Wednesday, April 23, 2014
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Germany’s Sunshine Daydream

COPENHAGEN – One of the world’s biggest green-energy public-policy experiments is coming to a bitter end in Germany, with important lessons for policymakers elsewhere.

Germany once prided itself on being the “photovoltaic world champion”, doling out generous subsidies – totaling more than $130 billion, according to research from Germany’s Ruhr University – to citizens to invest in solar energy. But now the German government is vowing to cut the subsidies sooner than planned, and to phase out support over the next five years. What went wrong?

There is a fundamental problem with subsidizing inefficient green technology: it is affordable only if it is done in tiny, tokenistic amounts. Using the government’s generous subsidies, Germans installed 7.5 gigawatts of photovoltaic (PV) capacity last year, more than double what the government had deemed “acceptable.” It is estimated that this increase alone will lead to a $260 hike in the average consumer’s annual power bill.

According to Der Spiegel, even members of Chancellor Angela Merkel’s staff are now describing the policy as a massive money pit. Philipp Rösler, Germany’s minister of economics and technology, has called the spiraling solar subsidies a “threat to the economy.”

Germany’s enthusiasm for solar power is understandable. We could satisfy all of the world’s energy needs for an entire year if we could capture just one hour of the sun’s energy. Even with the inefficiency of current PV technology, we could meet the entire globe’s energy demand with solar panels by covering 250,000 square kilometers (155,342 square miles), about 2.6% of the Sahara Desert.

Unfortunately, Germany – like most of the world – is not as sunny as the Sahara. And, while sunlight is free, panels and installation are not. Solar power is at least four times more costly than energy produced by fossil fuels. It also has the distinct disadvantage of not working at night, when much electricity is consumed.

In the words of the German Association of Physicists, “solar energy cannot replace any additional power plants.” On short, overcast winter days, Germany’s 1.1 million solar-power systems can generate no electricity at all. The country is then forced to import considerable amounts of electricity from nuclear power plants in France and the Czech Republic. When the sun failed to shine last winter, one emergency back-up plan powered up an Austrian oil-fired plant to fill the supply gap.

Indeed, despite the massive investment, solar power accounts for only about 0.3% of Germany’s total energy. This is one of the key reasons why Germans now pay the second-highest price for electricity in the developed world (exceeded only by Denmark, which aims to be the “world wind-energy champion”). Germans pay three times more than their American counterparts.

Moreover, this sizeable investment does remarkably little to counter global warming. Even with unrealistically generous assumptions, the unimpressive net effect is that solar power reduces Germany’s CO2 emissions by roughly eight million metric tons – or about 1% – for the next 20 years. When the effects are calculated in a standard climate model, the result is a reduction in average temperature of 0.00005oC (one twenty-thousandth of a degree Celsius, or one ten-thousandth of a degree Fahrenheit). To put it another way: by the end of the century, Germany’s $130 billion solar panel subsidies will have postponed temperature increases by 23 hours.

Using solar, Germany is paying about $1,000 per ton of CO2 reduced. The current CO2 price in Europe is $8. Germany could have cut 131 times as much CO2 for the same price. Instead, the Germans are wasting more than 99 cents of every euro that they plow into solar panels.

It gets worse: because Germany is part of the European Union Emissions Trading System, the actual effect of extra solar panels in Germany leads to no CO2 reductions, because total emissions are already capped. Instead, the Germans simply allow other parts of the EU to emit more CO2. Germany’s solar panels have only made it cheaper for Portugal or Greece to use coal.

Defenders of Germany’s solar subsidies also claim that they have helped to create “green jobs”. But each job created by green-energy policies costs an average of $175,000 – considerably more than job creation elsewhere in the economy, such as infrastructure or health care. And many “green jobs” are being exported to China, meaning that Europeans subsidize Chinese jobs, with no CO2 reductions.

Germany’s experiment with subsidizing inefficient solar technology has failed. What governments should do instead is to focus first on increasing research and development to make green-energy technology cheaper and more competitive. Production should be ramped up later.

In the meantime, Germans have paid about $130 billion for a climate-change policy that has no impact on global warming. They have subsidized Chinese jobs and other European countries’ reliance on dirty energy sources. And they have needlessly burdened their economy. As even many German officials would probably attest, governments elsewhere cannot afford to repeat the same mistake.

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  1. Portrait of Bjørn Lomborg

    CommentedBjørn Lomborg

    To Bill Thomas, October 13: I answered your cited critique already in March:

    Response to "10 Huge German Solar Energy Myths Bjørn Lomborg is Trumpeting"

    1. The two claims that I am “infamous for denying global warming’s existence” and then “flipped” are both wrong.

    2. Regarding the “odd idea that deploying clean energy now isn’t the best way”. I think Germany’s $130bn price-tag for achieving next-to-nothing is an excellent example of why this isn’t such an “odd” idea.

    3. “Solar power is already cheaper than fossil fuels and nuclear”. Externalities of course should be included, but they are vastly overrepresented in most developed country fossil fuel taxes. If solar really is cheaper on a 6-8 year basis, many taxpayers would ask why, then, there is a need for subsidies.

    4. “Cost of inaction”. The relevant question is whether the cost of action is greater than the benefit of that action. In this case, it is a matter of whether delaying warming by up to 23hrs is worth the $130bn expense.

    5. “We MUST put up solar panels now to reduce CO2.” This is the exact strategy we’ve been trying for 20 years now, yet CO2 keeps ticking up. I’m simply pointing out that we need better and cheaper technology if we’re going to move beyond empty slogans and feel-good action.

