By offering cash incentives to producers of renewable power, Germany has stimulated the renewables sector and simultaneously slashed CO2 emissions. In 2006, Germany cut emissions by 45 million tones as a direct consequence of the Renewable Energy Sources Act (EEG) and 68 million tonnes as a consequence of all renewable power generated.
Renewable sources of energy installed through Germany’s feed-in law produce about 50 TWh of electricity – 10% of annual national energy consumption. Overall, around 12% (73,874 GWh) of German electricity and 8% of energy is supplied by renewables; these numbers are rising dramatically. Of this 73,874 GWh, 53,374 GWh are generated through the EEG.
Since introduction of the feed-in law, Germany has become the world’s largest producer of photovoltaic power, generating around 3000MW of power - 55% of global supply. Germany also operates more wind generation and more biogas plants than any other country on earth.
What is it?
The newly reunified Germany faced multiple challenges, not least how to reduce pollution from the old East German power stations. In 1991, the feed-in of electricity from renewable energies to the national grid was regulated for the first time, through the Electricity Feed Act.
The Act obliged local grid system operators to purchase electricity from renewable sources and paid electricity producers a fixed-rate fee (a “feed-in tariff”) per kWh generated. The fee varies according to the type of renewable energy used.
The Electricity Feed Act was a great success in stimulating the renewable energies market in Germany and in 2000 was revised in the form of the Renewable Energy Sources Act (EEG), which has much broader scope and has attempted to resolve geographical problems relating to supply in the original Act.
The EEG is regularly reviewed and adapted according to need. The 2007 review highlighted the great success of the legislation in stimulating the sector and helping Germany progress towards its international targets for CO2 reduction.
How does it work?
Anyone who generates power from solar photovoltaic, wind or hydro sources is guaranteed payment of the ‘feed-in tariff’ from the local grid system operator, who is obliged to adapt the grid structure and operation to the needs of renewables. Power firms are legally obliged to buy renewable electricity at prices above the market rate – e.g. solar electricity costs 49€c/kWh. This is because producers are receiving up to 90% of the retail or consumer rate as ‘feed-in tariff’.
As the electricity company purchases from the producer and passes on costs to the consumer, no public money in the form of subsidies is required to stimulate the trade – although the government has set up funds and a loan scheme to accelerate activity. Moreover, as the grid structure changes, it increases future development of renewables.
The legislative instrument of the EEG is supplemented and supported by further measures aiming to foster research and development. Additional regulations, subsidies, piloting and loans have been offered at different times since 1991, in order to stimulate and secure the place of renewable energy in the electricity market.
The approach requires legislation and may require national or federal planning. In Germany, a national equalization measure was required to prevent power-intensive companies from suffering a competitive disadvantage, and to balance the cost of electricity between different states, some of which had high volumes of renewable electricity production. However, the EEG has been extremely effective in reducing CO2 emissions and functions with few direct costs to national government.
Between 2000-2005, the quantity of electricity fed into the grid from renewable sources has more than doubled. Installed solar photovoltaic capacity has risen dramatically. Germany has achieved 12% of electricity produced by renewables, including 3% from photovoltaic sources. Around 6% of electricity is produced by wind, which has a world-leading capacity of 20600MW in Germany.
As a consequence, the renewable energy R&D sector is booming. In 2006, over €9 billion was invested in the renewable sector and 24,000 new jobs created. There are now 250,000 jobs in the renewable energy sector, 125,000 of which are a direct consequence of the EEG. By 2020, analysts expect there to be over 200,000 people working on solar power.
There are currently more than 300,000 photovoltaic systems in Germany, far surpassing expectations when the EEG was drafted in 2000. Many of these are owned by small businesses, particularly farmers, and collectively they generate more than 1000 times the power that German solar installations achieved in 1990. In 2006, over 100,000 new solar systems were installed in Germany, generating 750MW. It was the third consecutive record year for new installations.
Additionally, solar domestic hot water systems are popular, with over 140,000 (1050MW capacity) installed in 2006, making national capacity 6300MW, saving 4.3TWh per year. Biogas has also boomed, with manure-fired plants generating around 5TWh per year – or 1% of national supply.
CO2 emission reductions
Internationally, the EEG has been proven to be the most successful instrument for the market introduction of renewable energy technologies. Germany is making year-on-year gains in CO2 reduction and increasing the annual share of renewables in electricity supply.
In 2006, 45 million tones of CO2 were saved as a direct consequence of the EEG, an 8 million tonnes increase on 2005. Including non-EEG renewable sources of electricity, Germany prevented over 100 million tonnes of CO2 emissions in 2006 by using renewables. In 2002, this total was just 36 million tonnes.
By 2010 and 2020, the Federal Environment Ministry predicts CO2 savings resulting from the EEG will have increased to around 52 million tonnes and 89 million tonnes respectively. Including other renewable sources, 72 million tonnes (2010) and 111 million tonnes (2020) will be saved.
Most impressive is the fact that large parts of Germany are covered by clouds, for between 60-75% of the time. Whilst there are areas with high levels of sunlight, such as the “Solar Region” around Freiburg in Baden-Württemburg, much of the country is able to generate solar power in spite of its seemingly unfavourable climate.
In 2005, the EEG represented 3% of the costs for a kWh of household electricity. This share is expected to remain fairly constant in the coming years.
In 2005, fee payments to plant operators totaled € 4.4 billion. The additional cost of renewable electricity generation (compared with the cost for convential electricity generation) was € 2.8 billion, meaning that, for a household with 3500kWh of electricity consumption per year, the EEG causes additional costs of approximately € 1.55 per month (€ 18.60 per year).
As the renewables sector expands and the volume of ‘feed-in’ fees increase, this will peak at € 2.80 per month in the next decade, before falling. A peak price € 33.60 per year for a typical family is a small price worth paying in the fight against climate change.
Moreover, the additional cost of renewables triggered over € 7 billion of investments. Total turnover in the renewable electricity sector was € 12 billion. Nationally, the overall price of electricity declined by about € 5 billion in 2006, with both fuel imports and environmental impacts cut, saving an additional € 4.3 billion. As Germany has posted steady economic growth in recent years, there has been no negative impact on the economy.
Innovation is supported by the Market Incentive Programme, which is financed through ecological tax reforms and one third of the calculatory revenue from taxation of electricity from renewables (in 2005, a sum of € 659 million).
This Programme supports the construction of electricity generation plants from renewable sources by providing funds. Supplementary low-interest loans are offered by the Reconstruction Loan Corporation (KfW Kreditanstalt für Wiederaufbau) – between 2000-2005, € 741 million of loans were approved, with 2567 clients benefiting, and since 1991, over 485,000 investment projects have been supported with funds from the Market Investment Programme totaling € 665.4 million.These funds and loans have lead to over € 5 billion of investments in the renewable energy sector.
The Federal Government has expressed a wish to meet and if possible surpass its target of 20% share of total electricity production for renewables, with an eye on reaching 45% by 2030. By mid-2007, Germany had already met its 2010 target. Germany’s legislation has inspired peers in Europe and around the world - Spain, Portugal, Greece, France and Italy are among the countries that have adopted this model for their energy sectors.