Renewable Energy Policy in Germany

The Effectiveness of Renewable Energy Policy in Germany

Many analysts proclaim German renewable energy policy an unequivocal success.48 Observers have reached this conclusion principally on the basis of the German government’s adoption, over the course of a decade, of far-reaching energy and environmental laws and, consequently, the rapid deployment of wind power.

In its assessment of Germany’s renewable energy policy, this paper takes a broader look at the development of the renewable energy portfolio, considering three key dimensions as criteria for success. First, it addresses the familiar question of effectiveness of policy in its influence on the deployment of renewable energy technologies and on greenhouse gas emissions. A principal aim of renewables policy in Germany is the reduction of greenhouse gas emissions through the displacement of fossil energy systems; thus, deployment rates and emissions offsets are related—yet distinct—metrics for success.

A second key criterion is the effect of renewables policy on technological advance. Over time, Germany has increasingly adopted deployment oriented policies for energy technology advance, mainly in response to a host of short-term policy imperatives, such as greenhouse gas emissions reduction commitments, discussed earlier. In some cases, the adoption of deployment policies has entailed a largely implicit tradeoff with funding for energy R&D. For example, funding for wind and solar R&D programs have remained constant or experienced small funding declines, while deployment funding in both areas has increased sharply. While market based policies may be effective in moving existing technologies into the market, technology deployment may occur at the expense of research and development programs. In this regard, such policies have been viewed by some observers as undercutting the foundations of future technological advances. Thus, assessing the effectiveness of renewables on technological advance begs a comparison of technology deployment and R&D policies.

A third criterion addressed here is the effectiveness of policy in promoting German renewable technology exports and economic competitiveness. A long-term goal of German energy and technology policy has been to strengthen Germany’s competitive position through policies that promote innovation and improve opportunities for exports of energy technologies.49 The extent to which renewable energy policy has contributed to German economic competitiveness is a third success metric considered here.

5.1 Deployment of Renewable Energy Technologies and Greenhouse Gas Emissions

Between 1990 and 2003, renewable energy’s share in Germany’s electric power generation fuel mix grew from less than 3% to almost 9%. Over the same period, net electricity consumption in Germany grew by approximately 5%, while carbon dioxide emissions from electric power production declined by roughly 13%.50

Several factors contributed to the reduction of carbon and other air emissions (including SOX and NOX, and CO). Among these were the decommissioning of many old, inefficient coal-fired power plants in the former East Germany, and their replacement with more efficient gas turbine units. Similarly, end use efficiency improvements in all economic sectors facilitated a steady reduction in electricity intensity in Germany, even as overall power consumption grew steadily. Yet laws such as the EEG also played a central role in spurring the accelerated deployment of renewable energy systems—particularly wind and biomass technologies. The German government claims that, in 2002 alone, avoided emissions resulting from deployed renewable energy technologies for electric power production were almost 36 million tonnes CO2 equivalent or 10% of total electricity-related CO2 emissions.51

Growth in renewable electricity generating capacity grew exponentially following the adoption of the Renewable Energy Supply Act in December 1990, and even more rapidly following the Renewable Energy Feed Law, which came into force in April 2000. While renewable energy in Germany has grown dramatically over the past decade, the future—particularly that of commercial wind and solar photovoltaic installations—may be less certain. As mentioned earlier, political resistance to wind power is growing in both industrial and consumer constituencies. Conventional fossil-fuel utilities are increasingly resentful of the obligation to purchase renewably-generated power at fixed rates, and are bringing their weight to bear in the German Bundestag. As noted earlier, industry lobbies succeeded in securing a reduction in renewable energy feed tariffs as part of the 2004 Ecotax reform.52

Germany’s planned elimination of nuclear power from the electricity generating fuel mix presents an additional set of political dilemmas heightening the uncertainties surrounding future renewable energy growth. Should the government proceed with the phase-out of nuclear power—which currently accounts for 13% of primary energy supply—and, at the same time, seek to meet its greenhouse gas emissions reduction commitments, renewable energy technologies could continue to deploy rapidly. Alternatively, the ongoing integration of the European electric power grid, in conjunction with difficulties siting new wind and solar facilities, could make power imports the preferred means of meeting future demand growth.