    6. “Germany’s solar panel policy has been a wild success”. Perhaps, but only if you measure “success” by how much money has been spent. This is rarely how most taxpayers see it.

    7. “Solar produces green jobs”. No, actually, it simply subsidizes the creation of some jobs, while the extra taxes that fund those subsidies kill an equivalent number of jobs elsewhere. Job creation elsewhere in the economy has been shown to be cheaper and more effective. For more, read this analysis:

    8. Germany’s subsidies are “having a tremendous, positive impact on CO2 emissions”. When Germany is part of the European ETS, more cuts in Germany simply mean others will emit more. Even if we accept the total, saved CO2 amounts over the next 20 years as estimated by the German Environment office, it only postpones global warming by 23 hours by the end of the century. Not tremendous.

  2. CommentedAlan Aszkler

    A published American Energy Independence Council study comparing the cost of Solar Energy Generation vs. Passive Solar Radiation reduction technology, showed the cost benefit analysis of Solar Panels as a large scale primary energy source to be punitive. The key finding Solar panel energy production and use produces negative ROI increasing the cost per KW to the end user. While negating the effect of passive solar energy gain significantly reduces the cost of interior climate control while returning 2.5 to 3 times ROI when compared to solar panel installation. The study in progress is quantifying an analysis of the net global warming effect, CO2 footprint produced by solar panel manufacturing and use vs. the global warming and CO2 reduction with a passive solar reflection technology.
    Officially the AEIC is fully supportive of Solar Energy as a viable technology but are in concurrence with Dr. Lomborg’s findings. Significant investment in this technology by Government entities to subsidize the industry as a primary energy source for the purpose of reduced CO2 emissions and Hydro Carbon energy consumption will have a negligible effect on Human caused climate change at a huge cost per KW to the end user. Investment in solar energy technology for the purpose of scientific advancements is plausible, however massive investment in solar energy as a future primary energy source is not a feasible means to solve the worlds energy needs.

  3. CommentedDoug Bishop

    This paragraph is completely incorrect - actually 2% in 2010 and >3% of energy in 2011 was from solar. Germans paid ~3x american energy costs BEFORE the solar subsidies. The total solar subsidy accounts for a very small fraction of difference in energy costs with US (or other European countries)

  4. CommentedDoug Bishop

    $260 is incorrect - even assuming all 7.5gw installed at the maximum 2011 subsidy of 0.28E/kwh --> it will be ~1 billion Euros which works out to less than 10 euros per person/yr. It in fact will be less than that. (assuming 11% capacity factor in crappy german weather)

  5. CommentedDoug Bishop

    There are valid reasons to argue that Germany's solar policy has not been an efficient government investment, but this article completely overstates the case, with a misleading perspective and important factual errors. Solar provided ~3% of German energy (NOT 0.3%) in 2011. While the cost listed is accurate - it is the cumulative cost obligated over 20 years! Germany is actually paying somewhere on the order of 7billion euro's per year in 2011. High German energy costs are NOT explained by the solar subsidies - totaling ~50 euro per person/ year. This represents a small fraction of the difference in energy price between Germany and the US.

    On the other hand, the article didn't mention the largest benefit of Germany's policy: to make solar cheap enough to become mainstream. Solar costs have decreased by a factor of >3 in about a decade, and subsidies per kwh have dropped by >50%. New solar installations now cost the German people less. The world is benefiting from Germany pioneering and bringing the solar panel to mass production, so now in certain sunny markets solar is competitive without subsidies. So while the calculations of CO2 benefits are also wrong by an order of magnitude, that doesn't change the general calculation that solar is not the cheapest way to reduce CO2 (nor is it the only thing Germany has invested in). Other analyses of the German policy have lauded it as a success, as solar is now possible in much of the world with minimal subsidy -and the world solar market will continue to grow. If the goal of the policy was to reduce CO2 for minimum cost it failed, but if the policy was to make solar mainstream, it appears to have succeeded. I'll let you make the decision of whether it is worth the costs, but this article does little to inform readers about the pertinent issues and even misinforms on key facts and numbers...

  6. CommentedJosé da Costa

    What is your opinion on the following statements by Christian Kjaer, CEO of the European Wind Association, who wrote an article posted on this website titled "Blowing Away Nuclear Power":

    Opponents argue that renewables are expensive and dependent on subsidies. But a report last year by the UK government’s Committee on Climate Change noted that the cost of onshore wind power was cheaper than new nuclear power in 2011, and predicted that it will remain lower in 2020, 2030, and 2040. Likewise, France’s Court of Auditors has said that the cost of electricity from new nuclear capacity could jump to €70-90/MWh in 2020 – a level with which onshore wind power could easily compete in most parts of Europe.

    According to the European Environment Agency, 80% of the total energy subsidies in the European Union is paid to fossil fuels and nuclear energy, while 19% goes to renewables. Moreover, wind energy has zero fuel costs, minimal waste-disposal and decommissioning costs, and a tiny fraction of nuclear power’s risk to human health or the environment.

  7. CommentedAndré Rebentisch

    Your article seems misleading to me. The reason why Germany cuts solar plant subsidies is the rapid price decline of solar cells, in other words the success of their policy. The trick to solve the regulatory issue is a quota for which a subsidy scheme applies. Germany's enthusiam is also directed at technological Vorsprung, getting the right environment for small and medium sized solution providers. The next huge challenge is energy storage solutions. These self-imposed challenges increase Germany's competitiveness and future market leadership.