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German Law Gave Ordinary Citizens a Stake in Switch to Clean Energy

Clean Break: Chapter 2 in the story of Germany's switch to renewables

By Osha Gray Davidson

Nov 14, 2012
(Page 2 of 3 )
Wind farm in Germany.

Centralized power generation is such an entrenched part of the U.S. electrical system that most Americans just assume that the only way to get power is from a few large generating plants, usually owned by corporate utilities operating as monopolies.

Not in Germany. Decentralizing electricity was at the core of the Energiewende, Rainer Baake told me. If utilities had remained in control of electrical generation, renewable power would still be a novelty.

"Our big utilities completely ignored renewables," he explained. "In the beginning, the Energiewende was driven almost entirely by individuals. Over half of our renewable power is still produced by small operations."

Baake, who had been in the German Parliament, is no longer involved in party politics. Today he uses his political experience and his formal training as an economist to direct Agora Energiewende, a non-partisan organization that works with energy producers, consumers and large utilities to smooth Germany's new energy path.

The group is so new that when I talked with him in April 2012 he didn't have an office yet. We met in a borrowed break room in an old Berlin office building in what was once East Germany.

Germany's "Big Four" power companies opposed the new law, he explained. They declared that smaller producers were too unreliable and intermittent to power the grid efficiently. They insisted that an industrialized nation required what the old energy system delivered: a few massive power plants churning out electricity 24 hours a day.

"They said it would be technically unfeasible to get more than 4 percent of Germany's electricity from renewables," Baake recalled. He smiled. "Well, we just reached 20 percent." Six months later, that figure is over 25 percent.

Decentralization is one of keys to the Energiewende's success. It rewarded people who installed solar panels on their roofs, or invested in cooperatives that bought wind turbines, by paying them for the energy they produced.

As a member of the Green Party, the environment was one of Baake's chief concerns. Renewable energies are nearly carbon-free, and like most Germans he believes humans have a moral obligation to reverse climate change.

But the real key to getting the German public to embrace the Energiewende was based less on what was in people's hearts and more on what was in their wallets. This was accomplished by giving every German the legal right to generate power and sell it to the grid, through a provision known as the Feed-in Tariff, or FiT.

The FiT helped decentralize power generation by setting a guaranteed premium price paid to anyone—individual homeowners, groups of neighbors or large companies—who produces energy for the grid using renewable sources. Farmers were among the first to take advantage of this new right. Because wind turbines leave relatively small footprints on large fields, they gained a lucrative new source of income while maintaining the old one.

The government sets the amount of the renewable bonus, but it doesn't fund it. Ratepayers do, as part of a monthly surcharge that shows up on their utility bills. The average German household pays around $108 a month for electricity, with the renewable energy surcharge accounting for $11.50 of that amount. (By comparison, an equivalent U.S. household pays $110 per month for electricity.)

The FiT works better than direct government subsidies or tax credits, supporters say. Subsidies can soar or plunge after each election, so they often fail to provide the stability that businesses need. But the FiT largely protects investments in renewable energy from politics by giving producers a 20-year guarantee on the amount they'll receive for the electricity they generate. The size of this renewable energy bonus shrinks every year, adding incentive to get solar panels and other renewable power plants up and running as soon as possible.

According to Hans-Josef Fell, the chief architect of the 2000 renewable energy act, one concern in setting up the EEG was to make sure it didn't give foreign manufacturers an economic advantage over Germany's all-important export sector, which uses large amounts of electricity. That's why the EEG exempted "electricity intensive" businesses from paying the renewable energy surcharge.

The arrangement seemed to be working well until this year, when the number of companies slated to receive the exemption swelled from 813 to well over 2,000. The exempted companies consume nearly 20 percent of all electricity generated in Germany. In part to cover the cost of the additional exemptions, the government recently announced the surcharge for 2013 would be raised, adding an average of $5 per month to each household's bill. The result, as Deutsche Bank recently pointed out, is that average Germans "will effectively subsidize German industry in 2013 to the tune of at least $2.5 billion via their electricity bills."

Even without the hike in rates, however, the cost of electricity from all sources has been steadily rising in Germany, as it has the U.S. and most other countries. One-third of the increase over the last decade is attributable to the renewable energy surcharge, but two-thirds is caused by completely unrelated factors. In fact, renewable energy has driven down the wholesale price of electricity in Germany, allowing the companies that are exempt from sharing the cost of the Energiewende to pay 15 percent less for electricity in 2012 than in the previous year.

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