The world’s solar leader grapples with how to make its solar
policies financially sustainable.
As the German government gets ready for a major overhaul of
its landmark renewable energy act, the fundamental problem is cost.
The Erneuerbare-Energien-Gesetz, or EEG law, set up the
country's system of feed-in tariffs (FITs) and mandatory purchases for independent
renewable energy producers. This system has been highly successful, driving
down solar costs and prices around the world. It has reduced emissions,
diversified the power supply, reduced fuel imports, created jobs and driven
down wholesale market prices.
But it has come at a high cost, which is explained by basic
economics: total cost = P x Q.
These three simple graphs describe the price (P), the
quantity (Q), and the resulting bill that German policymakers are now grappling
with.
Graph 1: Price
Source: Fraunhofer Institute
With FITs, regulators look at the cost of new renewables and
set a price tailored to each technology and size of project, plus a reasonable
profit. On the theory that deployment would drive the technologies down the
cost curve, regulators set up a regular “degression” of FIT prices, resetting
prices annually.
FITs for solar started out at high levels in the early
2000s, and saw a steady decline as deployment costs came down. But cost
declines began to outpace the ability of regulators to lower the FIT rates,
causing a PV explosion. In 2010, regulators started to review FIT rates more
frequently. By 2013, they were doing it monthly.
Graph 2: Quantity
Source: Zentrum für Sonnenenergie und Wasserstoff (ZSW)
Solar started growing rapidly in 2009 and exploded over the
next three years, with 7 gigawatts per year added to an 80-gigawatt German
power system. At the end of 2013, there were 1.4 million solar installations
providing 35.7 gigawatts of capacity -- more than any other power source
-- though only 5.8 percent of energy. Solar installations fell by half in 2013,
as regulators clamped down on deployment
.
Graph 3: The bill
Source: Agora Energiewende
While regulators cut the FIT price by half between 2010 and
2012, the huge amount of solar built blew up the EEG-Umlage, the surcharge
customers pay to cover the above-market costs of the FIT. It doubled between
2010 and 2013.
The third graph, taken from a
new online calculator developed by the group Agora Energiewende, shows
the size and components of the surcharge. Solar is gold in the graph, with past
installations in shaded gold and expected new installations in solid gold.
The solar portion of the surcharge rose from €3.35 billion
in 2010 to €6.84 billion in 2011 and €8.68 billion by 2013. The total Umlage
rose to almost €25 billion this year, though €4 billion of that is the
“liquidity reserve,” shown in solid red, a fund to cover errors in estimation.
This excess will be refunded to consumers, driving down the Umlage for the next
few years.
Still, the Umlage will rise as new renewables come on-line,
albeit at a more gradual pace as regulators impose “corridors,” or growth
targets. The energy ministry expects the EEG surcharge to rise to 7.7 euro cents by 2020, with the Centre for
European Economic Research pegging it at 8.3 euro cents. With FIT contracts in
effect for twenty years, the surcharge won’t come down to stay anytime soon.
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