Friday Rant: An Unsustainable Path to Sustainability in Germany

The topic refers to the runaway subsidies eating away at presumably finite German budgets at the moment. To summarize, the German energy sector is right now undergoing a transformation lead by politicians and not engineers. As an engineer, I would suggest this is not a good thing. And of course, there are some great lessons in this for us in the US as well.

First some background. Fifteen years ago, Germany embarked on a legislated path toward renewable energy, setting a goal of attaining 80% electricity needs from renewable sources by 2050. In August of last year, after the Japanese tsunami and nuclear problems, the Germans accelerated the pace by prematurely closing eight nuclear plants.

So far, their Teutonic efforts have taken the total renewable share of electricity generation from a modest 6% of production in 2000 to 20% of national consumption in 2011-- an impressive increase. The bulk was generated through wind and biomass however, with a mere 3% of their 2011 electrical needs coming from PV (photovoltaic aka solar) panels.

Unsurprisingly, the media paints a rosier picture. Consider this article as but one example of grossly misleading reporting. The story makes you think Germans managed to generate half their electrical needs from PV, whereas in reality, they intermittently touched 40% of the power needs during one hour (btw noon and 1PM) on one unusually sunny weekend -- when the German industrial machine stood still. Recall the 2011 total of 3% from PV reality...

I don't think the same reporting style would work with the CFO: "Look, our savings velocity during the last sourcing event briefly exceeded 40%!" Hmmm, it would inevitably come back to hard numbers over a fiscal year. So, let's take a hardnosed business look at this – what is the actual PV price tag? From a US perspective, is it worth being the standard bearer, to take the technology breach – or would it be better to sit out the curve, and wait for technology to mature, and production costs to drop? In short, right now, Germans are metaphorically driving 100 miles to find a gas station where gas is two pennies less per gallon.

Unfortunately for Germany, the root problem is that they only get about the same insolation (sun hours) as Iceland and northern Alaska, i.e., very little on average. In their case it doesn't matter which PV panel they use. The investment will sit idle for at least 18 hours per day under even the best of circumstances. Keep this in mind when you see installed capacity prominently on display rather than actual generation.

So far, since 2000, Germany has spent over $125 Billion on PV systems – and the bulk of it in the past four years alone. Per German sources, the subsidies for the panels installed just in 2011 will cost $18 Billion over the next 20 years.

Yesterday, on June 28, the German Bundestag changed the subsidy structure as follows:

  • Photovoltaic plants smaller than 10 kW will receive 19.5 euro cents per kWh
  • Plants between 10 and 40 kW will receive 18.5 euro cents per kWh
  • Plants over 40 kW to one MW will receive 16.5 euro cents per kWh
  • Plants between one and 10 MW will receive 13.5 euro cents per kWh

The rates apply retroactively from April 1, 2012. "Plants" smaller than 10kW are really home owners or small businesses with a few panels on their roofs. As you can see, subsidies are set up to reward smaller operations. This of course seems contrarian but might be wise considering the significant (upwards of 30%) extent of distribution losses in the electrical transmission system.

Back to the bottom line, to put these numbers in perspective, the subsidy portion comes out to roughly twice the average total price (around 10 to 12 cents per kWh) paid by end users here in the USA! This all adds up on the German consumer's bill, which is where a good part of the money comes from.

While spending massively on photovoltaic (PV or solar panels) and wind generation, the country still has energy needs that have to be met and in the second half of 2011, Germany had to import electricity from neighboring countries. For example Poland which now sells a good amount of electricity to Germany -- something which drives up their domestic energy prices as well. Ironically the neighboring countries rely considerably on both coal and nuclear (French and Czech) power plants. So the Germans are like Californians, as long as it isn't built there, it's all good.

So what should they do instead? As a back of the envelope exercise, the $125 Billion could instead have bought the Germans about 30 nuclear plants at $4 Billion a piece. Those would be capable of generating 40GW or more around the clock for at least 40 years. This setup would generate far more power than the PV cells can produce -- in fact, that investment would nearly double Germany's generating capacity instead of just moving the dial a few percentage points. Obviously this is not a politically viable option, but you wonder how far politics can go to avoid economic reality. Even Germany must have a financial breaking point.

To conclude, Germany has clearly made a political and not an economical decision around PV generation. At Spend Matters we have more faith in the market place, and when the price/performance ratio is right, you will eventually see PV panels on our homes and factories too, but in the interim, let's not artificially increase the US cost of living and cost of production by forcing PV panels on us prematurely!

It's too bad that we need to go to sustainable energy school on the only healthy economy in Europe. But we should study up.

- Thomas Kase

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