Renewable Energy Policy in Germany


The growth of renewable energy in Germany has often been cited as a model success story.1 The German government launched a comprehensive series of promotions for renewable energy in the early 1990s, which has since been augmented with additional legislation and policy actions to increase renewable energy use.2 As this paper discusses, most of these policies were embedded in a larger set of environmental, economic, and security policy considerations. For example, growing environmentalism in the German electorate, regulatory obligations domestically and at the level of the European Union, and concern over rising energy import dependence all played some part in spurring the adoption of aggressive renewable energy policies. That these considerations also amounted to a significant evolution in German energy and technology policy—from technology policies favoring longer-term R&D and later deployment to technology policies encouraging earlier adoption of existing technologies via market incentives—appears not to have been an explicit aim of the German government.

The German approach has combined ongoing R&D efforts with a variety of policy instruments (taxes, credits, standards, etc.), favorable electricity feed laws, export promotion programs, and government secured loans for renewable energy projects. These policies have helped Germany to attain a leading position in many aspects of renewable energy use. For example:

  • World leadership in installed wind capacity – 13,512 MW as of October, 2003, or approximately 40% global capacity;
  • An installed PV capacity second only to Japan – approximately 350 MW;
  • European leadership in biodiesel sales – 550,000 tonnes per year as of the end 2002;
  • The largest European market for solar heating systems – 4.75 million square meters installed domestically as of December, 2002;
  • A substantial green electricity share – green electricity, including hydropower, represents approximately 9% of electricity generating capacity.

The rapid penetration of wind energy in particular in the electricity generation fuel mix over the past decade has been attributed in large part to the passage of electricity feed laws obligating power providers to purchase renewably-generated power from producers at fixed rates. Improvements in wind turbine technology, in conjunction with this and other favorable legislation, moved wind to the forefront among renewable energy options. Between 1990 and 2004 the average manufacturing cost of wind turbines in Germany fell by 50%.3 Lower costs may be attributable to a combination of technical innovations in the wind industry and innovations in other industries (e.g., materials and computers).

Government subsidies to wind and other renewable energy producers have also played a major part in accelerating the growth of renewable energy. While mandating emissions reductions, a combination of direct subsidies to renewable energy producers, low-interest loans to investors, and renewable portfolio standards have been instituted with the aim of boosting renewable sources in the electricity supply mix to 21% by 2010. In December 2003, the government issued a cabinet decision prolonging subsidies to alternative power producers for an unspecified time period; however, the decision also noted that subsidy levels would decline by 2% annually to encourage competition among renewable technology manufacturers.

Even though renewable energy has grown rapidly in Germany, its contribution to total electricity consumption remains relatively small. As Figure 1 shows, domestic renewable energy production is only a fraction of total electricity demand. The substantial growth in renewable energy production has not kept pace with a six percent increase in Germany’s total electricity consumption since its low point in 1993.4 Thus, the substantial increases in renewable energy use have not reduced conventional electricity demand.

While the German government has invested more than 3.5 billion Euros in renewable energy R&D since 1990, its overall approach to renewable energy has evolved to place greater emphasis on technology deployment activities. As Figure 2 shows, renewable energy R&D programs have received more consistent government funding than other energy R&D program areas since 1990. Overall government support for energy R&D has fallen sharply in Germany over the past two decades—by approximately 76% since 1981. The primary cause of this overall decrease has been a massive reduction in nuclear energy R&D, which dominated the German energy R&D portfolio in the early 1980s.

As Figure 3 shows, funding for individual programs in the government’s renewable energy portfolio has varied significantly from year to year since the early 1990s.

In particular, the decline in support for solar photovoltaics and biomass R&D provides a counterpoint to the host of other policy measures adopted to spur the adoption of these technologies. This adoption of deployment policies with a protracted reduction in R&D expenditures suggests an increasing preference for the deployment of existing renewable energy technologies in the near term, along with any learning-by-doing and induced private innovative activity from this deployment, over a publicly-financed R&D approach targeting a next generation technologies for deployment at a later date. Landmark legislation such as the 1991 Energy Feed Law and 2000 Renewable Energy Law (discussed later in this paper) have had an accelerating effect on the deployment of renewable energy technologies since 19906 even though renewable energy R&D budgets in several key technology program areas have been erratic over the same period. Renewable technology deployment targets coupled with incentives such as government subsidies to renewable electricity producers have propelled the rapid growth of wind and solar thermal power, and, increasingly, to broader deployment of biomass and photovoltaic systems9.

There have been noteworthy exceptions to this approach, however. Hydrogen and fuel cell R&D and, to a lesser extent, geothermal R&D programs have experienced sharp funding increases in recent years. Intensive R&D is still needed in these areas to bring technologies closer to commercial viability and broad market deployment. R&D funding cuts have had the greatest impact in mature technology areas (e.g., fossil fuels). Nuclear technology R&D has also been sharply reduced, primarily because of Germany’s intended phase out of all nuclear power by 2020.10

The remaining sections of this paper address several dimensions of renewable energy policy in Germany. Section 2 presents a historical overview of the development of renewable energy in Germany, focusing on major legislation, projects, and initiatives undertaken since the 1970s. It shows that while Germany has a long history of support for renewable energy projects, it is only since 1990 that renewable energy has played a consequential role in Germany’s fuel mix. Section 3 explains the evolution of German renewable energy policy, focusing principally on domestic and international political drivers. Pressures from domestic political actors, such as an ascendant Green, and obligations to the European Union, for example, have played major formative roles in renewable energy policy. Section 4 considers future challenges to the growth of renewable energy in Germany. While domestic political pressures played a catalyzing role for renewables in the 1990s, opposing political pressures may place limitations on them in coming years. Section 5 looks at the overall effectiveness of Germany’s major renewable energy policies, and Section 6 offers a sufmmary and conclusion.