Clearing Up the Facts About Solar In Germany

On January 18, 2012, the German magazine Der Spiegel published an article titled “The Solar Subsidy Sinkhole,” which paints a distorted picture of the German solar story. The following summarizes the misleading statements made - and facts to correct them.

SPIEGEL:   “As is so often the case in winter, all solar panels more or less stopped generating electricity at the same time. To avert power shortages, Germany currently has to import large amounts of electricity generated at nuclear power plants in France and the Czech Republic.”

FACT: During Europe’s extreme cold weather in February 2012, German news reported that Germany actually increased its electricity exports, thanks in part to photovoltaics helping to strengthen grid stability at peak hours. France, in turn, relying on nuclear powered heating, had to import electricity from Germany.

FACT: Germany has been a longtime net electricity exporter. In Summer 2011, the country did need to intermittently import electricity from neighboring countries; however, the cause was not attributed to photovoltaics, but to the nation’s ambitious shutdown of 8 nuclear power plants following the Fukushima disaster. Despite this bold move, Germany again became a net exporter of electricity in October 2011, according to the International Energy Agency’s most recent statistics. 

SPIEGEL: “German consumers already complain about having to pay the second-highest electricity prices in Europe.”

FACT: According to a recent poll reported by Focus magazine, 61% of Germans do not mind paying more for electricity, as long as it comes from renewable sources.  The magazine also reported that 71% would pay far more than they already are paying for clean, non-nuclear power. 

FACT: That said, renewable energy surcharges only account for a modest percentage of the German ratepayer electricity bill.

FACT: Also, because the German feed-in tariff law has catalyzed wide adoption of localized renewable electricity (consider that 60% of renewable power in Germany – and 79% of solar power - is owned by private citizens, businesses, and farmers), many German residents now create their own clean energy and thus pay far less or nothing in net costs for their electricity.

FACT: Those that opt to put solar on their rooftops in Germany pay on average only 60% of what it would cost them in the US. This is because such a robust PV industry has blossomed in Germany as a result of the strong, economically supportive legal framework.

SPIEGEL: “According to the RWI, the solar energy systems connected to the grid in 2011 alone will cost electricity customers about €18 billion in subsidy costs over the next 20 years. "The demand for subsidies is growing and growing," says RWI expert Manuel Frondel. If all commitments to pay subsidies so far are added together, Frondel adds, "we have already exceeded the €100 billion level."

FACT: Although the renewable energy surcharge rose on people’s bills in 2011, primarily to support a massive increase in solar installations, this only amounted to about 14% of consumer electricity bills, a relatively small share. According to the The Wuppertal Institute for Climate, Environment, and Energy, in a report sponsored by the German Renewable Energy Agency and supported by the Heinrich Boell Stiftung North America, the average household did not have to spend more than “about 0.3% of its net income on the support for renewable energies via the EEG (the German renewable energy law).

 SPIEGEL:  “The RWI also expects the green energy surcharge on electricity bills to go up again soon.”

FACT: The Wuppertal Institute for Climate, Environment, and Energy reports that RWI’s “costs are overestimated by at least 6% and up to 42%.”  According to the German Federal Environment Ministry, the renewable energy surcharge will continue to rise until 2016 and then fall  until 2030.

FACT: It is also essential to understand that the surcharge for renewable energy in the German feed-in tariff law was designed to be temporary - to bring to grid parity the cost of installing renewable technologies, which have not benefited from the previous decades of pampering enjoyed by conventional energies. The surcharge is intended to phase out as this goal is achieved.  The German feed-in tariff law has been remarkably successful. In the case of solar power, which has had the most robust incentives because it was the most expensive at the outset, prices have fallen so dramatically and rapidly that the feed-in tariff for solar is consistently being cut substantially and may phase out entirely within 5 years. In the meantime, Germany’s renewable energy share of the mix has risen in a little over a decade from virtually zero to more than 20%, with solar making up 3%.*(See note.) Quite a feat for a country with the solar irradiation of Juno, Alaska. What’s more, many German communities have already achieved 100% renewable electricity, while some are already net exporters of renewable power and are enjoying economic revival as a result.

