Germany’s Ambitious Renewable Energy Policy and the Lessons Others Should Learn from It

The European Union has often been considered a trend setter by its counterparts in terms of its’ renewable energy initiatives. As of today, the EU is on track to produce thirty-five percent of its electricity generation from renewable energy resources by 2020. While all members of the European Union are on board with this plan, only a few of its members have decided to pursue the policy more aggressively than others.

Germany has begun to implement one of the most ambitious renewable energy production plans in the world. Instead of following the crowd and aiming for thirty-five percent by 2020, Germany has passed legislation to generate forty to forty-five percent of its electricity generation from renewable resources, and eighty percent by 2050. In 2014, twenty-seven percent of the country’s electricity generation was produced from renewable resources, compared to just thirteen percent of electricity generation from the United States. As part of what the German government is calling its Energiewende, or “energy transition”, the country will also look to cut forty percent of its greenhouse gases by 2020. In order to accomplish higher renewable resource use and lowered emissions goals, the German government utilizes two specific approaches; wide-ranging incentives and support for renewable sources and dwindling usage of nuclear power.

Germany developed a “feed-in tariff” as an incentive for those who support the country in their goal of increasing the use of renewable resources as part of their incentive program. The FIT system promises long-term fixed tariffs per unit of renewable power produced (Cichon). These government-guaranteed prices are binding for twenty years. According to Robert Greene, the incentives also include promises of above-market prices for each kilowatt-hour fed into the grid by those who install solar panels or finance windmills. The German government has also given these green sources grid priority. This means that under German law, these renewable resources must be drawn upon first before more traditional means such as electricity produced form gas or coal. As a direct result of this renewable energy installation has exploded over the years in Germany. In order to bring in a little extra income it is not uncommon from farmers to install their own solar power cells in order to sell whatever energy is produced back to the grid and the above market, government mandated rates. The graph below shows the rapid growth of five major sources of renewable energy: hydro, wind, bioenergy, biomass, and solar power.

Other nations looking to increase their own renewable energy production have often cited the European country as a role model. The state of Wisconsin was one such entity that looked towards Germany for inspiration when creating their own renewable energy policy. Wisconsin lawmakers saw the incredible rate of production in renewable energy after the German Energiewende was implemented and wanted to imitate the structure of the policy because of similarities between the two (both Germany and Wisconsin have very large manufacturing and industrial sectors). The state drafted a proposal requiring thirty percent of its electricity generation by 2030, using Germany as an example when they said the European country was proof that an “aggressive renewable energy mandate is not only workable, but entirely compatible with a thriving 21st century economy.”

However, while Germany’s zeal to create a greener country should be applauded, the plan’s critics have been very vocal about the policy’s negative impacts. The first is how much the government mandated incentives have actually cost the country. According to Meg Cichon, a reporter for Renewable Energy World, Germany “underestimated the ultimate cost of the FIT, which to date is $412 billion, including guaranteed and grated rates that have not yet been paid.” Peter Altmaier, the German Minister of the Environment, estimated that the cost of the program will rise to $884 billion by 2022, paying $31.1 billion in 2014 alone. Some estimate that by 2040 the Energiewende could cost the country up to $1.4 trillion (Greene). The government isn’t the only one shouldering the cost of this incentive program.

No one could argue that the FIT program has not succeeded in expanding the country’s use of renewable energy, now responsible for twenty-seven percent of the country’s electricity generation, but unfortunately the same cannot be said about making it cost efficient and the consumers are the ones suffering because of it. Electricity prices in Germany are now more than double those in the United States. The German government has tried to ease some of the burden of the FIT program by passing the subsidy cost on to consumers. “While the flood of new energy sources has lowered market prices for electricity, consumer prices have actually increased as the surcharge has risen to make up the difference between the market and government-guaranteed prices.” This surcharge has now tripled since 2010 and can account for approximately eighteen percent of a household’s electric bill (Greene). The argument against the Wisconsin bill was centered on this particular consequence of Germany’s bill. Wisconsin residents currently pay a fraction of what their German counterparts pay for their electricity but those rates are guaranteed to rise with a more aggressive renewable energy policy.

