Perhaps when Germany’s Chancellor Angela Merkel was a
child, she attend a party and was the only one who came without a present, or
wearing inappropriate attire—and the embarrassment she felt haunts her to this
day. That’s how psychodynamic psychology (Freud) might explain her December 3
decision spend more money on Germany’s failing energy experiment to avoid, as
Reuters puts it:
“the embarrassment of missing her government’s goal of a 40 percent reduction
of emissions by 2020.”
As Europe’s biggest
economy, Germany has also embraced the biggest carbon dioxide reductions
through a program known as “Energiewende”—or, in English, also called energy
change, shift, or transformation. Energiewende was launched in 2000 under
Merkel’s predecessor who offered subsidies for any company that produced green
energy.
While the European Union
(E.U.) has committed to carbon dioxide cuts of 40 percent by 2030, Germany’s
national goal aims to get there a decade sooner—which may have seemed
achievable early in the program. After the 1990 reunification of Germany, the
modernization of East Germany brought rapidly reduced emissions. However, the
program’s overall result has raised costs and the emissions the expensive
programs were designed to cut.
A few months ago,
Bloomberg reported
that due to increased coal consumption: “Germany’s emissions rose even as its
production of intermittent wind and solar power climbed fivefold in the past
decade”—hence Merkel’s potential embarrassment on the global stage where she’s
put herself in the spotlight as a leader in reducing emissions.
On December 3, while 190
governments were meeting for two weeks of climate change talks in Lima, Peru
(which, after 30 hours of overtime, produced a compromise deal that
environmental groups see “went
from weak to weaker to weakest”), Merkel’s cabinet agreed to a package that
continues Germany’s optimistic—though unrealistic—goal and increases subsidies
for measures designed to cut emissions. Regarding Germany’s “climate protection
package”, Barbara Hendricks, Environment Minister, admitted: “if no additional
steps were taken, Germany … would miss its targets by between five to eight
percentage points.”
The results of the German
agreement will require operators of coal-fueled power plants to reduce
emissions by at least 22 million tons—the equivalent of closing eight of them.
The Financial Times (FT) believes the
plan will “lead to brownouts in German homes.”
With the goal of
generating 80 percent of its energy from renewable sources by 2050, Germany has
aggressively pursued a green dream with unsustainable subsidies that have
produced an unstable system described by
FT, on November 25, as: “a lesson in doing too much too quickly on energy
policy.”
So, what are the lessons?
What should the U.S., and other countries, learn from Germany’s generous
subsidy programs and rapid, large-scale deployment and integration of renewable
energy into the power system? These are the questions U.S. legislators should
be asking themselves as they argue over a tax extender package that includes a
retroactive extension for the now-expired Production Tax Credit for wind energy.
Fortunately, the answers
are easy to determine. Finadvice, a Switzerland based advisor to the utility
and renewable industry, did an exhaustive study: “Development
and Integration of Renewable Energy—Lessons Learned from Germany.” The
introductory comments of the resulting report, includes the following
statement: “The authors of this white paper would like to state that they fully
support renewables as a part of the power portfolio. …a couple [of the authors]
have direct equity interests in renewable projects.” The author’s viewpoint is
an important consideration, especially in light of their findings. They wanted
Germany’s experiment to work, yet they begin the Executive Summary with these
words:
“Over the last decade,
well-intentioned policymakers in Germany and other European countries created
renewable energy policies with generous subsidies that have slowly revealed
themselves to be unsustainable, resulting in profound, unintended consequences
for all industry stakeholders. While these policies have created an impressive
roll-out of renewable energy resources, they have also clearly generated
disequilibrium in the power markets, resulting in significant increases in
energy prices to most users, as well as value destruction for all stakeholders:
consumers, renewable companies, electric utilities, financial institutions, and
investors.”
After reading the entire
80-page white paper, I was struck with three distinct observations. The German
experiment has been has raised energy costs to households and business, the
subsidies are unsustainable, and, as a result, without intervention, the energy
supply is unstable.
Cost
We, in the U.S., are
constantly being told that renewable energy is close to cost parity
with traditional power sources such as coal and natural gas. Yet, the study
clearly points out the German experiment has resulted in “significant increases
in energy prices to most users”—which will “ultimately be passed on to
electricity consumers.” Germany’s cost increases, as much as fifty percent, are
manmade not market-made—due to regulation rather than the trust costs. The high
prices disproportionately hurt the poor giving birth to the new phrase: “energy
poverty.”
The higher costs hurt—and
not just in the pocket book. The authors cite an International Energy Agency
report: “The European Union is expected to lose one-third of its global market
share of energy intensive exports over the next two decades due to high energy
prices.”
