A decade ago, Germany launched a renewable-energy plan on an unprecedented scale. Its parliament, the Bundestag, enacted a law obligating the nation’s electric utilities to purchase green power at sky-high rates–as much as 60 cents per kilowatt-hour for solar–under fixed contracts lasting up to 20 years. (German market prices for electricity, largely produced by coal and nuclear plants, were about 12 cents per kilowatt-hour.) The idea behind this “feed-in tariff” was that anyone would be able to build a renewable-power plant–or install rooftop solar panels–and be guaranteed predictable profits by feeding energy into the grid, where utilities would buy it at premium prices. The higher costs would be passed on as monthly surcharges to ratepayers, spread out among all homes and businesses in a country of about 80 million people. Fossil and nuclear fuels amount to “global pyromania,” said Hermann Scheer, the German politician who championed the policy. “Renewable energy is the fire extinguisher.”
Now, as the United States and other nations look toward creating their own policies for dealing with climate change, the effectiveness of the German experiment is a subject of debate. From one perspective, the Renewable Energy Sources Act of 2000 has exceeded its aims. Germany’s first target was to get at least 10 percent of its electric power from renewable sources by 2010. The German grid now gets more than 16 percent of its electricity from these sources, and the government has raised its target for 2020 from 20 percent to 30 percent. The country avoided pumping about 74 million metric tons of carbon dioxide into the atmosphere in 2009. The German environment ministry also touts a side benefit: nearly 300,000 new jobs in clean power. As a result, the feed-in tariff has the support not only of the left-leaning politicians who originally backed it but also of most of the skeptics in the right-leaning parties that fought against it, says Claudia Kemfert, who heads the energy department at the German Institute for Economic Research in Berlin. “The skepticism is over,” she says. “We’re celebrating the success.”
But from another perspective, the German policy is a government boondoggle. “It’s not surprising that if you throw enough money at a certain technology, people will use it,” says Severin Borenstein, codirector of the Energy Institute at UC Berkeley’s Haas School of Business. Yes, the incentives triggered a frenzy of renewable-power installations, but at “very high prices,” says Henry Lee, director of the Environment and Natural Resources Program at Harvard’s John F. Kennedy School of Government. The spending on photovoltaics has been especially cost-inefficient in terms of producing power, Lee adds, because “Germany is the cloudiest country in Europe.” Despite the weather, Germany now accounts for half the world’s 20 gigawatts of installed solar capacity. “What that gets you,” says Lee, “is high prices for electricity, locked in for 20 years, from technology that will be out of date within three years.” Concludes Borenstein: “That’s a failure of public policy.”
As for the job-creation benefit, it may turn out to be ephemeral. Solar panels and wind turbines can be manufactured nearly anywhere in the world. Now, partly because of competition from low-cost manufacturing in China (see “Solar’s Great Leap Forward,” p.52), many German manufacturers of this technology are struggling. Q-Cells, Conergy, and Solarworld have seen their stock lose much of its value since the start of 2008. Anton Milner, the founding CEO of Q-Cells, resigned in March after the company reported an annual loss of 1.36 billion euros ($1.67 billion). In May, to keep pace with the plunging cost of solar panels, the Bundestag cut the rates it set for selling solar power to the grid by 11 to 16 percent on top of a scheduled annual decrease of 10 percent. To try to compete with imports, solar companies have fired hundreds of workers, and the nation’s solar trade association has warned of even more layoffs.
Meanwhile, some of the countries that copied key features of the German policy have also seen their booms start to fizzle. In 2008, Spain set an all-time record for photovoltaics, installing 2.46 gigawatts’ worth of solar panels in a single year–41 percent of all new installation worldwide, according to Solarbuzz, a research and consulting firm. But in Spain, buying all that high-priced power became a burden to the utilities. That, along with a longer contract term and aggressive pricing, caused the tariffs to be drastically cut. Without the high incentives, in 2009 Spain installed only 6 percent of the world’s new solar-power capacity.