German policy on wind and solar power

German sheep and PV panelsGermany led the world on wind energy until 2007. In 2008, it was overtaken in terms of total installed capacity, though not percentage of energy coming from wind, by the USA. (The USA had 25Gw of installed wind capacity at the end of 2008, generating around 2.5% of its electricity. Germany had 24Gw, generating around 7% of its electricity.) Germany remains the world’s top photovoltaic (PV) installer, accounting for almost half of the global market in 2007 – though this generates only about 1% of total electricity used in Germany. In 2007, renewables provided 8% of total German energy used (electricity, heating, transport fuel). The ‘EU 27’ average was 8% that year and Germany was only 1% ahead of France, Italy and Spain, and well behind Sweden (31%), Austria (24%), Portugal (18%) and Denmark (17%). However, Germany has much less large hydro – only 4% of its electricity in 2006 – than Austria (59%), Sweden (43%), Portugal (23.5%), Italy (14%), France (10.5%) and Spain (9%). At the end of 2006, Germany had half of the total installed wind capacity in the EU (see Germany – Renewable Energy Fact Sheet) and it added 3Gw in 2007 and 2008.

Germany does less well on energy efficiency. It uses 75% of the energy per unit of GDP as the US does. This is better than the Netherlands (80%) and France (78%), but worse than Italy (57%), UK (62%) and Spain (64.5%).

Germany is the EU’s largest emitter of greenhouse gases. Its share of the EU Kyoto target is an obligation to reduce German emissions by 21% (on 1990 levels) by 2012. In 2006, emissions were 18.5% below their 1990 level, although this, to a large extent, reflects the closure of industrial capacity in eastern Germany. Germany also has domestic political target to reduce CO2 emissions by 40% by 2020, while also phasing out nuclear power – though Angela Merkel has said, since her re-election, that policy towards nuclear energy will now be reassessed.

Germany derived 48% of its electricity from burning coal in 2006, and 12% from gas (see Germany – climate and energy statistics). Many of Germany’s existing power stations use hard coal or lignite, which are particularly high in carbon content. Annual per capita CO2 emissions were 11.9 tonnes in 2005 (without land use change, which is not a major contributor in Germany). This compares well with the USA (23.5 tonnes) and Canada (22.6 tonnes). However, other than the Netherlands (13.8 tonnes), it compares badly with other major European economies – UK (11 tonnes), Spain (10.1 tonnes), Italy (9.7 tonnes) and France (9 tonnes). (For comparison, Chinese per capita emissions in 2005 were 5.5 tonnes, and Indian 1.7 tonnes. To control climate change global annual per capita emissions need to be a maximum of 2 tonnes.)

So Germany is not doing nearly well enough. Nevertheless, it is doing better on harnessing renewables than most other countries and it is also creating substantial employment. In 2008, there were 278,000 people employed in the renewable sector (see Federal Ministry for the Environment Nature Conservation and Nuclear Saftety: Gross Employment from Renewable Energy in Germany in the Year 2008 – A first estimate). How does it achieve this? Germany is a federation consisting of 16 Länder. Therefore, to understand German performance fully, one has to consider four tiers of government:

  • The EU.
  • The Federal government.
  • The Land government.
  • Local government.

This article will briefly address EU energy policies, but will focus on the policies of the Federal government. Future articles will assess the Land and local policies.

EU policy

In its different manifestations, the EU has always been involved in energy policy. The precursor to the European Economic Community was the European Coal and Steel Community, established in 1951. The original Treaty of Rome gave Brussels substantial powers over energy policy by means of the market-opening and market-liberalising provisions. The Commission has also acquired a role in energy policy through its role in enforcing anti-trust and in enforcing state aid rules. The 1986 EU Single European Act acknowledged the economic importance of energy and energy became part of the subsequent single market programme. The 1992 Maastricht Treaty increased the EU’s role in environmental issues and gave it powers to improve cross-border energy infrastructure through trans-European networks. The Lisbon Treaty contains a specific chapter on energy, which promises the development of new and renewable forms of energy. The result is that:

Brussels has greater potential power to shape the energy market design of its member states than Washington has over US states” (from David Buchan’s Energy and Climate Change: Europe at the crossroads, OPU 2009).

