Learning From The German Transition To Renewable Energy

(Credit: Institute for the Future)

by Julius Fischer

Germany is moving forward to replace fossil fuels with renewables faster than most countries. But there is always pushback, most recently in the form of much media discourse about rising electricity prices spearheaded by the Federal Minister of Environment Peter Altmaier. Like many politicians, he is already preparing for national elections in September, so let’s take an honest look at this discourse surrounding electricity prices and how they affect Germany’s move toward renewables.

Ever since the Fukushima catastrophe two years ago, Germans have redoubled their efforts to phase out of nuclear energy and fossil fuels in favor of renewable energy — called the “Energiewende” (energy transition) that began in 2000. Minister Altmaier, CDU (Christian Democratic Party — center-right) believes that the recent rise in electricity prices for households poses the biggest threat to the success of the Energiewende, because rising household electricity bills endanger public support for renewables. He thus proposed a plan to prevent an “explosion of electricity prices.”

First of all: why care about what happens in Germany? For one thing, German policy-makers played a dominant role in the evolution of feed-in tariffs (FITs) for renewables (the term is actually an Anglicization of the German “Stromeinspeisungsgesetz”). FITs are the most elegant and effective policy instrument to incentivize renewable energy deployment in a cost-effective manner. Germany remains on the forefront of optimizing FITs to account for the differences in renewable technologies and decreasing market prices over time. Germany also has an impressive record of success in deploying renewable energy (especially solar), and set uniquely high targets of efficiency improvement and renewables deployment. Once we realize that the Energiewende is not a big government program by naïve tree-huggers, we can use the German example to help show that renewable energy can and does create jobs and lower costs.

The discourse surrounding the Energiewende has ranged from whether the grid expansion can keep up with renewable energy deployment, to whether the grid liability can be maintained (yes it can), and whether shutting down nuclear power in Germany will just result in imports of nuclear power from France or the Czech Republic (it hasn’t). The current discourse raises the questions of whether household electricity consumers should pay less, whether industry should pay more, and whether the Energiewende can be done cheaper.

Should households pay less?

Minister Altmaier claims that rising electricity bills are the biggest barrier to the Energiewende because they undermine public approval. He aims to prevent future price increases by addressing the EEG Apportionment (EEG Umlage) that finances the feed-in tariff scheme. He therefore proposes the “Strompreisbremse” (electricity price emergency brake – this word has caught on surprisingly well in German media) to freeze the apportionment, claiming to thus prevent a 10% increases in electricity prices this fall.

The apportionment is a surcharge on the electricity price that (most) consumers pay to finance the FIT. The money collected from the apportionment is used to guarantee renewable energy producers a profitable price for 20 years — based on the costs of the particular renewable technology, regardless of the market price (this system is called Advanced Renewable Tariff). This Advanced Renewable Tariff system is the newest and most sophisticated version of FITs that incentivizes renewable energy deployment even at small scale. For example, in 2010, 51 percent of renewable energy capacity built under the FIT was owned by individuals and farmers, coining the term democratization of energy supply in Germany.

In fact, the apportionment in 2013 will only be 19 percent of an average household electricity bill, and was 3.5 percent of the energy bill in 2012. Meanwhile, the EEG Apportionment is only 1 of 6 other taxes and dues on electricity that together make up half of the electricity price – a situation Germans have accepted so far, despite a current electricity price of $0.37 per KWh – more than three times that of the US.

Should industry pay more?

The second part of Minister Altmaier’s proposal concerns energy intensive industries that faces international competition. Currently, an exception rule (Ausgleichsregelung) largely frees such industries from paying the apportionment to prevent migration of these industries to other countries with lower costs. But the exception has become the norm: In 2013 49% of Germany’s electricity will be consumed by industry that is required to pay only 1 percent or less of the reallocation charge. Thus Minister Altmaier wants to include fewer industries under this exception, generating €500 million to benefit the consumers. The SPD (Social Democratic Party — center-left) thinks this goes too far, while the Green Party wants this number to be €4 billion.

Can it be done cheaper?

Minister Altmaier claimed in an interview last month that Germany is on schedule to considerably exceed its 2010 renewable energy targets (for example 30 percent of primary energy and 50 percent of electricity from renewables by 2030). Therefore he emphasizes reducing costs over increasing deployment, stating that he doesn’t want less wind turbines, he wants cheaper ones. He further claimed that the energy transition overall will cost Germany €1 trillion by the 2030s. Strong pushback on the calculations behind this number came from the NGO Green Budget Germany, criticizing that he did not include major benefits of renewables, such as avoided costs of fossil fuel imports and investment in fossil fuel power plants, avoided costs of environmental impacts, and reduced electricity prices through the merit order effect. Even his fellow party member Josef Göppel noted the €8 billion in fossil fuel imports Germany has been saving every year due to the Energiewende, which would ultimately save €1 trillion by the 2030s.

