A report published by Stanford’s Steyer-Taylor Center for Energy Policy and Finance looks at three of the world’s largest economies and largest energy jurisdictions in an attempt to compare their approaches to ramping up renewable energy. Included in the report is a comparison of electricity rates in Germany to those in Texas and California as well a discussion of how renewables contribute to overall costs.
The report compares Germany, the world’s fourth largest economy and an aggressive adopter of renewable energy, with the states of California and Texas. California and Texas are the world’s 8th and 12th largest economies respectively, and are both leaders in the U.S. with respect to wind and solar deployment.
The report illustrates that moving to a higher share of electricity sourced from wind and solar need not put a large burden on ratepayers. Germany’s average electricity rates are substantially higher than those of California or Texas — about three times as much. However, a closer look at the breakdown of the components of this high rate shows that only about 21% of Germany’s average retail electricity rates can be attributed to levy’s imposed to pay renewable generators.
The balance can be attributed to other factors, not the least of which is the high cost of natural gas in Europe where cheap U.S. natural gas is not available. In Texas, one of the world’s largest producers of natural gas, the impact is just the opposite. The abundance of natural gas has led to cheaper electricity rates.
Another huge chunk of Germany’s high rates can be attributed to legacy costs from the country’s relatively early and aggressive push into solar power. The report goes so far as to imply that early German investment in solar indirectly subsidized the global solar buildout of the last several years by leading to the buildout of Chinese capacity required to fulfill the German need for solar panels. According to energy commentators quoted in the report, this precipitated the huge drop of cost that the rest of the world has enjoyed the past several years. German commitment to solar power drove the economies of scale that brought down prices worldwide.
Interestingly, even though Germans pay a substantially higher rate for their electricity, average electric bills in Germany are actually lower than those in Texas. According to the report, the average household in Texas can expect to pay about $130 per month for electricity. In Germany it’s more like $100.
Economics 101 would help explain why Germans use so much less electricity than Texans. When the price of a good is high it discourages consumption. Indeed, the high rates are partly a deliberate policy decision by the German parliament meant to encourage energy efficiency. The stated goal of Germany’s National Action Plan on Energy Efficiency is to reduce primary energy consumption by 50% over the next 35 years. The result of all this is that Texas households use about four times as much power as German households.
Meanwhile, in Texas there isn’t such a deliberate emphasis on energy efficiency. Nevertheless, as the Texas economy expands, electricity usage per unit of economic output has actually fallen. This is a fact that came as somewhat of a surprise to Texas grid planners who recently realized that their projections of electricity shortages based on the continued economic growth of the state were overly pessimistic. Consider for example, the housing sector which is a large contributor to Texas economic growth. New houses, as it turns out, are substantially more energy efficient than older houses.
The results of the study seem to be a mixed bag. On the one hand, early and aggressive movers into renewable energy such as Germany seem to have made some costly mistakes but paved the way for jurisdictions such as Texas that can take advantage of rapidly improving technology and falling production costs for wind and solar equipment. The report also suggests that, the German example notwithstanding, deployment of wind and solar need not add substantially to consumer costs.