Yesterday, the German cabinet approved the Renewable Energy Act Reform. The reform, referred to by some as the Feed-in Tariff 2.0 (FiT 2.0), was necessary: In the past few years, Feed-in Tariffs successfully boosted renewable energy deployment in the country. This sparked public and policy discussions around the grid development, market integration and financial instruments that would finally enable Germany to reach its policy target of 80% renewable electricity by 2050.
Unfortunately, the bill passed yesterday fails to address any of these questions. Instead, it strengthens the corporations and energy utilities that have failed to integrate renewables into their business model in the past decade. The following analysis shows why the reform cannot be considered FiT 2.0.
A brief recap of history
In 2000, Germany was one of the first countries to implement a Feed-in Tariff law (Renewable Energy Source Act) – thus becoming a role model for the world. Since then, about 100 countries, states and regions have copied the best policy that created an industrial revolution for renewable energies (RE). In Germany, Feed-in Tariffs have resulted in a more than 25% share of renewable electricity, technological innovation, thousands of tonness of CO2 savings, 370,000 jobs as well as high revenues for communities and regions. About 20 million Germans today live in so-called 100% RE regions (in total about 140 country-wide) that aim to supply 100% of their electricity and often also heat demand with renewables. These regions create local value by saving high costs for energy imports, creating local jobs and generating tax income. The FiT law leveraged private investment: About 888 energy cooperatives as well as private investors, farmers, banks and enterprises own about 95% of total installed RE capacity. The “big four” power providers own the other 5%.
Reform brings end to success story
Given the long success of renewables in Germany, it is not surprising that the world now expects the German government to design the policy framework for an infrastructure of permanent, safe and sustainable energy. Unfortunately, with this reform the German government ends its success story by putting the energy system back into the hands of those who have a deep interest in remaining with conventional, dirty fossil energy sources. The new policy creates deficits for communities and regions and protects industry interests. In fact, the reform is a collection of compromises that shields fossil autocracy and large energy utilities at the expense of energy consumers, citizen cooperatives and the renewable energy sector with its 370,000 employees. It threatens climate protection and planetary habitability – all for short-term profits.
While international experts last week again called for a fast phase out from fossil resources, the German government with its reform is slowing the rapid expansion of renewable power, as it forces investors to take higher risks when investing in a future-just energy system. The new bill protects industry from bearing the brunt of future cost rises by forcing households and middle-class enterprises to pay more. This reform clearly has the handwriting of the industry and proves again how corporations govern our lives.
A quick summary of the key reform elements:
Cap for wind and sun energy
The bill caps the amount of renewable electricity that qualifies for the FIT depending on the technology: on-shore wind 2.5 GW per year, photovoltaic 2.5 GW per year, biomass about 1 GW per year and offshore wind 6.5 GW to 2020.This is an attempt by the government to centralise and control the Energiewende – a transition that was successful precisely because of its decentralised and community-driven approach.
Exemptions for energy intensive industry
The reform continues to shield major industrial users of power from a renewable energy surcharge, which adds currently 6.3 euro cents per kilowatt-hour to the electricity bill of consumers. Exemptions for energy intensive industry are the main driver of the increasing electricity prices in Germany. Changing this was the key intention of the reform process and one of the main election promises of both governmental parties CDU and SPD. However, despite the fact that the European Commission would stop the exemptions due to European competition regulation, the German Energy Minister has helped ensure that 1,600 industry users are likely to continue to be exempt, saving them some 5.1 billion euros per year.
Taxing self-consumption of solar PV
The reform applies a Feed-in Tariff (FiT) surcharge to direct consumption. So far, owners of solar photovoltaic (PV) systems who use the electricity they themselves generate did not pay the FiT surcharge, which resulted in new business models for energy cooperatives and regional energy providers. This will now change for all operators of systems larger than 10 kW (existing installations are excluded). The industry has again successfully bargained an exception as the reform notes that energy intensive industries that generate their own electricity will pay only 15% of the surcharge, even if they are powered by gas or coal plants. Experts and associations have already announced that they will take legal action against this. Applying the FiT surcharge to direct consumption will destroy decentralised and cooperative-based business models.
While the old Renewable Energy Act provided investment security by ensuring a fixed Feed-in Tariff for 20 years, the government now implements mandatory direct marketing. The reform foresees the mandatory direct marketing first for renewable energy plants with a capacity over 500 kW (from August 2014 onwards). From 2016 onward, this will also apply to installations over 250 kW and from 2017 installations over 100kW. Hence, owners are forced into a marketing system with immense bureaucracy and increased risk for them. It excludes energy cooperatives and private investors from the market – which have hitherto been the backbone of the energy transition.
Quota system instead of Feed-in Tariffs
The government foresees a change of the renewable energy policy approach from the successful FiT to a tender or quota system by 2017. Doing so scraps the determining success element – the purchase obligation – which provided guaranteed grid access for renewable energies and thus enabled the uptake of renewables in Germany. Studies and experience from several countries prove that a FiT system results in cheaper electricity than the quota model. Further, due to volatile market and trading prices for certificates, plant operators are affected by a lasting trend of little planning security. This has a major impact on the variety of actors involved in the energy market because energy cooperatives, farmers and individuals do not have the resources to take part in elaborate bureaucratic tendering.
Feed-in Tariff (FiT) surcharge
With the FiT surcharge, consumers pay the difference between the fixed price for renewable energy fed into the grid and the sale of the renewable energy at the energy stock market. As the price of renewable electricity on the stock market decreased, the amount of the FiT surcharge therefore increased. This leads to the paradox of electricity consumers paying more for their electricity through the surcharge added to their bill despite decreasing prices on the stock market. This mechanim was created by former governments and is not addressed in the new Renewable Energy Act reform. The reform, therefore, will be unable to achieve its ultimate goal of cost reduction.
This analysis shows why the Renewable Energy Act Reform is not and does not deserve the term “Feed-in Tariff 2.0 (FiT 2.0)”: It does not build on the successes of the best policy of the past but rather ends it. This policy development demonstrates again the shift from public to corporate government which cannot and must not be accepted. The transition to 100% renewable energy is a political decision and an ethical imperative which our government must take up. In times of climate change, energy policy is not about seeking competition between clean and dirty energy sources but about providing a path towards 100% RE. Our government has the moral duty to protect and empower its people – not its corporations. The energy market as designed by the German government is a market that disproportionately robs the 99% and rewards the 1%. It is neither a free market nor a liberal market. It is a 1% market that serves the short-term profit interests of a few.
This blog post was first published on the World Future Council Climate Energy Blog.