FACT: It is also important to highlight that the renewable energy surcharge on people’s electricity bills overestimates the actual costs to support renewable energies. Not reflected are: 1) the economic benefits of nearly 400,000 domestic jobs created in the renewable energy sector since the German renewable energy program went into effect (nearly half of which are directly attributable to the feed-in tariff); 2) the benefits to the environment of reducing carbon emissions, water usage, and pollution. In 2011 alone, renewable electricity and heating is estimated to have saved 87.6 million tons of carbon dioxide; 3) major savings in fuel import costs, amounting to 2.5 billion euros in 2010, and substantially more than this in 2011; 4) the fact that actual electricity prices have consistently come down with the increase of renewable power sources, a phenomenon called the “merit order effect.” According to a recent study by Germany's Institute for Future Energy Systems (IZES) for the German Solar Industry Association (BSW-Solar), solar power has reduced the price of electricity on the spot exchange by an average of 10 percent, with reductions of up to 40 percent at peak hours in the afternoon when conventional power is most expensive. In all, the report states that the price of electricity on the power exchange has dropped due to the merit order effect by as much as 520 to 840 million euros.

SPIEGEL:  “For the same cost, wind supplies at least five times as much electricity as solar, while hydroelectric power plants generate six times as much.  Even biomass plants are still three times as efficient as solar.”

FACT: This statement fails to recognize Germany’s limited potential to expand its hydro, wind, and biomass installations. It also ignores the reality that a combination of renewable technologies is critical to grid stability. To illustrate using the technologies mentioned in the article, solar energy gives important peak power benefits, while wind tends to be stronger at off peak hours and along the cloudier coast, and biomass and hydropower provide essential baseload support.

SPIEGEL: “It appears that the subsidies have made the German manufacturers lethargic. They invest only 2 to 3 percent of revenues in research and development, compared with an average of 6 percent in the auto industry and about 30 percent in biomedicine.”

FACT: As journalist Craig Morris points out, these incentives are open to the world-wide market, so why didn’t they make the Chinese lethargic as well? He adds that First Solar’s most recent annual report shows the “firm invested 3.7 percent of its net sales from 2010 in R&D, compared to 3.8 percent in 2009 – but only 2.7 percent in 2008. Despite its clearly higher R&D ratio, First Solar nonetheless failed to defend its market leadership, having been passed up by a Chinese manufacturer.

Morris rightly concludes “that the R&D ratio is not the main factor. Remember Solyndra? That firm famously went bankrupt after receiving a loan worth $500 million, but as Stephen Lacey recently pointed out in The Guardian, Chinese firms are on a completely different market, having received some $30 billion in practically interest-free loans from their government in 2010 alone. Therein lies the crux. But while cell and panel manufacturers near the end of the value chain are struggling in Germany, further up the value chain production plant equipment suppliers in Germany still command nearly half of the global market.”

What is the bottom line in all this for the U.S.?

First, the Germans should be appreciated for and emulated in leading and continuing to lead the way to rapidly driving down the cost of solar power.

Second, the U.S. is not even close to facing Germany’s challenges of rapid solar growth. To put things in perspective, in both 2010 and 2011, Germany installed more than twice the solar power that the entire U.S. has in the past 30 years. Based on figures from the Energy Information Administration (EIA), Craig Morris estimates that for the U.S. to risk exceeding its peak power demand with solar PV, it would need more than 300,000 megawatts of installed PV.

Third, feed-in tariffs as Germany has designed them remain the best option for rapidly increasing renewable energy with the most economic benefits - including lower installation costs, locally owned clean power, job growth, protection from the steep price of environmental and nuclear hazards, and modest impacts to ratepayers. 

Germany has a three-pronged approach to their feed-in tariff law that is a proven winning combination: 1) transparent, long term pricing that allows recouping of renewable installation costs plus a reasonable profit, differentiated by technology; 2) guaranteed connection to the grid in a timely manner; and 3) requirement that utilities pay for any upgrades the grid needed to connect renewable power. These three principles, combined with simple, streamlined permitting of renewable energy projects, are the recipe for success. We would be unwise to not to adapt it to our system as quickly as possible, especially when our own methods for cleaning up our energy mix have had a far less successful track record, and so much is at stake for future generations.

This piece was written by Diane Moss and Angelina Galiteva, Founding Board Directors, Renewables 100 Policy Institute.

*Author's note: To clarify, the renewable share of Germany's electricity mix in 1990 was just over 3% and close to 6% at the turn of the millenium when the country was launching its modern renewable electricity policy. Hydropower contributed the vast majority of this amount. While the share of hydropower has remained fairly stable in Germany since the dawn of the millenium, other renewable energy technologies (wind, solar, biomass, biowaste, and to some extent, geothermal) have increased substantially, which has spawned new industries and hundreds of domestic thousands of jobs.