Facts About The German EEG Program
- January 16, 2012
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As a result of Germany’s decision to phase-out its nuclear plants by 2022 and meet its self-imposed CO2 emissions targets, Germany will need to build out its renewables capacity to increase its renewable energy production. Almost all of that increased energy will be covered, i.e., subsidized, under existing renewable energy laws.
Germany’s Renewable Energy Act (EEG) of 2000 guarantees investors above-market fees for renewable energy for 20 years from the point of installation. An EEG surcharge, equal to the feed-in tariffs paid by utilities for renewable energy, minus the revenue from that energy fed into the grid, is added to the electric bills of almost ALL households and businesses.
In 2010, German investment in renewables was about 29.4 billion euros, of which about 25.8 billion euros in 7,400 MW of solar systems (3,485 euro/kW). Note: 1 bn = 1,000 million.
In 2010, about 79%, or about 80.7 TWh of renewable energy was covered by the EEG program at an average cost of 15.85 eurocent/kWh. The cost has been steadily rising from 10.87 eurocent/kWh in 2006, primarily due to the rapid solar build-out.
The EEG charges on household electric bills were 5.6, 7.6, 8.8,10.7, 8.2 and 13.5 billion euros from 2006 to 2011; they are expected to be 14.1 and 20.4 billion euro in 2012 an 2013, respectively.
The EEG charges on household electric bills were: 0.41, 0.58, 0.68, 0.88, 1.02, 1.12, 1.13, 2.047, 3.53, 3.592 eurocent/kWh, excl. VAT, from 2003 to 2012: it was 5.277 eurocent/kWh for 2013, and 6.240 eurocent/kWh for 2014, a 6.240/3.592 = 74% increase over 2012, much greater than expected, due to EEG law changes.
In 2011 the EEG apportionment to household electric bills was 3.53 eurocents/kWh, excl. VAT, 14% of the consumer price, or 4.20 eurocents/kWh, incl. VAT, 16% of the consumer price. Thus the national average consumer pricewas 4.20/0.16 = 26.3 eurocents/kWh.
– In 2011, Germany had the 2nd highest household electric rate in Europe, Denmark was No.1 at 30.5 eurocents/kWh.
– The 2011 EEG apportionment reflects the energy production of the renewable systems installed PRIOR to 2011.
Renewables Build-out: As the phase-out of the nuclear plants proceeds and to meet Germany’s self-imposed 2020 CO2 emissions targets, the following will need to be installed during the next 9 years to augment the renewables energy production from 101.8 TWh in 2010, or 16.8% of production, to 344 TWh in 2020, or 57% of production.
– About 53,300 MW of NEW offshore and 696 MW of NEW onshore wind capacity (about 2 times existing, buildrate about 6,000 MW/yr)
– About 64,680 MW of NEW solar capacity (almost 4 times existing, buildrate about 7,000 MW/yr)
– About 1,400 MW of NEW biomass capacity (about 0.3 times existing, buildrate about 150 MW/yr)
This reference shows how the above renewables capacities were calculated.
Renewables investments, subsidies, and EEG apportionments will increase, even though the feed-in tariffs for later solar installations are less/kWh than for earlier installations.
EEG Subsidy Projection: In this study the subsidy was calculated using the following assumptions and conditions;
– The annual production remains constant at 603 TWh in 2010 through 2020 due to increased energy efficiency.
– The renewables energy is 16.8% of production in 2010, or 101.8 TWh, and 57% , or 344 TWh in 2020.
– The build-out starts the beginning of 2012 and ends the end of 2020, i.e., 9 years, for calculation purposes.
– The EEG percentage remains at 79% of renewables production.
– The EEG subsidy remains constant at 15.85 eurocent/kWh from 2012 to 2020; a conservative value because it should be rising due to the more expensive offshore build-out being added to the renewables mix.
– The EEG apportionment increases at a constant 1.25 eurocent/kWh each year from 2013 to 2021; a conservative value. This increase is due to the increasing quantities of renewable energy covered by EEG subsidies.
– Future feed-in tariffs will likely not be reduced, because it would reduce capital inflows and slow down the renewables build-outs, which is undesirable, if nuclear plants are to be decommissioned.
– Based on forecasts by the four German transmission system operators, the EEG surcharge is likely to increase from 3.592 eurocent/kWh in 2012 to 5.277 eurocent/kWh in 2013. It may become 6.5 – 7.5 eurocent/kWh in 2014.
Based on the above assumptions and conditions, the EEG subsidy are estimated to rise from 12.8 bn euros in 2010 to 43.1 bn euros in 2021, for a total of 321.67 bn euros for the 2012 – 2021 period.
The revenue from selling the EEG energy is estimated at 101.45 bn euros for the 2012 – 2021 period.
The net cost. i.e., the EEG surcharge apportioned to electric bills, is 321.67 – 101.45 = 220.23 bn euros, or $308.3 billion.
Note: The 2021 apportionment reflects the energy production of the renewable systems installed prior to 2021.
EEG Impact on Household Electric Bills: The EEG apportionments are estimated to increase monthly electricity bills of households from 26.3 eurocents/kWh, incl. VAT in 2011, to 39.7. incl. VAT in 2021, a total increase of (39.7 – 26.3)/26.3 = 51% by 2021 compared with 2011. This increase is largely due to the solar and offshore wind build-outs. This is a real increase based on 2011 euros. Bills will likely increase by more than 51%, because other components of the household bill will also increase.