The government attempted to make the policy a little more business friendly by exempting about 2,000 of the country’s largest industrial users from the surcharge (something lawmakers in Wisconsin brought up as a possible compromise) until at least 2017 but the majority, nearly seventy-five percent, of Germany’s small and medium sized businesses are concerned about how quickly energy costs are rising. According to a poll by the U.S. Chamber of Commerce, a similar percentage of American companies operating in Germany said the rising rates made the country a less viable option for continuing operations there. The CEO of Infineon Technologies, Reinhard Ploss, a nonexempt company, was quoted saying his company would pay 25 million less in Austria for the power it used in Germany. According to an article in the Economist, the companies that are exempt say the higher cost is still passed on to them from smaller suppliers and contractors who are not exempt through higher than normal prices. Companies considering doing business with the country are now reconsidering as the cost of that business continues to rise. According to Matthew Karnitschnig, a writer for the Wall Street Journal, it’s driving traditionally German business elsewhere. “[…] for the first time since 2008, German companies cited rising overall costs at home as a motivation to invest abroad in a recent survey by the German Chambers of Congress.”

Basi Schoberl GmbH is one such company that has decided to take action because of this policy. The German industrial gases company canceled it’s plan to grow their operation in Germany in favor of putting that money into their operation located in France. That sum, approximately ten million euros, was deemed too risky of an investment for Germany at the time due to the government’s Energiewende (Karnitschnig). SGL Carbon is following suit. The carbon-based product maker decided to invest $200 million in their plant in Washington rather than their home plant in Germany after finding that their electricity rates would be one third of the cost. In response, the German government was quoted as saying that it “was committed to limiting the negative impact on the broader economy. Once Germany’s renewable infrastructure is complete, electricity prices should fall.”

Most who consider the plights of Germany’s ambitious renewable energy policy see it as a classic case of putting the cart before the horse. The country seemed so eager to become as energy efficient as possible that they launched right into production before considering transmission or storage. As a result, high prices and good intentions are having a crippling effect on a plan that would otherwise be heralded as a success. Gunther Oettinger, one of Europe’s top energy officials conveyed it as Germany “building a train station before the tracks have been laid. The country has built wind park after wind park after wind park instead of focusing on how it will transmit the electricity to where it is needed.”

Germany should be applauded for its tenacity in utilizing renewable resources for electricity generation. It should, and does, serve as a role model for those with similar goals. But it should also serve as a role model for things that can go wrong if the proper planning is not considered before embarking on a policy as progressive and complicated as this. Continued advances in the grid systems and the storing of renewable energy are needed before the problems created by the Energiewende can be overcome.

Works Cited

1. Cichon, Meg. “US Should Learn from Germany’s Renewable Energy… Mistakes?” Renewable Energy World. July 16, 2014. Accessed April 9, 2015. http://www.renewableenergyworld.com/rea/news/article/2014/07/us-should-learn-from-germanys-renewable-energymistakes.

2. Greene, Robert. “What Has Gone Wrong with Germany’s Energy Policy.” The Economist. December 14, 2014. Accessed April 11, 2015. http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-10.

3. Karnitschnig, Matthew. “Germany’s Expensive Gamble on Renewable Energy.” The Wall Street Journal. August 26, 2014. Accessed April 11, 2015. http://www.wsj.com/articles/germanys-expensive-gamble-on-renewable-energy-1409106602.

4. Kroh, Kiley. “Germany Sets New Record, Generating 74 Percent of Power Needs from Renewable Energy.” Climate Progress. May 13, 2014. Accessed April 11, 2015. http://thinkprogress.org/climate/2014/05/13/3436923/germany-energy-records/.

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