Germany Leads the World in Renewable Energy

Germany leads the world in its installed capacity of renewable energy sources (see chart), and is the third-biggest producer of solar panels, after China and Japan.

Renewables now account for 6.7% of energy consumption, up from 5.5% in 2006 and 3.5% in 2003. The industry's turnover was €24.6 billion ($32.9 billion) in 2007, up 10% on 2006 and nearly four times the figure for 2000. The share of electricity generated from renewable sources reached 14.2%, a big jump from 11.7% in 2006, owing in part to stronger-than-usual winds last year.

Employment in the renewables industry will increase from 250,000 in 2007 to around 710,000 in 2030, matching the jobs in carmaking by that time, predicts Torsten Henzelmann of Roland Berger, a consultancy.

How did Germany become the world leader?

In 1991 Germany adopted a renewable-energy law, now known as the EEG, which encourages investment by cross-subsidising renewable electricity fed into the grid. The law says electricity produced from renewable sources must be purchased by utilities according to a generous “feed-in tariff” that sets higher-than-market rates and fixes them for 20 years. Roof-mounted photovoltaic systems installed in 2007, for example, can sell power at €0.49 per kilowatt-hour, or about seven times today's wholesale price, until 2027. The fixed rate allows investors to calculate returns and removes uncertainty over financing. As things stand, the feed-in tariff for solar goes down by 5% every year. But new proposals call for a cut of 9.2% next year, and 7-8% thereafter.

And how much does this cost the average German?

The utilities that buy power at these higher rates pass the extra costs back to their customers in the form of higher electricity bills. This added an average of 1 euro cent per kilowatt-hour to the price of electricity last year, increasing the typical household electricity bill by 5%, or €3 a month. For the country as a whole, the cost was €7.7 billion in 2007, up 38% on the year before. Enthusiasts consider that a small price to jump-start a new industry and start decarbonising the power supply.

Any side effects?

Cheerleaders for solar had hoped that the increased demand for panels would help manufacturers reduce unit costs, and thus make solar more competitive in the long run. Instead, the rush into solar has led to a shortage of the high-grade silicon used to make the cells, which has soared in price from $25 per kilogram in 2003 to around $400 today.

I would actually argue that the cheerleaders have it right and the increased price for silicon is a temporary supply issue that will be resolved shortly as new plants come on line. With that worked out, prices will continue on their descending slope as predicted by the solar power progress ratio.

The part I am unsure about is whether I should feel glad that the German citizens are subsidizing the development of the solar industry so that American citizens don't have to or whether I wish the US government would follow suit to quicken the transition to renewable energy. I lean towards the second, but I really need to think it through more.

via The Economist