Renewable Energy Policy in Germany

Challenges to the Future Deployment of Renewable Energy Technology in Germany

Even though renewable energy has grown rapidly in Germany, there are major challenges to its continued expansion. One of the most significant political obstacles, for example is the opposition of the coal industry. Germany’s Social Democratic Party (SPD)—the majority party in the current coalition government—has historically been a stronghold of miners and other organized labor groups that are influential in the SPD today. For example, vigorous debate surrounded a 2003 amendment to the Renewable Energy Law aiming to double renewable energy’s share in the electricity fuel mix to 12.5% by 2010. The amendment passed, despite strong resistance to subsidies for wind power by some SPD officials, as a result of Chancellor Schroeder’s promise to provide an additional 17 billion Euro in federal subsidies to the hard coal industry between 2006 and 2012. These subsidies will extend the operating lifespan of several of Germany’s less competitive coal mines and slow the rate of unemployment among German coal workers. The SPD’s coalition partner, the Green Party, agreed to the higher subsidies in exchange for sharp reductions (from 26 million tonnes to 16 million tones) in German coal production and mine closures over the same period.40

The issue of continuing subsidies to renewable energy suppliers has also been a highly contentious political issue in Germany. Revenues raised by the Renewable Energy Law’s levy on all power consumers have been used, in part to reduce the operating costs of renewable electricity on an ongoing basis, leading to outcries from the fossil fuel industries and some politicians. Under the 2003 amendment, such cross subsidies are to be eliminated, although some revenues will remain available for the market introduction of innovative renewable energy technologies.41 A conflict flared within the Red-Green coalition government over this issue, sparked by the language of an ecotax reform bill adopted in May 2004. After protracted negotiations between the (Green-led) Environment and the (SPD-led) Economic Ministries, policymakers agreed that both large and medium size companies would be exempted from energy taxes used to subsidize renewably-generated electricity. Federal subsidies for wind and solar power have also been under heavy pressure and were reduced in 2003.42

Gas procurement policy—particularly rules applying to long-term supply contracts—also presents a problem for renewable energy development in Germany. Many of the largest long-term supply contracts currently in effect do not expire until 2011 and some expire as late as 2030. Contracts between gas suppliers and power producers are typically “take or pay” arrangements, obligating power companies to purchase specified amounts of gas for the contract’s duration. Consequently, long-term contracts may constrain renewable power providers’ access to the electricity market for years to come.43

While the German public has long supported the development and expansion of renewable energy for environmental protection, growing aesthetic, economic, and political concerns have broadened popular opposition to renewables. Wind turbines have become the focus of intensifying controversy, particularly in northern Germany, where wind deployment has been most rapid (see Figure 3 below). Many communities have complained about the siting procedures for wind installations, arguing that they have been shut out of the process in some cases. Communities situated near wind installations complain about the visual impact of wind turbines on the landscape, the turbines’ constant hum, and the frequent tendency of the spinning blades to kill birds.44

Germany’s major conventional power producers, including RWE, E.On, and Vattenfall have also complained about the EEG mandate to purchase renewable energy at fixed prices. For obvious reasons, conventional power producers object to the government’s favorably discriminatory treatment of renewable energy producers who would otherwise not be capable of competing in the marketplace. German power companies brought their complaint unsuccessfully to the European Court, where they argued that Germany’s EEG provision violates EU legislation regarding government assistance to domestic industries.45

Nonetheless, conventional utilities and energy marketers have learned to profit from EEG mandates. Since wind and solar generators produce power mainly during daylight hours, power marketers usually buy renewable energy during the day at stipulated fixed costs and sell it to consumers at even higher rates, especially during peak daytime periods. Cheaper, conventionally-generated power is purchased in larger quantity at night, when demand and tariffs are significantly lower. In 2003, a German energy industry association estimated annual profits from renewable electricity trading at approximately 25 million Euros.46

Despite energy companies’ demonstrated ability to benefit from laws such as the EEG, some energy analysts have pointed out that commercial wind and solar electricity makes little economic sense. Even though continuous technological improvement in renewable energy technologies have reduced the costs of renewable energy significantly over the past two decades, improvements in conventional power generation have likewise reduced the costs of conventional electricity. Thus, renewable power providers pursue a moving performance target. In the absence of government supports and policies, these energy sources are likely to remain less competitive with conventional power for the foreseeable future and may even prove uncompetitive with renewable resources imported from other European countries. Wind power in the United Kingdom, for example, is roughly half the cost of German-generated wind power; thus, the integration of the European power grid could intensify the competitive pressures on Germany’s renewable energy industries.47