The renewables headache

There’s no two ways about it: Europe has been phenomenally successful in making renewable energy an important part of its energy mix, thanks to a generous subsidies policy started in the 1990s. But in many ways, the continent has become a victim of its remarkable success, with governments struggling to price and pass through the cost of renewables.

For a textbook example of what not to do, you need look no further than Spain. Powered by an arguably overgenerous feed-in tariff scheme, Spain quickly rocketed to the top of Europe’s renewables producers.

Unfortunately, as green sources of energy began weighing more heavily in the country’s electricity generation mix, the government, already unwilling to adequately pass through the cost of electricity to consumers, saw its electricity deficit balloon to a staggering €26 billion. Needless to say, utilities operating in Spain are crying for blood.

The well-known outcome has been a seemingly never-ending string of retroactive measures affecting the country’s renewables industry, with the latest proposal, tabled in July, threatening to retrospectively cap returns in the sector.

Now, a recent Moody’s report suggests, there’s a danger Germany’s renewables industry might prove a headache for the country’s electricity transmission operators (TSOs) – companies like Amprion or 50 Hertz – in which a significant chunk of the infrastructure industry is invested. This is especially true of TSOs “facing large investment requirements into offshore connections,” Moody’s wrote.

With Germany’s historic 2011 decision to phase out its nuclear industry in the wake of Japan’s Fukushima disaster, renewables have gained renewed importance in the country. But in a replay of a familiar story, the increased costs of renewable energy generation are showing up in the energy mix and politicians are showing reluctance to pass them on to consumers – especially in an election year.

“Affordability for end-consumers may receive growing political attention with the upcoming national elections, and the risk of government intervention to the detriment of German electricity TSOs cannot be completely excluded,” Moody’s Stefanie Voelz wrote.

“Whilst we do not think that there is a risk that substantial costs may not be recovered at all, we believe that there is a clear possibility that returns may be deferred to ease any increase in customer bills in the short to medium term,” Voelz added.

There is, however, a silver lining: solar power is getting seriously competitive. In fact, “solar PV systems are now so cheap they still make sense in countries with high power prices – even those without much sun that are cutting subsidies, such as Germany,” the Financial Times wrote recently.

Global information provider IHS told the newspaper that “the lifetime cost of solar PV power fell below industrial power prices in Germany last year”. But it was Karl Kuhlmann, chief executive of Hamburg-based solar developer Conergy, who put it best:

“People think solar PV is only possible with subsidies and that is totally wrong. We’re happy that the industry is moving into an unsubsidised phase. It makes it simpler, better and totally independent from politicians.”

Of course, this development is already generating some unintended consequences, the most visible being people and businesses using cheap solar panels to power their needs and not buying power from the utilities at all. Utilities, in turn, have started to complain to governments that this creates a situation where not everyone is contributing equitably to the maintenance of national grids, from which everyone benefits.

Still, a move to unsubsidised renewable power is nothing less than a momentous change. And while it’s a very positive one, it probably means the renewables industry will keep generating headaches for years to come.