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Will Germany's Free Electricity Days Last?

Germany, which is already a leader in wind energy, provided free power to consumers this past weekend as output from its wind energy sources reached 39,409 megawatts (or the equivalent of 40 nuclear reactors). After Christmas last year, this is the second time that the country has provided free power due to excess renewable energy. Not surprisingly, online publications and newspapers celebrated the occasion. But Germany’s free wind power comes at a cost and may not last long.

According to reports, the country spent $26 billion on renewable energy sources in 2016. An overwhelming majority - almost $25 billion of the total - was subsidized by consumers through an electric surcharge on their bills. That surcharge has risen by 50% from 2007 to 2016. In the wake of heavy subsidies for renewable energy, electricity prices have crashed as prosumers have entered the market. The effect of renewable energy sources on big electric utility players, which derive most of their power from traditional sources (such as coal), has been debilitating.

For example, E.ON, a utility that serves 19 percent of the total population, split into two companies at the beginning of 2016 and had shed 1,300 jobs by the end of that year. It reported a total loss of $18.6 billion in 2016. Its energy portfolio is dominated by nuclear energy sources, a source of power that Germany drastically cut after Japan’s Fukushima disaster. Renewable energy sources have to be economic and cost-effective for utilites because they still control the infrastructure and distribution capable of disseminating these sources. Too many free electricity days could prove to be harmful to their bottom line.   

Free electricity days also translate into additional congestion management payments for renewable energy power companies. For example, 50hertz, which is Germany’s largest such player in the renewable energy space, spent $408 million as congestion management costs in 2015. Last year, those costs were “almost halved” according to reports. Among the reasons were grid expansion, installation of phase shifters, and, importantly, fewer days with strong winds.

There are other problems with wind power as well. According to the Institute for Energy Research lists several, ranging from expensive land costs for wind farms to greater emissions, if regular fossil fuel sources are brought into play due to supply intermittency from renewable energy sources. The non-profit estimates that wind power is four times as expensive as its nuclear counterpart.

Germany is already turning its back on new wind farms and plans to stop making new ones by 2019. It already spends $1.1 trillion annually to support those farms. Instead the country is investing heavily in battery storage to boost backup capabilities due to erratic supply from renewables. Battery storage is capital intensive and, likely, may not lead to free electricity days for German consumers in the future.   

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