Of course there are many reasons why renewable energy policy is different in Germany compared to the U.S. Obviously Germany is only a quarter the size of the US in terms of population and smaller than Montana in terms of area. Historically, the German environmental movement is much more deeply rooted in the anti-nuclear movement of the 1960s, and the word Energiewende resonates with the German term “Wende” (turn) describing the social movement leading to the fall of the Berlin Wall and the reunification afterwards.

But Germany struggles with the same set of issues as we do in the US: From the costs of expanding the electricity grid, to fighting fossil fuel interest groups, and keeping jobs in the face of international competition. We can learn from Germany by looking at the cost-benefit analyses that are calculated, the success of different policies like the Advanced Renewable Tariffs and their exception rules, and by looking at the media attention and push back renewables are dealing with. The issue of how to fairly distribute the investment costs of a renewable energy future will be interesting to follow as Germany heads for national elections this September.

— Julius Fischer is an intern at American Progress. He was born and raised in Germany and is currently a junior at Stanford University studying international relations and environmental sciences.

23 Responses to Learning From The German Transition To Renewable Energy

  1. fj says:

    A German energy transition costing 1 trillion euros by 2030s seems a good deal and even and a much better deal if it saves the same amount . . .

  2. Turboblocke says:

    Even assuming no benefits… one trillion Euros divided by 81 million Germans over 17 years is 726€ per person per year. So about 2€/day, less than $2.50.

  3. Paul Klinkman says:

    In some ways this goes back to the end of WWII. The Allies forced a multiparty democracy on Germany. This allowed third parties, in this case the Green Party, to gain a foothold in the Bundestag and to share real power in a coalition. The Green Party’s demands weren’t particularly revolutionary in a market economy — more wind and solar, start closing down the badly designed East German Communist-era nuclear plants and so on. So, larger parties found it easy to take them on as minor partners. The Green Party achieved a pretty much self-sufficient German energy economy, they stopped the country’s hemorrhage of German marks to oil-rich countries and they drove German industry forward. Not bad for a bunch of protest kids. As the Green Party gets larger they become harder to lock out of ruling coalitions.

    We have stupid centrist pro-business Democrats, cultlike business Republicans and a Green Party that has never been given charge of almost anything at any time, nor is it about to get any power at all at least in the near future.

  4. Mulga Mumblebrain says:

    I think it rather regretable that the article discusses German renewable energy without the necessary foundation of stating that it is renewable energy or civilizational collapse. Germany is either moving to renewables primarily to protect the environment conducive to our species’ survival, or it is doing it for some other, mysterious, reason. It’s akin to the position in Australia where our strange PM, Gillard, risked enormous political damage in the face of a villainous campaign by the Murdoch sewer, in alliance with Big Business, to introduce a ‘carbon price’, yet she never mentions climate destabilisation at all, leaving the field to the thriving denialist industry.

  5. Omega Centauri says:

    grid [re]liability.

  6. onyerlefty says:

    Renewables or collapse? Hardly – it’s renewables, then collapse. The Energiewende is increasing Germany’s carbon output, and thus hastening the environment conducive to our species’s demise.

    Thankfully they’re still hypocritical enough to import nuclear energy from France, or we’d have no chance at all.

  7. If Germany had a carbon tax, the rate debate between renewables and fossils would be extremely brief.

  8. The technology to provide grid reliability for renewables exists. That tech looks expensive only because the cost of ending civilization as we know it is not priced in to the do-nothing alternative.

  9. Omega Centauri says:

    That was a correction in word use, not a comment about the grid. Yes, we will work out how to integrate renewables, cause we have no choice.

  10. Omega Centauri says:

    Its not the Energiewende, its the rapid shutdown of the Nukes. Had Fukushima not precipitated a huge rush to shut them early, the carbon would be decreasing. As it is the Energiewende faces a stiff anti-nuclear headwind.

  11. Craig Morris (@PPchef) says:

    Germany has had a carbon tax since 1999:

  12. Craig Morris (@PPchef) says:

    Did you read the article? It clearly states that Germany is not importing more nuclear from France or anyone else. For the latest data, see:

  13. Dennis Tomlinson says:

    We never should have formed political parties. Madison warned against it in Federalist #10. Now, with “winner take all”, and without an “instant runoff” mechanism it’s come down to two powerful parties – one beholden to the rich and powerful, and the other one even more so – and a plethora of powerless, narrow interested also-rans. And we just can’t do what so badly needs to be done.

  14. _Flin_ says:

    One figure that needs to be mentioned, is the secretary of economy, Mr. Roesler from the FDP (This party is comparable to the Republicans, only without religion, homophobia, guns and venom).

