Germany's Example

April 30, 2010

Ken Silverstein, EnergyBiz Insider
Editor-in-Chief

Germany has established itself as a beacon for green energy development. Other countries have been advised to try and emulate its strategies. While national policies can and should be idiosyncratic, Germany is directly financing its renewable sector as well as providing subsidies for operational costs, or feed-in tariffs.

Government backing is critical to the expansion of renewable energy around the globe. It provides the appropriate incentives and mandates that give developers the certainty they need to take risks. In the case of Germany, such a plan has propelled the nation to the forefront of international wind and solar development. As such, it is now projected to invest annually $37 billion into the green economy there by 2020, all to produce 27-30 percent of its electricity from such sources by then.

"The results of our study show that renewable energy can play an increasingly important role for Germany in the coming years, if the industry develops as expected," says Jens Hobohm, an energy expert from Prognos that was hired to by the German Association of Renewable Energy to study the sector there.

According to Germany Trade and Invest, the total amount of electricity produced from all renewable sources has risen from 6 percent in 2000 to 16 percent in 2009. Doubling that amount to 30 percent in another decade will then require persistent public sector involvement, adds the foreign trade arm of the German government.

As a result of the oil embargo of the 1970s, Germany learned that it had to be more energy independent. It thus started down the path of investing in green energy. The movement really took hold in the 1990s after the European continent embraced the Kyoto Protocol, which sought to gradually reduce greenhouse gas emissions.

Consider RWE, one of Germany's biggest energy producers: Green energy now accounts for about 3 percent of its entire generation portfolio. But the company has said publicly that it will increase its commitment to renewables by 40 percent a year. Also: E.ON and Vattenfall, two other German energy mammoths, are investors in the country's Alpha Ventus, an offshore wind facility. Altogether, the country has plans to build 12,000 megawatts of offshore wind by 2020.

Germany's investment and legal environments are stable and predictable. The government is providing cash incentives to domestic and foreign green developers alike while it also has a well-established precedence of honoring official contracts and intellectual property rights.

"Germany's central position in Europe makes it an ideal location -- our government incentives and reliable investment environment have only increased the country's attractiveness to investors," says Thomas Grigoleit, director of renewable energies for Germany Trade and Invest.

Feed-in Tariffs

Despite criticism, fossil-fired and nuclear generation will remain integral to Germany's generation mix. With that, though, the government has set aggressive green goals.

The country's wind industry provides about 6.5 percent of the total electricity generated. Altogether, it has an installed capacity of roughly 26,000 megawatts. Meantime, the photovoltaic rooftop solar sector has received the most investment at roughly $10 billion. Installations in 2009 totaled 3 gigawatts, which accounted for about half the world's solar market installations for the year, says Germany Trade and Invest.

Mike Miskovsky, general manager for U.S. operations of Canadian Solar, says that feed-in tariffs have fostered the growth of the solar sector in Germany -- something he says should be copied around the globe. That means, simply, that the utility or the government will pay homeowners a flat fee for every kilowatt-hour of energy they produce. It's a policy endorsed by the country's utilities, which are obligated to meet the demands of the Kyoto Protocol and its own renewable portfolio goals.

"Germany is not the world's leading market because of the available sunshine," says Miskovsky. "Its solar system is akin to that of Alaska. But it has established its solar base using the feed-in tariff."

Deutsche Bank has also given Germany high marks for the way it has implemented its feed-in tariffs for both its solar and wind industries, saying that the policy has helped build the green economy there while also contributing to the decline of greenhouse gases. But it adds that more capital is necessary for it and other nations to meet their obligations under the international climate treaties to which they have signed.

Subsidies tied to the photovoltaic feed-in tariff could drop by as much as 16 percent in the coming months, which has prompted some German companies to complain that such a move would hurt green businesses. But the government there is of a different view, noting that the toll's decline would be correlated with the drop in the cost of solar technologies, all of which officials hope will continue to spur development there.

"Carbon markets may provide policy support to investors in the long term." says Mark Fulton, global head of climate change investment research for Deutsche Bank. "However, for the foreseeable future, investors will be focused on mandates and incentives. We believe that appropriately designed and budgeted feed-in tariffs have demonstrated their ability to deliver scale."

Germany's central government remains committed to nurturing the growth of its green economy. Sustainable businesses, it argues, will allow it to meet its green energy goals and clean air targets while at the same time cultivate a modern workforce. In this regard, the country has become an international role model and provided a prototype for other nations to follow.


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Ken Silverstein
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