Subsidies and instability
are big factors in Germany’s high prices.
Subsidies
To meet Germany’s green
goals, feed-in tariffs (FIT) were introduced as a mechanism that allows for the
“fostering of a technology that has not yet reached commercial viability.” FITs
are “incentives to increase production of renewable energy.” About the FITs,
the report states: “This subsidy is socialized and financed mainly by residential
customers.” And: “Because of their generosity, FITs proved capable of quickly
increasing the share of renewable power.”
Germany’s original FITs,
“had no limit to the quantity of renewables to be built” and “lead to
unsustainable growth of renewables.” As a result, Germany, and other E.U.
countries have “had to modify, and eventually phase out, their program because
of the very high costs of their renewable support mechanisms.”
Germany has also begun to
introduce “self-generation fees” for households and businesses that generate
their own electricity—typically through rooftop solar, “to ensure that the
costs of maintaining the grid are paid for by all consumers, not just those
without rooftop PVs.” These fees remove some of the cost-saving incentive for expensive
solar installation.
Section four of the
report, “Unintended Consequences of Germany’s Renewable Policies,” concludes:
“Budgetary constraints, oversupply and distortion of power prices,
transaction-specific operational performance, market economics (i.e. Germany
proposing to cut all support for biogas), debt structures, and backlash of
consumers paying higher prices were all factors contributing to regulatory
intervention. Projecting past 2014, these factors are expected to continue over
the next several years.”
Stability
Hopefully, by now, most
people—especially my readers—understand that the intermittent and unreliable
nature of wind and solar energy means that in order for us to have the lights
go on every time we flip the switch (stability) every kilowatt of electric
capacity must be backed up for times when the sun doesn’t shine and the wind
doesn’t blow. But, what most of us don’t think about, that the report
spotlights, is that because the favored renewables benefit from “priority
dispatch”—which means that if a renewable source is generating power, the
utility company must buy and use it rather than the coal, natural gas or
nuclear power it has available—the traditional power plants operate
inefficiently and uneconomically. “Baseload thermal plants were designed to
operate on a continuous base. …they were built to operate at their highest
efficiencies when running 24 hours a day, seven days a week.” Now, due to
renewables, these plants operate only a fraction of the time—though the cost to
build and maintain them is constant. “The effect of fewer operational hours
needs to be compensated by higher prices in these hours.”
Prior to the large
integration of renewables, power plants earned the most when demand is high—in
the middle of the day (which is also when the most solar power is generated).
The result impacts cost recovery. “There are fewer hours in which the
conventional power plants earn more than the marginal cost since they run fewer
hours than originally planned and, in many cases, provide back-up power only.”
This translates into
financial difficulties for the utilities that have resulted in lower stock
prices and credit ratings. (Note: utility stocks often make up a large share of
retirement portfolios.) Many plants are closed prematurely—which means the
initial investment has not been recovered.
Because the reduced use
prevents the power plants from covering their full costs—yet they must be
available 24/7, power station operators in Germany are now seeking subsidies in
the form of “capacity payments.” The report explains that a plant threatened to
close because of “economic problems.” However, due to its importance in
“maintaining system stability” the plant was “kept online per decree” and the
operator’s fixed costs are compensated.
*****
Anyone who reads “Development
and Integration of Renewable Energy” will conclude that there is far more
to providing energy that is efficient, effective and economical than the
renewable fairytale storytellers want consumers to believe. Putting a solar
panel on your roof is more involved than just installation. The German
experiment proves that butterflies, rainbows and pixy dust won’t power the
world after all—coal, natural gas, and nuclear power are all important parts of
the power portfolio.
Why, then, did Merkel
continue Germany commitment to an energy and economic suicide? It is all part
of the global shaming that takes place at the climate change meetings like the
one that just concluded in Lima, Peru.
If only U.S. legislators
would read “Development and Integration of Renewable Energy” before they
vote for more subsidies for renewable energy, but, heck, they don’t even read
the bill—which is why calls from educated constituents are so important. I am
optimistic. Maybe we could learn from Germany’s experience what they haven’t
yet learned themselves.
The
author of Energy Freedom, Marita Noon serves as the executive
director for Energy Makes America Great Inc. and the companion
educational organization, the Citizens' Alliance for Responsible Energy (CARE). Together
they work to educate the public and influence policy makers regarding energy,
its role in freedom, and the American way of life. Combining energy, news,
politics, and, the environment through public events, speaking engagements, and
media, the organizations' combined efforts serve as America's voice for energy.
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