Learning from Germany's Renewable Energy Transition
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.