    Mr Roesler has a long term plan to abolish the EEG (renewable energy law). Whether his motives are ideological or lobby-oriented is unknown. But repeated propaganda about prices originates in his ministry, as well as some measures that added to the rising prices, like lowering the barriers for industry for not having to pay the EEG Apportionment. Before the limit was 10 GWh per year, now it is 2 GWh.

    Add to that freeing big parts of the industry from the “Netzentgelt”, which is the fee paid for using the power nets, and you arrive at a situation, where the industry prices for power sink, all the bigger consumers do not have to pay for the energy change, but you still get the “jobs jobs” argument. Plus the “prices are high” argument, by the people who ensured that prices rise in the first place.

    Really devious. And you can be pretty sure, that the “Energiewende” in Germany is about to end.

    Main mistakes: Fixed feed in tariff for solar installations, not connected dynamically to the amount of deployment.

  15. SecularAnimist says:

    onyerlefty wrote: “Thankfully they’re still hypocritical enough to import nuclear energy from France …”

    Unfortunately you’re still dishonest enough to post falsehoods.

  16. Ric Merritt says:

    Why does discussion of Germany’s considerable progress in some areas always start out with a grand framework (Energy Transition is quite the all-encompassing phrase after all) and then silently detour into figures that concern electric power production?

    The wind and solar stuff is very nice, and Germany’s achievement there certainly outdoes the US, but the rubber really hits the road (heh) with oil.

    What will happen to all that nice investment, and industrial economies generally, when world oil production drops a percent or 2 or 4 in a year? Are we making some nice progress in running mines, with their power equipment with the tires twice as tall as the guy driving it, on electricity? How about container ships? Anything else big and brawny? Didn’t think so.

    The electric power production is the easy part, as long as it takes place in the context of lots of fossil fuel burning. Can you build and install a honking big wind turbine without burning oil? No. Is anyone even making progress on that at a rate extrapolated to be successful before the oil is unavailable at a price low enough to keep the economic wheels turning? Not that I have heard.

    Let’s be open to good arguments, but let’s at least discuss the central questions.

  17. Bob Lang says:

    You raise some excellent points.
    95% of everything we move from A to B gets moved with oil in our just-in-time-delivery economy. Supermarkets carry about 24-48 hrs worth of inventory. Yet people only talk about electrical power.
    Transition to an electric transportation system would take decades. There is no way our oil supply will last that long.
    It’s a scary predicament.

  18. Turboblocke says:

    Ric says Can you build and install a honking big wind turbine without burning oil? Yes. You can use surplus electricity to synthesis hydrocarbons or release hydrogen which can be use to fuel conventional engines. Factories don’t need to burn oil.

    I find it amazing that we in Europe have solutions to many of the renewable problems already implemented, yet in the major first world economy of the USA people are still displaying such an uninformed “Can’t do ” attitude.

  19. Mulga Mumblebrain says:

    Which is why the Chinese system is so much more rational and successful. One party of power, beholden only to itself and the population, not a rich moneyed elite. If you want to serve your country in government, you join the party of power, and rise according to your merits. You get gradually greater and greater responsibilities and prove yourself along the way. There is no vicious, destructive, oppositionalism, as we see currently in the USA and Australia, that defeats sensible, rational, policy. Policy is predicated on utilitarian, scientifically based parameters, not the need to repay debts to patrons. Of course the Chinese system still suffers from factionalism, but that’s pretty near ineradicable amongst human beings. And the proof of the pudding is in the eating.

  20. Bob Lang says:

    Typical utopian fantasy.
    Been reading too much science fiction lately?

  21. Jay Alt says:

    More news and less Battle Star Galactica daydreams will help you avoid that next UF. [ Uninformed FAIL ]

    1.31.13 –Audi to produce e-gas, its own synthetic fuel using wind, solar and captured CO2

    Audi is constructing a huge synthetic natural gas plant in Germany that demonstrates its commitment to renewable energy just as it provides some valuable R&D to help prove e-gas is economically and environmentally possible. The 44,000-square-foot plant is in Werlite, a small town in northwestern Germany near the North Sea, 217 miles north of company headquarters in Ingolstadt, near Munich.

    The goal is carbon-free fuel, and it sounds far from easy. Wind turbines generate electricity to manufacture hydrogen by electrolysis, which then is used, along with CO2 captured from the air, to produce methane. Audi calls it e-gas.. . .

  22. Jay Alt says:

    That report neglects to mention the wind power they’ll use to make fuel is the extra which currently plays havoc with other types of power generation systems on the grid. Rather than dumping the wind power into Czech or neighboring states (and causing them grid balance challenges), they will store it as ‘green’ fuel.

  23. Turboblocke says:

    Nice one Bob, we’re actually living in this “utopian fantasy”. As someone with kids and grandchildren I have no problem with the USA allowing it’s competitive advantage to waste away. YMMV.