Renewable Energy Policy in Germany

History of Support for Renewable Energy in Germany

Government sponsorship of renewable energy was spurred initially by energy security concerns during the 1970s. The energy crises of 1973-74 and 1979-80 had severe economic impacts on Germany as on most other industrialized countries; consequently, renewable energy sources were promoted as a potential means of alleviating the risks associated with high fossil fuel import dependence.11 The parallel development of environmental awareness and the emergence of environmental political parties in Europe provided an equally powerful rationale for government investment in renewable energy sources. By the early 1990s, environmental concerns, particularly global climate change, had become principle drivers of renewable energy policy. Germany has been a proponent of international policy action to address climate change and has adopted a broad set of domestic actions to curtail its greenhouse gas emissions.12 For example, as part of the European Union’s commitment under the Kyoto Protocol, Germany agreed to a 21% reduction in greenhouse gas emissions from 1990 levels within the period 2008-2012. Consequently, renewable energy sources and accelerated deployment of renewable energy technologies are seen by the German government as playing a central role in meeting its voluntary greenhouse gas reduction goals.13

Promotion of renewable energy technology development in Germany began with federal government R&D support for wind turbine development in 1974. The government’s large-scale wind plant project (GROWIAN)14 developed the largest wind turbine ever before built, but the technology failed due to limitations in manufacturing and system integration.15 The GROWIAN plant was dismantled in 1987 and is regarded as an economic failure, despite some technical successes and contributions to the development of wind power in Germany.

Germany has relied on a combination of five primary policy instruments for the promotion of renewable energy:

  • Direct investment in R&D;
  • Direct subsidies;
  • Government-sponsored loans;
  • Tax allowances;
  • Subsidies for operational costs/feed-in tariffs.

A federal Electricity Feed Law (StrEG) was adopted in 1991 and became the most important instrument for the promotion of renewable energy in Germany during the 1990s. It obligated public utilities to purchase renewably-generated power from wind, solar, hydro, biomass and landfill gas sources, on a yearly fixed rate basis, based on utilities’ average revenue per kWh. Remuneration to wind producers was set at 90% of the average retail electricity rate; for other renewable power providers, compensation was set at 65-80%, depending on plant size, with smaller plants receiving the higher subsidy level. The StrEG effectively subsidized the operation of commercial wind installations at 4.1 Euro cents/kWh, and jump-started wind power’s market breakthrough in the 1990s, illustrated in Figure 4 (above). In addition, investment in wind power installations was also subsidized by a domestic, state-owned development bank, the Deutsche Ausgleichsbank, which offered low-interest, government guaranteed loans for new wind power development.16

The successor to the StrEG was Germany’s Renewable Energy Law (EEG), adopted in April 2000. The EEG aims to facilitate a doubling of renewable energy’s 1997 share in the power generation fuel mix by 2010—to a minimum of 12.5%. Unlike that of the StrEG, the EEG’s remuneration system is not based on average utility revenue per kWh sold, but rather on a fixed, regressive feed-in tariff for renewable sources. Low-cost renewable energy producers are compensated at lower rates than higher-cost producers, providing strong incentives for the development and operation of renewable energy installations on lower-quality sites.16 Also, under the EEG, grid operators are obligated to purchase power from local producers; a nation-wide equalization scheme has been implemented to reduce the cost differentials paid by grid operators in different parts of the country for the purchase of renewably-generated electricity.18

As Table 2 shows, the EEG also increased the rates utilities pay to renewable energy producers, in most cases by 10%—but by as much as 500% in the case of solar photovoltaic power. The Renewable Energy Supply Act subsidized most renewable energy sources and obligated utilities to buy power from renewable producers, but succeeded mainly in promoting wind; while solar PV and solar thermal energy deployment has also grown significantly, solar technologies continue to have difficulty competing with fossil fuels and other renewables—even at the highly-subsidized rates shown in Table 2 (below).19 Hence, while the deployment policies have resulted in a dramatic expansion in the deployment of renewables in general, they have had asymmetric impacts, promoting those technologies that are currently most economically competitive. The fact that Germany’s deployment policies favor those renewable energy technologies that are most commercially viable suggests that the German government places high value on technology deployment for near-term emissions reductions.

Table 1. Proposed Feed-in Tariffs for Selected Power Generation20

Source

2002

2003

2004

Hydro (up to 500 kW)

7.67

7.67

7.67

Hydro (500 kW-5 MW)

6.65

6.65

6.65

Landfill gas (up to 500kW)

7.67

7.67

7.67

Landfill gas (500 kW-5 MW)

6.65

6.65

6.65

Biomass (up to 500 kW)

10.13

10.03

9.93

Biomass (500 kW-5 MW)

9.11

9.02

8.93

Biomass (5 MW-20 MW)

8.60

8.52

8.43

Geothermal (up to 20 MW)

8.95

8.95

8.95

Wind (onshore or offshore)

8.96

8.83

8.70

Solar PV (5 MW)

48.09

45.68

43.40

The election of Germany’s Red-Green coalition government in 1998 brought with it additional policies and legislation promoting the growth of renewable energy. For example, the 1999 Ecological Tax Reform (ETR) initially increased the taxes on motor fuels, fuel oils, and natural gas, and also levied an electricity tax across all sectors. These taxes have increased in subsequent years. The ETR has helped to broaden the use of biofuels, which are exempt from taxation under the law, but has had a neutral effect on wind, solar, and other sources of renewable electricity, since all electricity providers are subject to the ETR power levy.

The coalition government also introduced the 100,000 Solar Roofs Program (HTDP) in 1999. The program aimed to increase solar PV electricity generation by subsidizing the installation of new solar panels with capacity of 3kWp or higher. With a 510 million Euro grant, HDTP helped installed PV capacity to grow from 50 MW in 1998 to 350 MW in 2003. The Program was expected to generate 1.3 billion Euros in private investment and also served a key industrial policy goal. HDTP was designed to enhance the competitiveness of German PV manufacturers and place them at the leading edge of a burgeoning global solar market.21 The extent of its success in meeting this goal will be addressed later.

In 1999, the new government also introduced the Market Incentive Program (MAP), which offered government grants totaling 203 million Euro in 2003 alone for the commercialization and deployment of renewable energy systems. 30 million Euros are earmarked for export promotion. The German government considers MAP to be one of its most effective current renewable energy promotion programs, particularly since funds from the program may be leveraged with other government funds.22