Renewable Energy: The Myth of Germany's "Grün Energie"

On May 27, President Obama remarked to an audience gathered at Nellis Air Force Base in Nevada that Americans, “pioneered solar technology, but we’ve fallen behind countries like Germany and Japan in generating it, even though they get less sun than we do. They certainly get less sun than Nevada.” Today, Vice President Biden and a handful of Cabinet secretaries releases the Recovery through Retrofit report that will extol the virtues of green jobs and energy savings to be had if only the government had its way.

Observers of national policy may want to look at other countries’ experiences to see how they have fared with efforts to improve environmental policies. Previous research on green jobs policies in Spain showed that costs were high and benefits short-lived. But what of the President’s example of Germany?

The Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), an independent German economic policy think tank founded in 1926, has released its report on the matter entitled, “Economic impacts from the promotion of renewable energies: The German experience.” To readers hoping for a government solution to energy problems, page 4 delivers a devastating indictment of the German model:

German renewable energy policy, and in particular the adopted feed-in tariff scheme, has failed to harness the market incentives needed to ensure a viable and cost-effective introduction of renewable energies into the country’s energy portfolio. To the contrary, the government’s support mechanisms have in many respects subverted these incentives, resulting in massive expenditures that show little long-term promise for stimulating the economy, protecting the environment, or increasing energy security.

The German experience has resulted in plenty of government spending with little to show for it. Here are some of my schadenfreude favorites:

• “The amount of electricity produced through solar photovoltaics [or PV which are solar panels] was a negligible 0.6% despite being the most subsidized renewable energy, with a net cost of about 8.4 Bn € (US $12.4 Bn) for 2008” (page 5).

• “The real net cost for all [solar panel] modules installed between 2000 and 2008 account for about 35 Bn € (US $ 48 Bn) (in prices of 2007). Future PV installations in 2009 and 2010 may cause further real cost worth 18.3 Bn € (US $ 25.5 Bn) (Table 4). Adding both figures yields a total of 53.3 Bn € (US $ 73.2 Bn) for PV alone” (page 15).

Nobody said adopting a new energy model would be cheap, and Americans have certainly taken on large and expensive new endeavors because of the subsequent economic payoff (e.g. the Interstate Highway System). Even if the cost is no object, the RWI study indicates that the benefit is no incentive. The report tells us that, “currently, the feed-in tariff for PV is more than eight times higher than the wholesale electricity price at the power exchange” (page 5, emphasis added). This is after years of government support of the solar power industry. “Even on-shore wind [energy], widely regarded as a mature technology, requires feed-in tariffs that exceed the per-kWh cost of conventional electricity by up to 300% to remain competitive” (page 5, emphasis added). In other words, even when green energy industries are up and running for a while, their costs remain several times higher than conventionally produced energy.

Page 9 of the RWI report addresses the German experience as far as it relates to job creation:

In the end, Germany’s PV promotion has become a subsidization regime that, on a per-worker basis, has reached a level that far exceeds average wages, with per worker subsidies as high as 175,000 € (US $ 240,000).

It is most likely that whatever jobs are created by renewable energy promotion would vanish as soon as government support is terminated, leaving only Germany’s export sector to benefit from the possible continuation of renewables support in other countries such as the US.

Furthermore, the report states that estimates of green job creation due to the German energy regime are flawed because they fail to account for any job losses at less-favored (and likely cheaper) forms of energy.

As Chinese manufacturers produce PV cells cheaper than Germans can, the subsidies end up as a giant transfer of wealth from German taxpayers to Chinese companies. Because of this, even Germany’s leading PV manufacturer is calling for the subsidies to be cut, both to make the industry more efficient and to reduce energy costs to consumers. That’s right, the Germans are concluding that reduced subsidies mean greater efficiencies and lower costs!

Lastly, die-hard environmentalists may say that green energy production is more important than the cost of energy or number of jobs it creates (or destroys). But even on its own merits as an environmental energy, solar is a failure. The report states on page 19:

PV is among the most expensive greenhouse gas abatement options: Given the net cost of 41.82 Cents (Cents 63.00 US $) per kWh for modules installed in 2008 (Table 4), and assuming that PV displaces conventional electricity generated from a mixture of gas and hard coal with an emissions factor of 0.584 kg carbon dioxide (CO2) per kWh (Nitsch et al. 2005:66), then dividing the two figures yields abatement costs that are as high as 716 € (1,050 US$) per tonne.

The European Emission Trading Scheme (ETS) is about 13.4€ per ton, or 53 times less than those for solar production. In other words, if you’re looking to be green with your greenback, solar energy production is the worst way to go.

Notwithstanding the current climate, the United States is by far the largest economy in the world. The choices we make have far greater global impact than any other economy. While it is right to look to other countries for examples of policies that work, the fact remains that so-called green energy production is a failed experiment. Even those who pioneered it are looking for a way out. There is simply no reason to think that even US Rep Peter Hoekstra’s magic bureaucrats in Washington, DC can deliver efficient and economic energy from solar power.