The Cost of Renewables in Germany

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Environment, Green

Cleantech German style inevitably involves a substantial amount of government subsidy and as a result investments are made and markets created that would not happen if traditional economics were in play. In a town in north-eastern Germany, 20 giant airtight tanks are filled with corn silage, tons of chopped up stems, grains and leaves, which is fermented at 96.8 degrees Fahrenheit for 10 weeks. The process, which yields bio-gas that contains methane, is apparently the same as what happens in a cow’s intestines says the plant owner in this article. Once the plant is up and running, farmers from a surrounding 3 mile radius will supply it with organic matter. Roughly 1,250 tons a day will be processed at the plant, producing methane that is pumped into a pipeline running directly beneath the plant grounds. The company expects to produce 46 million cubic meters of gas a year, enough for 50,000 households. Although the plant has venture capital money behind it, it wouldn’t have happened without government subsidy in terms of the price paid for the bio-gas produced.

In fact, German citizens have paid dearly for this part of their green dream. Electricity customers have paid $10 billion for solar modules that were installed between 2000 and 2008, and that’s just the beginning. A German economic research institute RWI-Essen estimates that the government will spend an additional $42 billion to promote solar power in the next 20 years, the balance of the country’s solar energy subsidy program.

Compared to the cost, the rewards from all this tax payers money are modest, raising questions about how much politicians should be trusted with making these decisions. Solar-generated electricity covers only 0.6% of demand in Germany. Subsidizing solar is neither good for the climate nor does it help employment in Germany, says the RWI. The Renewable Energy Act (EEG) has merely artificially stimulated demand for solar energy. “The EEG may be well-intentioned, but it’s highly inefficient from an economic standpoint” they say.

The law, enacted in 2000, allows operators of solar powered systems to collect a fixed payment of up to 43 cents per kilowatt hour that they feed into the grid, at prices guaranteed for 20 years. By comparison, the producer price of electricity is approximately 5 cents per kilowatt hour. In addition, photo-voltaic is by far the most expensive method of reducing carbon emissions. It costs more than $1000 to reduce CO2 emissions by one ton, for wind energy that cost is reduced to about $145 per ton. It would be more worthwhile to improve the efficiency of brown coal power plants, for example. According to a study by the consulting firm McKinsey, that would cost less than $30 per ton. In other words, the money that is spent to save one ton of CO2 with solar power could be used to save up to 30 tons in coal-fired power plants.

Meanwhile back to the bio-gas plant, natural gas from Russia currently costs less than 3 cents per kilowatt hour, while bio-gas is only profitable at prices of 8.5 cents or higher. This is one of few positive arguments for a universal carbon trading system; at least it would allow the market to direct where investment in alternative energy sources was made instead of micro managing politicians making arbitrary decisions. The problem in Europe is all the worse because polluters have been given their credits for free and so the system is not, nor will it, work effectively for many years to come.

–Stuart Burns

Comment (1)

  1. Gareth Hatch says:

    Very interesting data, Stuart – thank you for sharing!

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