The EEG apportionments will be borne by all households, including those without solar systems. They act as a steadily-increasing regressive tax that will affect lower income households more than higher income households, many of which receive feed-in tariff benefits from having solar systems; an inequitable condition.
SUMMARY OF ESTIMATED CAPITAL AND OTHER COSTS
This is a summary of my estimate of the capital costs and other costs for phase-out the nuclear plants, restoring the sites, adding fossil plants to replace nuclear plants, building out renewables to replace nuclear energy, adding wind and solar energy balancing plants, reorganizing electric grids and increased energy efficiency over 9 years to satisfy Germany’s self-imposed 2020 CO2 emissions targets. $1 billion (US) = $1 milliard (Europe)
Increased energy efficiency: $20 b/yr x 9 yr = 180 billion; ($20 b/$3,286 b in 2010) x 100% = 0.6% of GDP, or $250 pp/yr
Decommission 23 nuclear reactors and restore sites: 23 @ $1 billion/reactor = $23 billion
Plants to replace nuclear plants: 25,000 MW of CCGTs @ $1,250,000/MW = $31.3 billion
Wind turbines, offshore: (53,300 – 150, existing) MW @ $4,000,000/MW = $212.6 billion
Wind turbines, onshore: (27,900 – 27,204, existing) MW @ $2,000,000/MW = $1.4 billion
Solar systems: (82,000 – 17,320, existing) MW @ $4,500,000/MW = $291 billion
EEG feed-in tariff costs added to electric rates over 9 years $450.3 billion, less $142 billion revenue from sale of EEG energy (0.79% of total renewable energy): $308.3 billion
Balancing plants: 25,000 MW of OCGTs and CCGTs @ $1,250,000/MW = $31.3 billion
Reorganizing the German grid and neighbor grids: $100 billion
Biomass (incl. biogenic waste): 1,400 MW @ $3,000,000/MW = $4.2 billion
Note: The estimate does not include any future energy storage systems or sequestering systems (a dubious technology) for underground storage of CO2.
Other Estimates of Capital Costs: The EIA says an ADDITIONAL $36 trillion of investment will be required to overhaul the world’s energy system by 2050, but this will be offset by $100 trillion in savings through reduced use of fossil fuels. The capital cost estimate appears too low, the cost savings, much more difficult to estimate, appear much too great.
Example showing EIA capital cost estimates are much too low: Siemens estimates the total price tag of meeting Germany’s renewable, energy efficiency and CO2 emissions goals at about 1.7 trillion euros ($2.26 trillion) by 2030; the estimate includes decommissioning nuclear plants, energy storage and CO2 sequestering systems.
Remember that does not get Germany to its energy and CO2 emission goals by 2050, which would be about another 1.7 trillion euros ($2.26 trillion), for a total of $4.5 trillion by 2050.
If the US were to follow Germany’s course, the cost would be about ($14.5 trillion, US GDP)/($3.5 trillion, German GDP) x $2.26 trillion = $9.36 trillion, plus about another $9.36 trillion for 2050 emission goals, for a total of about $18.7 trillion by 2050.
The US cost likely would be even greater as it is more spread-out than Germany and more of its aging electrical systems would need to be upgraded and replaced.
It is 100% sure, the US will NOT follow on that course anytime soon, if ever, and almost all other nations will not either.
Additional estimates of capital and other costs are in these URLs.
IMPACT OF NUCLEAR PHASE-OUT ON THE GERMAN ECONOMY
The existing power generation system is based on 60% fossil, 23% nuclear and 16.8% renewables. Exchanging the existing system with one based on 43% fossil and 57% renewables implies an owning+O&M cost of about 2 -3 times the current system because:
– the renewables energy production units are more capital intensive PER UNIT OF PRODUCTION than existing energy production units.
– the useful service lives of wind turbines is about 20 years and of solar panels about 25 years versus 40 to 60 years for existing energy production units.
– the reorganized grid serving the widely-distributed energy sources, fitted with demand and supply management, will have greater owning+O&M costs than the existing grid.
– almost ALL of the existing generators, plus about 25,000 of NEW CCGTs to replace the nuclear plants, will need to be staffed 24/7/365 and kept in proper operating condition to provide energy during periods of low renewables energy production.
– As renewables energy increases to about 57% of all energy production by 2020, the increased cost of energy will bear heavily on industry and commerce, thereby reducing their competitiveness in world markets, and job creation capacity in Germany.
The economic impact of the transition will increase the costs of German goods and services which will
– adversely affect its competitive position in world markets.
– lower the living standards of households, accelerating the current trend.
– affect, on a relative basis, Germany faring better than its neighbors, if these neighbors cannot be persuaded to follow Germany’s lead; as a minimum, it appears likely England, France and the Netherlands will not.
– divert capital from economic development, such as energy efficiency, that provides much better returns on investments without subsidies.
Diverting scarce resources from unsubsidized, profitable ventures to subsidized build-outs of wind and solar energy that have high owning+O&M costs and rolling those costs into rate schedules and the prices of goods and services is a sure way to make Germany less competitive relative to the rest of Europe and East Asia, lower living standards and increase unemployment.