Germany has remained roughly stable over the past few years, largely because the wholesale rate has shrunk roughly commensurate to the growth of the surcharge for renewables – which, as Renewables International previously explained, is really just two sides of the same coin.
And there is one last salient feature: the surcharge for cogeneration practically disappears going forward. To put this into common economic jargon, cogeneration has become "competitive" – something that can also be said of wind power and something that, as the discussion above illustrates, will soon be said of photovoltaics, provided we continue to deploy.
Figure 5
Finally, Figure 5 shows us a few trends adjusted for inflation. The green line at the bottom represents the cost impact of renewables on the futures market for electricity. Here, these lines are not considered separate elements, but should instead be understood as areas stacked on top of each other. Again, we see that the green line represents the price impact of renewables and cogeneration without consideration of emissions trading (which takes us up to the black line). The light blue line represents the additional cost of industry exemptions to the surcharge for renewables, followed by the red line representing fuel costs on global markets. Here, the black line represents the cost of the Energiewende; as we see, the price has been relatively stable since 2005 (again, adjusted for inflation), and the researchers estimate that the price will peak in 2013. Nonetheless, power prices will continue to remain high even as the cost impact of renewables and cogeneration decrease, partly because the cost of conventional fuel will continue to rise.
Conclusions
The overall message is clear – there is further evidence based on hard economic analysis that the cost of Germany's Energiewende is reaching its maximum, and the long-term cost-damping effects will increasingly make themselves felt only a few years from now. (Craig Morris)
