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Feed-in tariffs in Germany: consumers are paying the price for renewable energy development

Oct 27, 2010 - Data Monitor - Energy Central

The German Renewable Act has successfully increased renewable energy capacity from 6% of total generation capacity in 2000 to 16% in 2009. However, in order to compensate for higher demand, lower wholesale prices and last year's levy deficit, German consumers will have to foot a bill of E13.5 billion in 2011. This should be a warning to other countries of the immediate costs of such policies.

Germany's feed-in tariff has been highly successful in terms of increasing the country's renewable energy capacity; solar photovoltaic (PV) cumulative capacity alone grew from 4GW at the end of 2007 to about 9GW by the end of 2009. Industry sources suggest that this figure could even double in 2010, a far greater increase than anticipated by the government. Currently, investors are enjoying generous rates for electricity generated from renewable sources; however, as the installed PV capacity has far exceeded the government's expectations, these rates are set to decrease accordingly.

It seems that the government's policy has become a victim of its own success, as solar manufacturers kept quiet about production efficiency savings and were able to successfully hype up sales in the run-up to the proposed cuts to the feed-in tariff. Rapid growth in PV installations, lower wholesale prices (which increase the difference between prices paid and the set feed-in tariffs) and the need to compensate for 2009's levy deficit mean that for 2011 the government needs to find E13.5 billion rather than the E8 billion required in 2010.

The majority of this will be paid for by German consumers, who will see a 70% increase in the renewable energy levy charged to their electricity bills, from 2.05 euro cents per kWh to 3.53 euro cents. For a three-person household using 3,500kWh per month, this will equate to an increase of E6-10 on a monthly bill, which is roughly a 10% increase overall. More than half of this increase in the renewable energy levy will be invested in the solar energy sector, despite the fact that it produces less than 20% of the subsidized electricity.

Meanwhile, other countries such as Spain and the UK have cut or adjusted their feed-in tariffs for budgetary reasons. These examples show that installing greater renewable energy capacity comes at a price which initially remains hidden from consumers. Policy makers must ensure that they strike the right balance between encouraging homeowners and local communities to invest in renewables by initially offering appropriate financial returns, while keeping costs to the government and consumers to a minimum. Germany appears to be on track, with plans to generate 80% of its electricity from renewable fuels by 2050. However, the country's consumers will be paying the price for this success.




Updated: 2003/07/28