Learning From The German Transition To Renewable Energy

(Credit: Institute for the Future)

by Julius Fischer

Germany is moving forward to replace fossil fuels with renewables faster than most countries. But there is always pushback, most recently in the form of much media discourse about rising electricity prices spearheaded by the Federal Minister of Environment Peter Altmaier. Like many politicians, he is already preparing for national elections in September, so let’s take an honest look at this discourse surrounding electricity prices and how they affect Germany’s move toward renewables.

Ever since the Fukushima catastrophe two years ago, Germans have redoubled their efforts to phase out of nuclear energy and fossil fuels in favor of renewable energy — called the “Energiewende” (energy transition) that began in 2000. Minister Altmaier, CDU (Christian Democratic Party — center-right) believes that the recent rise in electricity prices for households poses the biggest threat to the success of the Energiewende, because rising household electricity bills endanger public support for renewables. He thus proposed a plan to prevent an “explosion of electricity prices.”

First of all: why care about what happens in Germany? For one thing, German policy-makers played a dominant role in the evolution of feed-in tariffs (FITs) for renewables (the term is actually an Anglicization of the German “Stromeinspeisungsgesetz”). FITs are the most elegant and effective policy instrument to incentivize renewable energy deployment in a cost-effective manner. Germany remains on the forefront of optimizing FITs to account for the differences in renewable technologies and decreasing market prices over time. Germany also has an impressive record of success in deploying renewable energy (especially solar), and set uniquely high targets of efficiency improvement and renewables deployment. Once we realize that the Energiewende is not a big government program by naïve tree-huggers, we can use the German example to help show that renewable energy can and does create jobs and lower costs.

The discourse surrounding the Energiewende has ranged from whether the grid expansion can keep up with renewable energy deployment, to whether the grid liability can be maintained (yes it can), and whether shutting down nuclear power in Germany will just result in imports of nuclear power from France or the Czech Republic (it hasn’t). The current discourse raises the questions of whether household electricity consumers should pay less, whether industry should pay more, and whether the Energiewende can be done cheaper.

Should households pay less?

Minister Altmaier claims that rising electricity bills are the biggest barrier to the Energiewende because they undermine public approval. He aims to prevent future price increases by addressing the EEG Apportionment (EEG Umlage) that finances the feed-in tariff scheme. He therefore proposes the “Strompreisbremse” (electricity price emergency brake – this word has caught on surprisingly well in German media) to freeze the apportionment, claiming to thus prevent a 10% increases in electricity prices this fall.

The apportionment is a surcharge on the electricity price that (most) consumers pay to finance the FIT. The money collected from the apportionment is used to guarantee renewable energy producers a profitable price for 20 years — based on the costs of the particular renewable technology, regardless of the market price (this system is called Advanced Renewable Tariff). This Advanced Renewable Tariff system is the newest and most sophisticated version of FITs that incentivizes renewable energy deployment even at small scale. For example, in 2010, 51 percent of renewable energy capacity built under the FIT was owned by individuals and farmers, coining the term democratization of energy supply in Germany.

In fact, the apportionment in 2013 will only be 19 percent of an average household electricity bill, and was 3.5 percent of the energy bill in 2012. Meanwhile, the EEG Apportionment is only 1 of 6 other taxes and dues on electricity that together make up half of the electricity price – a situation Germans have accepted so far, despite a current electricity price of $0.37 per KWh – more than three times that of the US.

Should industry pay more?

The second part of Minister Altmaier’s proposal concerns energy intensive industries that faces international competition. Currently, an exception rule (Ausgleichsregelung) largely frees such industries from paying the apportionment to prevent migration of these industries to other countries with lower costs. But the exception has become the norm: In 2013 49% of Germany’s electricity will be consumed by industry that is required to pay only 1 percent or less of the reallocation charge. Thus Minister Altmaier wants to include fewer industries under this exception, generating €500 million to benefit the consumers. The SPD (Social Democratic Party — center-left) thinks this goes too far, while the Green Party wants this number to be €4 billion.

Can it be done cheaper?

