The German government has been generously subsidising renewable energy sources for years now, and it’s going to cost the German consumer a bundle – and soon.
The big price driver is solar energy. Year after year more and more panels are getting installed on German roofs and far surpassing even the most optimistic projections. But that shouldn’t be a surprise because Germany’s Energy Feed in Act (EEG Gesetz) guarantees solar energy system operators a fixed tariff for 20 years, making solar energy systems extremely lucrative for those who have them.
According to the Rhine Westphalia Institute for Business Research (RWI) the net costs of all photovoltaic system installed between 2000 and 2010 add up to a whopping $107 billion, Subsidies for renewable energy are going out of control.
An open letter written by Johannes Lackmann, former director of the German Association of Renewable Energy, caused many to take a closer look. Lackmann warns:
Companies are positioning themselves on the same square as the old industries, who failed to modernise and keep up with the market demands because they came to rely on generous subsidies paid by governments to survive. The EEG Act must not be allowed to be misused as cushion to sleep on.
Indeed the extreme comfort of the EEG subsidies will lead to an additional 9000 MW of solar energy capacity to be mounted on roofs this year alone in Germany. It’s a run-away train that will have serious consequences.
Recall that solar energy generators are guaranteed payment for 20 years. For systems going online this year, an average of almost $0.40/kw-hr is guaranteed by law until 2031. By comparison conventional energy is traded on the EEX exchange for just over 6 cents. The huge difference is passed on to the German consumer.
According to the RWI the net costs for all photovoltaic systems installed between 2000 and 2010 over their 20 year operating life will add up to $107 billion. According to the Handelsblatt:
This sum is more than one quarter of the entire German annual federal budget. Yet the amount of solar energy as a share of the total energy produced is still puny despite the huge subsidies. It is only 1 percent.
Just the photovoltaic systems installed this year will lead to an additional $33 billion dollars in costs over their 20 year operating life. Electrical energy rates will climb 10% in 2011. Energy giant RWE just announced it will increase rates by 7.3% in August.
Sure Germany has cut back the subsidies – some, but the prices of solar panels and systems have fallen even faster, and so as a result they are even more lucrative. Lackmann thinks reductions in subsidies are long overdue, and the industry will not be doing itself a favour attempting to fight them off.
They don’t provide any incentive for investment in R&D. Leading German solar companies invest less than 2% of their sales turnover in R&D. This is far below what a company like Siemens invests in R&D.