Abolition of German subsidies on renewable energy is overdue

Posted by Eberhard Rhein on 04/03/14

While the Government is busy rewriting legislation on the promotion of renewable energies a High-level Group of Scientists appointed by the German Parliament has come out with a radical proposal to abolish the legislation altogether.

In recent years, the German legislation has increasingly come under attack because of its high cost for business and normal electricity consumers who have to bear the brunt of the high feed-in electricity rates guaranteed during 20 years to producers of solar, wind and biomass energy.

As a result, German electricity costs are among the highest in Europe. This has forced the government to grant exceptions to companies exposed to international competition generating distortions on the electricity market.

The frenzied promotion of renewable energy by Germany has, however, not helped to reduce green house gases, the proclaimed objective of climate policy. This has been obtained through the EU emission cap and trading system, which forces major C02 emitters like power stations to curtail their emissions by a fixed percentage every year.

The subsidies on renewable energy have created an oversupply of solar and wind energy, without driving utilities and other power consumers to turn to it, due largely to the absence of reliable grids and the availability of cheap lignite and coal. Rather they have preferred to buy cheap coal and lignite, the worst they could do from a climate perspective. The solar and wind subsidies have therefore had counter-productive consequences.

The scientists also accuse the German subsidy scheme of not having had a positive impact on technical innovations. This goes certainly for solar panels imported for direct assembly from the Far East countries but not for and wind farms and bio-gas installations where German and Danish companies fully control the supply chain. But the early German hopes of the subsidies becoming a forceful catalyst for a competitive solar industry in Eastern German have failed to materialise because German companies failed to reach the economies of scale of their Asian competitors.

Last not least, there are the ever surging costs, which exceeded € 22 billion in 2013 and keep rising exponentially by the very nature of the system which guarantees the subsidies for 20 years.

The authors are therefore right in calling for a complete suspension of the system: Without doing so subsidies would continue to be paid beyond the 2030s, and at a progressive scale.

It is unlikely that the government will have the courage to abolish one of its most cherished policies, and this against the opposition of Greens and beneficiaries in Bavaria and northern Germany, where the bulk of renewable energy is being generated.

Phasing out the over-ambitious subsidy programme does not mean the end of solar and wind energy in Germany. Being on the point of competitiveness it will continue to thrive without subsidies, most of which will continue to run more than 10 years.

Germany should, however, focus more on the completion of the crucial north-south high-tension grid and switch more subsidies to energy-efficiency where much is still to be done to renovate the housing stock.

Eberhard Rhein, Brussels, 3/3/2014

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