Minister Altmaier claimed in an interview last month that Germany is on schedule to considerably exceed its 2010 renewable energy targets (for example 30 percent of primary energy and 50 percent of electricity from renewables by 2030). Therefore he emphasizes reducing costs over increasing deployment, stating that he doesn’t want less wind turbines, he wants cheaper ones. He further claimed that the energy transition overall will cost Germany €1 trillion by the 2030s. Strong pushback on the calculations behind this number came from the NGO Green Budget Germany, criticizing that he did not include major benefits of renewables, such as avoided costs of fossil fuel imports and investment in fossil fuel power plants, avoided costs of environmental impacts, and reduced electricity prices through the merit order effect. Even his fellow party member Josef Göppel noted the €8 billion in fossil fuel imports Germany has been saving every year due to the Energiewende, which would ultimately save €1 trillion by the 2030s.

Of course there are many reasons why renewable energy policy is different in Germany compared to the U.S. Obviously Germany is only a quarter the size of the US in terms of population and smaller than Montana in terms of area. Historically, the German environmental movement is much more deeply rooted in the anti-nuclear movement of the 1960s, and the word Energiewende resonates with the German term “Wende” (turn) describing the social movement leading to the fall of the Berlin Wall and the reunification afterwards.

But Germany struggles with the same set of issues as we do in the US: From the costs of expanding the electricity grid, to fighting fossil fuel interest groups, and keeping jobs in the face of international competition. We can learn from Germany by looking at the cost-benefit analyses that are calculated, the success of different policies like the Advanced Renewable Tariffs and their exception rules, and by looking at the media attention and push back renewables are dealing with. The issue of how to fairly distribute the investment costs of a renewable energy future will be interesting to follow as Germany heads for national elections this September.

– Julius Fischer is an intern at American Progress. He was born and raised in Germany and is currently a junior at Stanford University studying international relations and environmental sciences.

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Apple’s Data Centers Reach 100% Renewable Power, Their Facilities Worldwide Hit 75%

This week Bloomberg caught an announcement from Apple that all of their data centers are now run on 100 percent renewable energy. Apple is at 75 percent for their corporate facilities worldwide — a remarkable increase from 35 percent in 2010.

Apple was targeted by Greenpeace last year, in a report that ranked the Silicon Valley giant 12th our of 14 large computer companies for use of clean energy to power data centers and cloud computing services. Apple received a “D” grade for energy transparency, efficiency, and renewables advocacy, and an “F” for infrastructure siting.

Apparently, that dismal assessment got the company’s attention:

We’ve already achieved 100 percent renewable energy at all of our data centers, at our facilities in Austin, Elk Grove, Cork, and Munich, and at our Infinite Loop campus in Cupertino. And for all of Apple’s corporate facilities worldwide, we’re at 75 percent, and we expect that number to grow as the amount of renewable energy available to us increases. We won’t stop working until we achieve 100 percent throughout Apple.

“Apple’s increased level of disclosure about its energy sources helps customers know that their iCloud will be powered by clean energy sources, not coal,” Gary Cook, an analyst at Greenpeace, wrote in a statement. According to Apple’s numbers, the company reduced its carbon emissions per dollar of revenue by 21.5 percent between 2008 and 2012 — though their overall carbon footprint still went up due to increased sales.

You can dig into Apple’s environmental self-reporting a bit more here.

Peter Oppenheimer, Apple’s chief financial officer, said that a 100-acre solar array set up next to its largest data center, located in Maiden, North Carolina, came online this past December. The company says it’s generating 60 percent of the center’s power on site — through a combination of solar power and fuel cells that convert biogases to energy — and that the rest of the electricity is drawn from renewable sources. Another data center under construction in Prineville, Oregon, will run on a combination of wind, hydro, solar and geothermal power.

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Despite Conservative Attacks, States Continue to Realize the Benefits of Renewable Energy Standards

by Matt Kasper and Tom Kenworthy, Center for American Progress

States’ adoption of renewable energy standards—which require electric utility companies to produce a portion of their electricity from wind, solar, and other renewable sources—has considerably driven clean energy advances in recent years. Though Congress has failed to enact a nationwide standard, policymakers at the state level have enthusiastically filled the void, with 29 states and the District of Columbia adopting hard targets for renewable energy production and another eight states setting renewable energy goals. Standards place an obligation on electricity-supply companies to reach set targets, while renewable energy goals are voluntary for companies—although states might incentivize a utility for reaching a set goal.