From February 2010, the EU Energy Commissioner will be a German, Gunther Oettinger, a member of Merkel’s centre-right CDU party. (Though there will also be a new Commissioner for Climate Action, the Dane Connie Hedegaard):

As commissioner, Oettinger is due to revise the EU’s energy efficiency strategy, delayed while a new Commission is being put in place … Other important deliverables for Oettinger are the carbon-free vision for 2050, a more concrete policy agenda for 2030 and a revision of the EU’s policies on supporting new energy infrastructure. Asked by MEPs … to list just three priorities, Oettinger gives five, albeit remaining fairly non-committal. The priorities are, aside from the three continuing themes of sustainability, competition and security of supply: energy efficiency; low carbon technologies; energy infrastructures; implementation of the third package of legislative measures for EU energy markets; and, finally, external energy relations.

(See Europolitics: Günther Oettinger: Energy commissioner to remain non-committal.)

The EU has set a target that 20% of energy should be from renewables by 2020. Germany’s share of this target is to increase its renewable share from 8% to 18%. EU targets are enforceable, in that member states can be fined for failure to meet them (so they are more significant than UNFCCC targets).

The EU also has money. In December 2009, the Commission formally announced awards totalling over €1.5 billion to low-carbon energy projects – 1 billion to 6 CCS schemes (one in Germany, which will get €180 million) and just over €500 million to offshore wind projects, including €150 million to an interconnection of German, Swedish and Danish wind farms.

The powers of different political tiers in Germany

The distribution of competence for financial autonomy, legislative powers and tax revenues is laid down by the Basic Law, which, in effect, is the constitution. The Bundesrat, the second chamber of the German parliament, is not directly elected – its 69 members are delegates from the Länder (usually Ministers in the land government) and delegates from a Land must all vote as a bloc, which often means that they abstain. Therefore, the Länder governments are, in practice, extremely influential over Federal policy.

Law-making is divided between the federation and the Länder. The federal government is usually responsible for framework legislation, with the Länder subsequently adopting specifying acts and implementing them. In some sectors of environmental law (such as emission control, waste law, nuclear power plants), the federal government can pass final regulations ‘in the national interest’.

The main taxes are “shared” – some revenue goes to the federal government, and some to the Land governments. This includes income tax, corporation tax and turnover taxes. These taxes provide the greatest part of the tax revenue accruing to the Länder, which have effective power over all taxes through the Bundesrat.

The most important taxes for local authorities are property and business taxes and they can choose the rate for these taxes in their area. They also have discretion over whether to levy local ‘nuisance’ taxes.

Land use planning taking place at four levels:

  • The federal level (national inter-regional programmes and regional policy guidelines).
  • The Land level (state regional policy programmes and state development plans).
  • Regional planning (regional policy plans).
  • Local planning (town and country planning, and outline and detailed development plans).

The Länder were responsible for energy regulation. However, the policy instrument that is generally regarded as the main driver of German renewable success, the feed-in tariff (see below), is set at the federal level. Electricity prices are no longer regulated by the länder.

German federal policy on wind power

Good summaries of this issue are found in:

In the 1980s, the federal government financed substantial R&D programmes and some demonstration projects. In 1989, a market stimulation programme was introduced, with a target of 250Mw for wind power. This guaranteed a fixed payment per kilowatt hour (kWh) of electricity produced and investment incentives for private operators such as farmers. This programme was in operation until 1995.

In 1990, the government introduced the Electricity Feed-In-Act:

This took the form of a simple one-page bill for assisting producers of electricity from small hydro stations and wind energy installations. This bill required utilities to connect renewable energy generators to the grid, and to buy the electricity produced at a rate of 65-90% of the average tariff charged per unit to end-users.”

(See Feed-In Tariffs Support renewable energy in Germany.)

It guaranteed the rate for a period of 20 years. Additional costs to the utilities are met through a cost sharing mechanism for all electricity end-users, which means that all users’ bills increase. In Germany, the impact of this has been approximately €16 per year for every household.

The policy was modified in 1998 with the adoption of the Energy Supply Industry Act, and again in 2000 by the Renewable Energy Sources Act. This latter act was in response to the deregulation of the German electricity market in 1998. The 2000 Act:

… introduced a number of changes, including a differentiation in tariff rates depending on the renewable energy type, size and site. It also extended the range of technologies to be covered, and replaced the [previous] percentage-based rates with fixed rates over fixed periods – 20 years from the start of operation of each new qualifying plant. The tariff rates were determined by scientific studies, which determined the tariff figure that would allow profitability and the use of state-of-the- art technology. For example, PV systems were to be paid the highest reimbursement, i.e. 99 pfennig per kWh, due to the high costs of PV electricity at the time. The Act also provided that adjustments in rates could be proposed every two years, and in this way keep up with technological progress and market developments.

