On Sunday, May 8, 2016, a long-held dream of Greens around the world seemed to come true. On that day, German wind and solar installations produced enough electricity to satisfy 87% of the consumption of the largest industrial power in Europe. Greens and fellow-travellers rejoiced for here finally was proof positive that clean renewable sources could supply us with all the energy we need and that the days of the hated fossil fuels appeared numbered indeed. Alas, hardly had the hype surrounding this momentous achievement died down, before the renewable claque suffered its greatest defeat in years, a defeat that may put paid to the whole German ‘Energiewende’ (energy transition) experiment that had long been the pride and joy and best hope of environmental zealots the world over. It came in the form of a new energy law passed by the Bundestag on July 8, 2016 that radically limited government subsidies for renewable projects by subjecting them to tenders and, for the first time, put an upper limit of 45% on the share of renewables in the energy mix. To understand how radical this change was and why it may result in a green paradise lost, we need to go back to the rationale and methods of the Energiewende.
In Sept. of 2010 a socialist-green coalition government in Berlin adopted a renewable energy law (EEG) mandating so called feed-in-tariffs (FiT) making it possible for installers of solar and/or wind installations to receive guaranteed state subsidies of up to 7 times the market price of electricity for 20 years. As the old saying goes, it’s easy to make money if somebody gives it to you and, to nobody’s surprise, both solar and wind projects exploded in a country not known for either its sun or wind. The EEG law also mandated that renewable energy must be taken first in the grid, giving it an unbeatable commercial advantage. In no time at all, Germany became the world champion of renewable energy installations and the darling of the green crowd. This economically dubious policy was continued under Chancellor Angela Merkel’s ‘conservative’ coalition government, which also ordained a ban on nuclear energy after Fukushima on the completely irrational assumption that Germany could suffer a similar earthquake and tsunami.
The inevitable consequences of this government attempt to pick winners and losers in the market place based on its political desiderata were quick to show. Somebody had to pay for the huge subsidies (up to €80 per MWh for wind and up to €490 per MWh for solar or a total of $100 billion between 2000 and 2011) and Berlin decided early on that that somebody was to be the electricity consumer. And so today the average German electricity rate-payer pays a renewable surcharge of 6.54 euro cents per kilowatt/hour on top of the rapidly increasing electricity costs that are already among the highest in the world. According to Forbes Magazine, in 2015, the Germans paid 39.5 cents per KWh for residential power and 17.9 cents for industrial power, while U.S. customers paid 12.5 and 7 cents respectively. Not surprisingly, this has now created a new category of ‘energy-poor’ Germans, who cannot pay their energy bills. In 2014, the last year for which data exists, in the greatest industrial power in Europe, 351.802 households had their electricity turned off for failure to pay and another 6.3 mln households received warnings to that effect.
Nor are these the only negative implications of the Energiewende. The huge government subsidies, the intermittent nature of renewable energy and the need to maintain a base load on the grid have distorted the market to such an extent that, at peak production, producers are often forced to sell or export electricity at a loss, while households continue to pay through the nose. The subsidies and the collapse of the vaunted EU carbon emissions market have also led to the disappearance of all but the cheapest producers, which more often than not are coal-fired power stations. Today, as clean energy producers such as nuclear are disappearing and relatively clean gas-fired stations cannot compete, they are being replaced by polluting lignite and brown coal producers that already account for 42% of the total. This, of course, makes for greater emissions of CO2 and a mockery of the Energiewende ultimate objective of saving us from the putative horrors of global warming.
So what is the future of Germany’s historic experiment with renewable energy? Renewables have always been burdened and often doomed by two major problems – intermittence and lack of energy storage. The former will forever remain the case, but technological progress may eventually be able to solve the latter. Whether this will happen in time to save the Energiewende remains doubtful however. On current evidence what is most likely to happen is what already took place in another highly promising renewable experiment in Europe, that in Spain.
The lessons of Spain’s short and dismal infatuation with solar energy is well-documented and does not need a long retelling here, except for the basic facts. Beginning in 2007, the Spanish government decided to force the development of photo-voltaic (PV) solar systems as a solution to the energy problems of a country that had few fossil fuel resources, but was blessed with abundant sunshine (50% higher irradiation than Germany). To attract investors it offered them exceedingly generous terms of 5.75 times the cost of fossil fuel energy, or 47 cents per KWh guaranteed for 25 years and 4.7 times thereafter. This amounted to an incredible internal rate of return (IRR) or profit of nearly 20%. Not surprisingly, investors, opportunists and crony capitalists responded enthusiastically to this give away and the government planned 400 MW of installed PV capacity exploded to 3000 MW in just two years. Unfortunately, so did the subsidies and accumulated deficits. From €194 mln in 2007 to €2.6 bln in 2009 and €4.5 bln in 2012 and a €26 bln deficit the same year. Faced with a fiscal disaster, Madrid did the only rational thing it could by slapping a moratorium on further PV installations in 2012 and doing away retroactively with the feed-in tariffs that had ushered in the madness to begin with. It has been challenged in court by hundreds of companies since then, but has beaten back all of them so far. In the meantime, 44,000 of Spain’s 57,900 PV installations are on the verge of insolvency, jobs in the sector have collapsed from 41,000 to less than 10,000 today and the largest company of them all, Abengoa, filed for bankruptcy protection last March.
Circumstances in Spain are certainly different and not necessarily easily transferable to the situation in Germany, but one thing appears to be the same and that is the blind faith of government officials and green zealots alike in renewable energy as a panacea for all our problems real or imagined. It resembles a new religion based on faith and fear rather than science and is unlikely to provide lasting solutions to real life problems.
By Alex Alexiev