5.2 Renewables Policy and Technological Advance

Like other European Union countries, Germany has gradually increased the emphasis on renewable energy deployment programs in its energy and technology policy portfolio. Increasingly, governments have shifted their attention from basic and applied research programs since the early 1990s and devoted more resources to deployment incentive programs. While this application-oriented shift in emphasis has resulted in the more rapid growth of renewable energy industries and in the commercial deployment of many existing renewable energy technologies, these gains may be purchased at the expense of longer-term R&D programs. As Table 3 shows below, government expenditures for renewable energy market conditioning and deployment incentives exceeded total government energy R&D expenditures by more than 200% in 2002.

Table 3. Estimated Market Conditioning and Deployment Expenditures for Renewable Energy Technologies, Selected Federal Government Programs 200353

Policy

Euros (millions)

EEG

1,225

Market Conditioning for the Promotion of Renewable Energy Use

190

100,000 Solar Roofs Program

69

ERP Energy and Environmental Conservation Program

119

DtA Environment Program

46

Homeowner Incentives

22

TOTAL

1,671

Recent analyses suggest that the distribution of funding among research, development and deployment activities in Germany varies significantly within the renewable energy technology portfolio.54

While the evolution of the German approach demonstrates a clear trend toward deployment-based activities, there is little evidence on the implications of this focus on technological advance. Since the advance of renewable energy technologies is a function of many variables, including spillovers from the private sector and from R&D programs in other countries, research efforts have not yet established the relative significance of individual factors for technological advance.55

5.3 Renewable Energy Technology Exports

Germany’s renewable energy industries and energy policymakers are working to broaden the world market for German-made renewable energy technologies.56 Since domestic production and deployment of wind and solar systems have grown particularly strongly over the past decade, export markets may offer the best opportunity for continued growth as attractive new sites for wind and solar installations grow scarcer at home.

The renewable energy industry already constitutes an important, burgeoning source of new jobs within Germany. Jobs directly related to renewable energy grew from a few thousand in the early 1990s to an estimated 50,000 by 1998. Between 1998 and 2002, that number more than doubled to approximately 120,000. Nearly half of all jobs in the renewable energy industry are directly related to wind power. Export markets will be particularly important to the longevity of these positions, as the domestic market approaches a saturation level.57

Exports now account for approximately 20% and 10% of wind and solar PV production, respectively, in Germany. According to one recent study, exports of solar energy technologies appear to be slowing, while those for wind technologies and related services are growing rapidly due to Germany’s strong competitive position and an expanding global market. This study estimates Germany’s overall annual renewable energy technology exports at 350 million Euro, or 10% of domestic production. The same study projects a world market share of 4-5% for German renewable technology firms by 2010.58 Germany lags behind other industrialized countries, such as the U.S. and Denmark, as an exporter of renewable technologies.59

While German producers of commercial biomass technologies, biofuels, and fuel cells are also active on world markets, government-sponsored export initiatives have focused principally on wind and solar PV systems. In 2001, for example, German wind turbine producers exported 693 turbines (518 MW)—100% more than in the previous year. While the number of turbines exported grew again in 2002 as shown in Figure 6, strong growth in domestic demand and production actually reduced the share of exports in that year. While the largest export markets today lie within the EU—Italy, Spain, France, and Poland—producers have their future hopes set on major emerging markets, particularly those in China and Brazil.60

To a large extent, however, the growth of renewable energy technology export markets depends on factors that are beyond the control of German policymakers or industry. For example, the EU’s ratification of the Kyoto Protocol provided significant export opportunities to Germany’s renewable technology producers, who were well-positioned to capture a large portion of the European market as soon as Kyoto was adopted. However, the domestic policy environments of target countries beyond the EU are likely to be the major determinants of longer-term export potential.61