(See EEG Feed-In Systems in Germany and Spain and a comparison.)

German federal policy on solar power

In 2004, the 2000 Act was amended, with the aim of increasing the share of renewable energy in the country’s total electricity supply to 12.5% by 2010, and to at least 20% by 2020. More significant than simply increasing targets was the increase in the rate of feed-in tariffs for certain technologies, particularly solar. This was necessary because the ‘100,000 roofs programme’ had ended that year:

The German solar photovoltaic (PV) industry began with the passage of the ‘1000 roofs program’ in 1991, in which the government gave subsidies to individuals to cover the cost of installing a PV rooftop system. The aims of the program were to gain experience with solar installations, make new housing compatible with renewable electricity generation needs, and stimulate consumer usage of solar power. By the mid 1990s, 2,000 grid-connected PV systems had been installed on the Germany’s rooftops.

This successful initiative soon expanded into the 100,000 roofs program to drive further expansion of the industry. The program aimed to drive down the price of solar PV and invited private entities to participate. Each participant was given a loan of 6,230 euros per kilowatt (peak) for PV systems with an output less than five megawatts and 3,115 euros per kilowatt if the output was higher. The program ended after 2004, with the successful installation of 100,000 grid-connected rooftop solar systems. By its end, Germany’s solar PV industry had moved beyond niche markets to become capable of mass manufacture.

(See Breakthrough Institute: Soaking Up the Sun: Solar Power in Germany and Japan.)

Feed-in Tariff rates

The feed-in tariff is a good regulatory approach because it gives investors a guaranteed income. However, its success in delivering renewables depends on the rate of the tariff, and the rates in the 2000 Act were not high enough for solar PV. The 2004 amendment introduced higher tariffs for PV, geothermal electricity and some sorts of biomass. The tariff rate for onshore wind energy was reduced for installations at locations with very good wind. Offshore wind energy plants, which Germany still does not have but is actively planning, will get high level feed-in tariffs for the initial 12 years after installation. The amendment also stated that tariffs would be decreased over time. All projects will get the rate applicable in the year in which they were installed, for 20 years. However, for new wind projects, the tariff will decrease 2% each year, for new rooftop PV projects by 5% and for new free-standing solar projects by 6.5% each year. From 1 January 2010, the rate of reduction has been increased: it is now 7% for rooftop PV and 8.5% for free-standing solar projects.

In Germany, the rates have been high for solar. The rates in 2009 were between €0.32 and €0.67.5 for solar (different types of solar installation have different rates; see Renewable Energy Sources: Feed-in Tariffs For Renewable Energy in Germany – 2009). For comparison, in Spain they were a maximum of €0.44/kWh for solar. In California, the rate was $0.39/kWh (€0.27).

German rates for wind are less high – in 2009, they were €0.092/kWh (basic tariff of €0.05 + premium for the first 5 years). This is broadly the same as in Spain – €0.076 €/kWh with premium of €0.03 for the first two years (see Renewable Energy Sources: Feed-in Tariffs for Electricity from Renewable Energy Sources in Spain).

Low-interest loans for renewables and energy efficiency

The German Bank for Reconstruction and Development (KfW), provides loans at reduced rates for investment in renewables, energy efficiency:

Today one main focus of KfW’s environmental and climate protection finance is on housing construction. The promotional initiative targeting energy-saving rehabilitation measures that KfW launched in the housing sector in 2006 enabled it to reach out to a broad audience of private homeowners on the lookout for finance – and 1.6 million tonnes of CO2 emissions p.a. were able to be reduced permanently solely through the investments sparked in 2006 and 2007 under its energy and climate protection programmes … Today KfW is one of the key financiers of renewable energies, both within Germany and abroad. Germany’s ‘number one environmental bank’ invests around 20 per cent of its overall financing volume in national and international climate projects.

(See Pressportal: KfW Bankengruppe – 60 Years of Promotion of the German and European Economy.)

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  1. Hey there, I’ve been lurking around your website for a few months. I love your writing and your whole website! Keep it up!

  2. Wind power is a good source of electricity but it also takes up lots of space just like solar power plants.’*:

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