Germany, the model for Ontario’s wind and solar developments, now regrets its spending spree

Brady Yauch, Financial Post, August 12, 2014

Germany – the country on which Ontario modelled its approach to renewable energy development – has a $412-billion lesson for Ontario. That’s the amount the country has spent on subsidies in support of solar and wind energy, among other renewables, over the past 20 years, all in the push to wean the country off fossil fuel and nuclear generation.

On the surface – and according to many news sites – the program has been a success, and not just because of the 378,000 people renewables now employ.

By the end of 2012 (the most recent year for data), wind and solar provided about 13% of all German electricity consumption. Adding in hydro and biomass, renewables provided more than 23%. And in May, headline writers around the world proudly trumpeted that renewable energy provided 75% of the country’s total electricity consumption.

Not what it seems

But scratch a bit below the surface and an entirely different picture emerges – one with households being pushed into “energy poverty” as renewable subsidies lead to soaring power bills, handouts to the country’s big businesses and exporters so they can avoid paying for those subsidies and a systematic bankrupting of traditional utilities. As for that one day in May when headlines celebrated that 75% of power generation came from renewables, well, it was a Sunday when demand for power is at its lowest level.

Germany’s decision to support renewable energy at all costs has, ultimately, cost the country’s ratepayers billions of dollars and led to a doubling of monthly electricity bills over the past decade. Households now pay the second highest rates for electricity in the EU – second only to Denmark, the world leader in wind turbines. The country’s feed-in tariff program – which offers renewable energy producers a guaranteed rate for their power – has already cost $412-billion, but could, according to one estimate from the former Minister of the Environment Peter, produce an $884-billion price tag by 2022. Germany will hand out $31.1-billion of renewable energy subsidies in this year alone.

The price of electricity paid by German households has increased from 14 cents (euro) per kilowatt hour in 2000 to 29 cents per kilowatt hour last year – marking a 107% increase, while inflation over that time period was about 22%. The biggest reason for that increase is the renewable energy subsidy, which amounted to 1.4% of the total bill when it was first introduced in 2000, but now accounts for 18%. That renewable levy now costs the average household in Germany more than $320 a year.

Electricity now a luxury

Rising electricity prices for households led Der Spiegel, one of the country’s most respected magazines, to warn that electricity was becoming a “luxury good.” More than 300,000 households each year are being left in the dark because they can’t afford electricity.

German households are being hit particularly hard by the cost of renewable subsidies because the country’s largest businesses – many of them exporters and in energy-intensive sectors – have been exempt from paying for them. Regulators and politicians – fearing that that high electricity prices would hurt the economy and result in job losses or plant closures – gave big business a free pass and instead shifted the costs to households.

The renewable subsidies have distorted Germany’s power market to such an extent that traditional utilities are being pushed to the brink of collapse. Electricity generated from solar and wind has no relationship with the market. Because the price the producers receive is guaranteed and is not based on demand, they dump their output whenever it is produced. This glut of power has, at times, pushed the price of wholesale power below zero – meaning the utilities need to pay someone to use it. This has skewed the price to such an extent that traditional generators can’t economically produce power – they simply stop producing when the price goes too low.

While the answer would seem to be to close those uneconomic generators, that’s not possible since renewable energy is intermittent – at times it will produce no power, while at others it will produce too much – and traditional generators are needed to provide a secure, reliable source of power. Utilities are being asked to keep producing power even though the economics of it don’t make sense anymore. To prevent utilities in Germany from pulling out of the business of generation, the government now offers more than billion dollars in “balancing payments” – sometimes 400 times the price of power – to stabilize the grid.

Renewable producers still can’t survive without subsidies

The rise of renewable power has also led to coal making a comeback. The amount of generation from coal actually increased from 43% of all output in 2011 to nearly 45% in 2012. Electricity generation from lignite, a cheaper and dirtier form of coal, has also been on the rise because, according to one Germany utility, it’s the only thing that can compete with subsidized renewable energy.

The energy situation in Germany has become so disruptive and politically untenable that the government has recently done everything it can to pull back on subsidies and other support for renewable energy, much to the dismay of renewable producers that still can’t survive on their own.

Far from being a success, Germany’s rush into renewable energy has crushed households, taxpayers and utilities. Ontario needs a better model.

Brady Yauch is an economist and the executive director of Consumer Policy Institute.

Read the full article here.