Those mandates have brought a wide range of benefits, ranging from robust clean energy economies to lower carbon emissions and improved public health. Since the beginning of 2009, eight states—California, Colorado, Delaware, Hawaii, Kansas, Nevada, New Jersey, and New York—have increased their standards, while three states—Indiana, Oklahoma, and West Virginia—have established voluntary goals. Six other states—Colorado, Maine, New Mexico, North Carolina, Ohio, and Washington state—have beaten back attempts to repeal their standards. Most of the states with renewable energy standards on the books are meeting or are close to meeting their interim targets.

Nonetheless, conservative attacks on state renewable energy standards are on the rise.

Two conservative organizations looking to repeal state renewable energy standard policies are the Heartland Institute and the American Legislative Exchange Council, or ALEC. These two organizations worked together to write model legislation—the Electricity Freedom Act—to roll back state standards. The policy, which ALEC’s board of directors adopted last October, argues that “a renewable energy mandate is essentially a tax on consumers of electricity that forces the use of renewable energy sources beyond what would be called for by real market forces and under conditions of real competition in generation resources.”

ALEC is known for helping advance corporate interests by writing and pushing for passage of conservative legislation at the state level. The organization has been a force in shaping conservative agendas, including voter identification laws and right-to-work policies. In the environmental sphere, ALEC has targeted states that regulate greenhouse gases and has promoted bills supporting hydraulic fracturing, or “fracking”; offshore drilling of oil and natural gas; and nuclear energy. Tax documents show that Koch Industries, ExxonMobil, and other energy companies pay membership fees in order to help write legislation repealing carbon-pollution reduction programs in states across the country.

The Heartland Institute is a think tank that promotes skepticism about climate change. Recently, the organization launched a billboard campaign that linked people who care about global warming to Unabomber Ted Kaczynski, murderer Charles Manson, and Cuban dictator Fidel Castro. One specific billboard featured a mug shot of Kaczynski with the words, “I still believe in Global Warming. Do you?” In a statement, the president of Heartland unapologetically called the billboard campaign an “experiment.”

With ALEC’s ability to successfully pass conservative legislation at the state level and the Heartland Institute’s intentions to attack policies that combat climate change, the threat that state renewable energy standard policies could be repealed needs to be taken seriously and aggressively contested.

ALEC and Heartland seem to be targeting North Carolina first. North Carolina State Rep. Mike Hager (R), a member of ALEC, says he is confident that in the upcoming session in his state’s general assembly, the votes exist to repeal or weaken the state’s renewable energy standard. Rep. Hager is the majority whip and the chairman of the Public Utilities Committee in the North Carolina General Assembly. But the bill that implemented the state’s standard passed 107-9 in the House in 2007—a resounding message Rep. Hager should recognize.

Last fall, however, fossil fuel interests funded a successful effort to defeat a constitutional amendment in Michigan that would have increased the state’s renewable energy standard from 10 percent in 2015 to 25 percent in 2025.

But voters in the eight states that have strengthened standards understand that these policies improve the environment and stimulate their state economies. California went from a 20 percent standard by 2010 to a 33 percent standard by 2020—and is currently on track to meet that 33 percent target. California’s three investor-owned utilities, or IOUs, achieved 18 percent of 2010 retail electricity sales with renewable energy. The three investor-owned utilities hit 20.6 percent renewables at the end of 2011. When California, the ninth-largest economy in the world, establishes a 33 percent renewable energy standard, it sends a clear message to every other state that renewable energy provides reliable, cost-effective clean electricity and strengthens the economy.

Long-term commitments to purchase renewable energy from wind, solar, or geothermal sources enable developers to secure financing for such facilities, allowing the market for renewable energy to stabilize and grow. Long-term commitments also lock in electricity prices, helping shield ratepayers from price volatility that is typical of electricity purchased from coal and natural gas facilities.

And California is not the only state in recent years to set a higher standard. Colorado has increased its standard twice since 2004, rising from 10 percent to its current level of 30 percent by 2020. New York originally had a 25 percent renewable energy standard by 2013, but lawmakers in 2010 increased the standard to 30 percent by 2015.

