Are Governments Overreaching When It Comes To Green Energy?
Germany is now the target of a PR-assault — one that is taking aim at its plans to expand its renewable energy portfolio using government’s levers. A new report says that green energy “subsidies” there have cost more than $412 billion to date, with a potential price tag of $884 billion by 2022.
While the report has merits, it is funded by the Edison Electric Institute that represents investor-owned utilities that are dubious of over-reaching green energy mandates — fearing that such polices could jeopardize electric reliability and drive up the cost of doing business. The report, authored by Finadvice, goes on to say that the “generous renewable subsidy program” raises retail rates for residential electricity customers in Germany.
“As our research shows, the United States has a unique opportunity to consider the lessons learned from Germany in order to achieve positive results from integrating renewable generation into the grid, at lower cost and risk for all stakeholders,” says Jeffrey Altman, senior advisor at Finadvice, in a release. An analysis by McKinsey and Siemens also notes that German customers pay 40-50 percent more than the average energy user in the European Union.
Because wind and solar are intermittent resources, thermal power plants running on coal or natural gas remain prevalent so as to meet Germany’s energy demand. In other words, the fossil-fired plants must stand ready to rev up and produce energy — something that increases not just electricity prices but also something that boosts emission levels, especially if coal plants are used as back up.
Renewables make up about 23 percent of Germany’s electricity mix. One of the keys to this growth has been “feed-in tariffs.” Such government incentives guarantee each plant operator a fixed tariff for electricity generated that is channeled into the grid. Each grid system operator is obliged to pay the statutory fee, which is dependent on the technology used and the year of installation.
But Germany does not have “generous subsidy” program for renewables, writes Craig Morris, co-author or EnergyTransition, in an op-ed for EnergyPost. He says, simply, that the feed-in-tariffs are prices that are agreed upon by government and industry to ensure that manufacturers and service providers remain profitable without having to gouge customers. At 6 percent, he says that Germany’s tariff is well below what the energy providers there had requested.
Feed-in-tariffs “do not guarantee a return at all – they simply set a price per kilowatt-hour you sell to the grid; the law does not guarantee how many kilowatt-hours you will produce, but the price is designed to provide a roughly 6 percent return if a generator is properly installed and operated,” writes Morris.
To the contrary, he adds: Feed-in-tariffs make renewables cheap, noting that Germany has the lowest prices for solar arrays in the world. The ripple effect throughout the green energy supply chain is apparent. GTM Research says that the average residential solar system fell by 18 percent last year while non-residential prices dropped by 13 percent, as reported by GreenTech Media.
Germany, in fact, made headlines in May 2012 when it had generated 22,000 megawatts from solar power, which is about half the country’s electricity needs at the precise time it was done. Renewable advocates then hailed that short moment as a shining example of what clean energy could become — reliable, emissions free and dominant. Indeed, Siemens, which makes everything from gas turbines to wind turbines, has said that Germany can increase its renewable energy goals but that the path forward must be carefully considered, noting that the goal should change from hitting renewable targets to limiting carbon emissions.
“We believe we are obligated to explain to politicians what is possible and practical, and how trends in the energy sector are developing,” says Dr. Udo Niehage, who is responsible at Siemens for all matters pertaining to the energy transition.
Without a doubt, Germany will need to make periodic adjustments to its energy goals and policies. That will likely mean reducing the level of the feed-in-tariffs if retail rates run rampant. High green energy prices would, ironically, lead to the burning of more fossil fuels and the creating of more heat-trapping emissions, especially as Germany seeks to retire its existing nuclear power plants.
Something for the United States to consider? Hefty government supports cannot last here, politically or economically. But some type of subsidy for wind and solar will continue. The goal is to create grid parity, which means that green fuels would be competitive with other energy sources without federal help.
By all accounts, prices tied to solar panels and wind turbines are dramatically falling. As such, wind and solar production increased by 16 percent and 49 percent in 2012 in this country, respectively, says the Lawrence Livermore National Lab. Still, the two fuel sources as a percentage of the overall energy mix in the United States only account for 4 percent of all energy generated.
Clearly, the incumbent utilities with huge stakes in thermal power and grid operations have a keen interest in how any country formulates its public and tax policies. Ditto for the renewable power industry. While they will need to be flexible, proactive governments in both Germany and the United States have helped reduce the price of the underlying technologies that may ultimately make those green energies more competitive.