“Solar power in Germany makes as much economic sense as growing pineapples in Alaska,” Jürgen Grossmann said in January last year, a few months before he quit as chief executive of Germany’s second-largest power company, RWE.
He has a point. It is not the sunniest of countries. But Germany has turned itself into the world’s largest solar power market thanks to a boom in installations triggered by subsidies as part of what Germans call the energiewende, or energy revolution.
It was launched back in 2000 when the centre-left government, the first ever national coalition of Social Democrats and environmentalist Greens, agreed to phase out nuclear power generation and launched the Renewable Energy Act to speed up the production of wind and solar capacity through incentives.
Operators of wind turbines and solar plants get feed-in tariffs, which offer them a long-term guaranteed price for the power they inject into the grid. It is a safe investment offering an attractive return and it has led thousands of companies and private households to install solar panels on roofs and spare land. Investment in wind farms onshore and offshore has also raced ahead. The subsidy is funded by a surcharge on household bills that rises automatically as more people take up the offer.
The chancellor Angela Merkel, in a bid to drive forward the transition, formulated ambitious goals in 2010. Renewable energy is slated to account for at least 35 per cent of power consumption by 2020, at least 50 per cent by 2030 and at least 50 per cent by 2080.
Biomass and hydroelectric power will also be used but fossil-fuel power plants, especially gas-fired ones, will continue to be needed long-term to offset the fluctuation of power output from the wind and the sun. However, the gas plants themselves will increasingly be run on hydrogen and methane produced on the basis of renewable energy, says the German environment ministry.
The energy revolution is central to Germany’s plan to cut its carbon disoxide emissions by 40 per cent by 2020 and by 80 to 95 per cent by 2050 (all against 1990 levels). Offshore wind farms are getting cheaper credit from the state-owned KfW bank,
The eight oldest nuclear power stations were quickly closed following the Fukushima nuclear accident in Japan in 2011 and the remaining nine will be phased out by 2022.
Modern power lines need to be built to equip the grid for the new era of decentralised, sharply fluctuating renewable energy output and to ensure the supply of power from wind farms in the north to the main conurbations and industries in the south and west of the country. The government’s grid development plan envisages the construction of 2,800km of new lines and the improvement of 2,900km of existing lines. That will cost an estimated €10 billion (Dh49.84bn), the government said in June.
Berlin is also investing billions of euros in promoting the construction of energy-efficient buildings and the development of new green technologies. Laws are being changed to make it harder for local protest groups to block the erection of power masts and other infrastructure projects with lengthy legal action.
No one knows how much this will end up costing. The former environment minister Jürgen Trittin once famously said it would not cost people more than a scoop of ice cream.
His successor, Peter Altmaier, recently admitted people “could eat their way up and down the ice cream menu” with what it actually costs. Even that is an understatement. The electricity bill surcharge alone for an average three-person household will reach €184.70 this year, up from €2.80 in 2000.
Mr Altmaier said the total cost to Germany of subsidising renewable energy could end up exceeding €1 trillion by the late 2030s. And that does not include the cost of investing in back-up power stations, essential power storage plants and new power lines.
The current subsidy system has some fundamental structural flaws that have arisen because it is so popular. The lower the market price of power, the more the subsidy ends up costing consumers, because the cost is determined by the difference between the market price and the fixed feed-in tariff. But the more people invest in solar and wind to secure the tariff for themselves, the greater the supply of power – and the more the market price falls. That means this year alone, electricity consumers will be spending more than €20bn in subsidies for renewable power whose market price amounts to just €3bn. And because all these solar panels and wind turbines produce power so erratically, the German grid is plagued by a constant swing of power gluts and shortages the ageing power infrastructure is straining to cope with. Regional shortages can get so bad that power-intensive companies such as the ArcelorMittal steel plant in Hamburg has on occasion been asked to shut down production to keep the grid stable – in such cases, the power consumers end up footing the bill to compensate companies.
To make matters worse, the low market price has led utilities to mothball even their most efficient new gas-fired power stations because they are unprofitable. So they are burning cheap coal and belching out CO2.
The energy revolution, it’s clear, urgently needs fixing.