The secret to Germany's green energy success story lies in the Renewable Energy Act (2004) and the feed in tariff.
So what's with these tariffs?
They provide fixed prices determined by public authorities for a certain period, mostly 20 years, which is to be paid per kilo-watt-hour by electricity companies to producers of green electricity. (Source)
This means that if your solar site or wind farm produces energy that's fed into the national electricity grid, you are entitled to receive a certain price from the utility company which actually buys your energy and resells it to consumers.
You're not being paid on your investment, you are being paid on the energy you produce.
Germany initially started with generous feed in tariffs and that triggered an explosion of solar parks and wind farms across the country.
For investors, if the feed in tariff is big enough, this simply means they're gonna recoup their investment in a reasonable period of time. That is the case with Germany and a few other countries in Western Europe which adopted this incentive system.
This also has an important consequence for the whole economy as it generates new jobs and fuels the growth a of a new green energy industry based on research, innovation and immediate implementation.
Video transcript:
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With a population of over 82 million, Germany is the biggest energy consumer in Europe.
To meet its demand, the country has been heavily dependent on imports, subsidised coal industry and a significant number of nuclear power stations.
After the first energy crisis, Germany moved towards nuclear power and energy saving. These were the two directions and there was a combination with a hard core promotion policy.
This means that until the liberalization of the energy markets in the late 1990's we had a combination of power generation of lignite power stations, nuclear and the rst was a little bit natural gas and renewable, mainly hydropower.
But in 1986 an event occurred that was to profoundly change the course of German energy policy. The world’s worst nuclear power accident at Chernobyl prompted a change in public opinion.
Chernobyl changed the attitude of the Social Democratic Party and the trade unions. It also changed the position within the utilities because since then no new contracts were closed (signed) and even plans were put back in the drawer.
So that’s one side. The other is that the public opinion in Germany since then has flung against nuclear. And this is the case. Also in comparison to other countries like Sweden or Finland, Germany is antinuclear.
Although the German green movement had long opposed nuclear power, the strength of public reaction to Chernobyl eventually led to a government decision to phase out all nuclear plants by 2025.
At the moment there are 17 nuclear power stations operating in Germany and their contribution for electricity generation is in the range of 25 - 27 %. The phase out policy means that the utilities are not interested for the moment in constructing new nuclear power plants. It’s too risky.
But this decision has presented a massive challenge for policy makers. How will Germany’s electricity demand be met in the coming decades?
The substitution of the nuclear will be a mix of fossil fuels, hopefully clean ones. So, firstly, natural gas but if it’s possible to use clean coal power stations then this will also have a part. And naturally, renewable energy sources and last but not least energy efficiency. So we have to reduce our energy consumption in the long run.
To meet its ambitious CO2 reduction targets, it was to renewables that policy makers turned to find a long term solution to Germany’s electricity needs.
The passing of the renewable energy law in 2000 marked a dramatic shift in the pace of change towards a sustainable energy future.
Hermann Scheer: The turning point was the Renewable Energy Act with its special philosophy. And the philosophy is to allow to make investments for renewables possible without asking the power companies if they accept that.
That means it was the first energy law since decades which was adopted against the power companies. And the result is, now that we have an annual new installations for renewables in the electric power sector of 3000 MW (figures from 2009-2010).
One of the most significant aspects of this new law was the introduction of the feed in tariff.
The feed in tariff is basically an obligation of the utilities to take renewable energy into the grid and to pay a certain remuneration for it.
The table of today’s remuneration is very complicated because it also has to stimulate innovation of the technology. So it has depreciated each year. And it works very well.
The prospects of premium rates being paid for energy fed into the grid resulted in a huge demand for solar panels and wind turbines.
We created with the law a market. And the guaranteed price is for the investor. For the supplier, the power supplier. That means for people who buy the windmills.
The more productive the windmill, the higher the profit. That means our law is a strong incentive for technological improvements, for the improvement of the productivity of windmills. And therefore it gave strong push for the technological development of the wind turbine industry.
Although the growth in wind energy has been hailed as many as a major success story, the sightseeing of turbines and in particular large wind farms has generated controversy.
If someone compares a free landscape with a landscape with windmills he may be disturbed by that. But this is not a fair comparison.
One must compare a landscape with wind turbines and a landscape which is touched everywhere by the emissions, the acid rain, damages for the sea, for all water resources, damages for the forests, damages for the climate.
Alongside wind power, Germany is continuing to develop other renewable sources of energy.
The most prominent for today since last year is windpower, followed up by hydropower, which is partly large hydro and small hydro. And then biomass power plants are also increasingly important.
There’s also been an enormous growth in solar photovoltaic power.
Based in Berlin, Solon AG is one of a new generation of companies, riding the wave of a burgeoning alternative energy industry - boosted by further legislation that includes a requirement to reduce energy demand for all new building by an average of 30%.
Since the introduction of the EG, the Renewable Energy Act in 2004 we have seen a huge demand growth for photovoltaic systems in Germany. Germany being the biggest market now for photovoltaic technology. (this was in 2009)
So this is also reflected in the numbers of our company. We’ve been able to grow output and revenues by about 100% annually in the past years, since 2004. So we are seeing a big growth in the market.
This particular plant is a trial plant for Solon. We have developed the Solon mover about three years ago and before launching it into mass production and mass market we have built this plant as a trial.
The renewable energy industry became the most successful new industry with the highest growth rate.
We have an annual growth rate of 30% - for turnovers and even for job creation. And we are, I think, only at the beginning of this process. We created 170,000 new jobs and I think we will arrive at 1 million and more.
There’s no doubt that the last decade has seen Germany take significant steps towards a sustainable energy future. but some remain impatient at the pace of change.
Germany does enough to promote renewable energy in the electricity sector. But Germany does nearly nothing to promote renewable energy in the sector of heating and cooling. So we are discussing with the environmental ministry to set up some kind of a feed in law for heating and cooling by renewable energies. But it’s not clear whether they’ll do it.
BUND is pushing strongly for such a law.
However far the country still has to go, Germany has come further than most to its european neighbours. There is an increasing conviction that German energy policy makes economic sense. And that where Germany leads, other will inevitably follow.
Conventional energy costs, fossils and nuclear, will go up. There’s no way out.
There are rising fuel costs, rising infrastructure costs, rising environmental costs and rising security costs.
The cost for renewables can only go down. There are no fuel costs, with the exception of biomass. There are low infrastructure costs. The only costs are costs for technology and technology costs go down by industrial mass production and further technological improvements.
That’s very clear.
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Source: Wikipedia
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