December 4, 2012

German Law Gave Citizens a Stake in Clean Energy Switch

"What an eyesore, huh?" the man standing next to me on the beach said, nodding in the direction of a little girl flying a kite. The man, in his mid-40s, seemed to enjoy my confusion. He waited a beat before pointing beyond the girl, far out into the Baltic Sea. "There," he said, smiling to make sure I understood his sarcasm. "The 'ugly' wind farm."

Staring hard, it was barely possible to make out the turbines on the horizon. Ten miles from shore, the Baltic 1 Wind Farm seemed as small and insubstantial as the scruffy grass along the coast. But, in fact, each of the nearly two dozen turbines is as tall as a 27-story building and has fiberglass epoxy blades nearly 150 feet long. Work has already begun on wind farms with even larger turbines that will generate twice the power of those at Baltic 1, enough to supply 250,000 households with electricity.

Wind turbines produce 10 times more electricity in Germany today than they did in 1999. What's even more remarkable is that this expansion is modest compared to the growth of solar power. In 1999, Germany had an installed solar capacity of 32 megawatts. In 2012, that figure was 30,000 megawatts—a nearly 1,000-fold increase in a nation that gets roughly as much sunlight as Alaska. On a sunny day that's as much electricity as 13 nuclear power plants would produce.

How did wind and solar power take off so fast and so dramatically in one of the world's largest industrialized economies? How did renewable energies of all kinds come to account for more than 25 percent of the power fed into Germany's grid—compared to just 6 percent in the United States?

The answer is as simple as that old cliché about real estate—the one about how everything depends on location, location, location. In the case of Germany's astonishing energy transformation, it's all about policy, policy, policy. Specifically, it's the Renewable Energy Act of 2000, known in Germany as the EEG.

Rainer Baake, one of the EEG's authors, sums up the task that members of the German parliament faced when designing the policy: "We had to transform the old system completely."

"Einstein said that the way that leads into a catastrophe cannot be the way that leads out," Stegen said.
The EEG's goal was to replace coal- and nuclear-generated electricity with power from clean, renewable sources of energy: wind, biomass, solar, geothermal and small hydropower facilities. The target set by the law was one of the most ambitious in the world: By 2050, Germany would rely on renewable energy sources for 80 percent of its electricity. Opponents scorned the plan as "green delusions."

The law's supporters had several reasons for wanting to phase out coal and nuclear power. Burning coal adds tremendous amounts of carbon dioxide to the atmosphere, and nearly all Germans recognize climate change as a serious threat. Also, the country is running out of coal and Germans don't want to be dependent on foreign imports—the desire for energy independence is felt even more acutely in Germany than it is in the United States.

Gradually phasing out nuclear reactors made sense, too. Germans had been ambivalent about nuclear energy for decades, especially after the 1986 meltdown of a Soviet reactor in Chernobyl, Ukraine, sent radioactive clouds drifting across much of Europe. In addition to fears for their own safety, many argue that it is unethical to burden future generations with the radioactive waste that nuclear power produces.

There was a more immediate social goal behind the EEG as well: the democratization and decentralization of energy production.

"The solution to our energy problems, from nuclear to climate change, can't be a centralized one," Eva Stegen explained to me as she piloted us through the cloud-banked mountains of the Black Forest in her three-wheeled electric car. As communications director for EWS, Germany's first clean energy cooperative, Stegen had no doubt explained all of this many times, but she is so enthusiastic about the Energiewende that she answered my most basic questions as if she were hearing them for the first time.

"Einstein said that the way that leads into a catastrophe cannot be the way that leads out," she said, rounding a corner in the little, neon green car. "Centralized power is the problem. So we needed to find a new way. And that is what the EEG gave us."

"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." 

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.
Unlike in the United States, where most people get their electricity from a single utility, Germans are free to choose from more than 800 electric companies.

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.

There is a broad consensus in Germany that paying somewhat higher electric bills is a fair exchange for moving to a clean energy future, said Ursula Sladek, who founded the Schönau Power Supply, Germany's first green energy co-op. Her evidence is compelling: the co-op began selling renewable power to a handful of neighbors in her Black Forest village in 1998. Today it serves 130,000 households and small businesses throughout Germany.

Unlike in the United States, where most people get their electricity from a single utility, Germans are free to choose from more than 800 electric companies. The success of her co-op shows that Germans are willing to pay more for renewable power, Sladek once told a German reporter, adding, "People aren't as dumb as politicians and energy providers think."

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