The renewable energy standard program in New York continues to yield significant economic benefits—as it does in all the states that create standards. The planning, development, construction, and operation of renewable energy facilities create short-term and long-term jobs while benefiting local governments and school districts through property taxes and other leases or royalty payments. An analysis conducted in 2009 concluded that $6 billion in direct economic benefits are expected if New York meets its 30 percent target—and this analysis did not even include estimates of the multiplier effects that can accompany direct economic impacts.

In January 2012 London Economics International LLC prepared an in-depth analysis of Maine’s renewable energy standard, required by legislation enacted in 2011. The report found that policies in Maine and New England would create 11,700 jobs in Maine alone over several years. In addition, $1.14 billion of new investment will occur in Maine as more renewable energy facilities are constructed. The report also found that electricity prices will lower for consumers as more wind energy is developed in New England.

Some politically conservative states also recognize the benefits from these standards. In Kansas, for example, House Bill 2369, enacted in May 2009 but finalized in 2010, established the state’s first renewable energy standard. The law requires investor-owned utilities to generate or purchase 20 percent of peak demand capacity electricity from renewable energy facilities by 2020. The eligible generation sources include wind, solar energy (both thermal and photovoltaics), methane from landfills or wastewater treatment, hydropower, and biomass.

The American Wind Energy Association highlights Kansas’s renewable energy standard policy as a driving factor in helping the state attract wind projects and manufacturers like Siemens. According to the Kansas Energy Information Network, 11 of Kansas’s 21 wind farms began operating between 2010 and 2012—eight of them in 2012 alone.

Empire District Electric, a Kansas utility, had already decided to purchase wind power due to the high natural gas prices at the time, and also purchased a high percentage of natural gas base load generation. Empire wrote to its shareholders, “[Wind energy power purchase agreements] decrease our exposure to natural gas, provide a hedge against any future global warming legislation and help us give our customers lower, more stable prices.”

Also prior to the renewable energy standard legislation, the Kansas City Board of Public Utilities saw wind power as “a hedge against high market purchase prices” and estimated that their 20-year power purchase agreement for wind power would save the utility $3 million during the first decade.

The Kansas Corporation Commission, which established the rules and regulations in 2010 for the state’s renewable energy standard, recognized the problems caused by volatile fossil fuel prices, noting that wind energy in a state’s energy portfolio protects consumers. The commission stated:

Natural gas, coal, and wholesale power prices have all experienced significant volatility and upward trending costs. Wind generation provides value as insurance for customers from some of the effects of unexpectedly high and volatile fuel and wholesale energy prices.

In upcoming state battles, ALEC and the Heartland Institute will almost certainly claim that renewable electricity standards raise power rates for consumers compared to states without clean energy requirements. That claim is false, however, as Richard Caperton, Director for Clean Energy Investment at the Center for American Progress, demonstrated in a CAP issue brief last April.

Therefore, with no price impact on consumers of electricity, tremendous economic benefits, and utility companies praising renewable energy standard laws, it would be a mistake for state lawmakers to enact legislation written by ALEC and the Heartland Institute that repeals such standards.

Why we should enact a nationwide renewable energy standard

In his 2011 State of the Union address, President Barack Obama proposed a federal “clean energy standard,” which would require utility companies to produce 80 percent of their electricity from no- or low-carbon sources by 2035. CAP has recommended that an 80 percent clean energy standard should also include a requirement that 35 percent of electricity generation come from renewable sources and efficiency measures. This standard should be met by requiring a national target of 25 percent renewable electricity generation alongside a requirement that utilities reduce demand to save energy by 10 percent.

An analysis conducted by the Union of Concerned Scientists found that a national standard that requires all electric utilities to increase usage of renewable electricity to at least 25 percent by 2025 would create jobs, lower energy bills, and reduce harmful pollution. The analysis specifically found that 297,000 jobs would be created, $263.4 billion in new capital investment would occur with an additional $11.5 billion going to local communities from new property taxes, and consumers would save $64.3 billion in lower electricity and natural gas bills by 2025.

Matt Kasper is a Special Assistant for the Energy Policy team at the Center for American Progress. Tom Kenworthy is a Senior Fellow at the Center.

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