The spiralling cost of the transition to renewable energy in Germany is highlighted in a new report by Finadvice, which the European corporate finance advisory firm claims is “timely” as US policy makers decide how best to integrate renewable energy onto that country’s grid.
The study, entitled “Development and Integration of Renewable Energy: Lessons Learned from Germany”, finds that renewable energy subsidies in Germany have cost $412 billion to date and could cost $884 billion (according to German Minister of the Environment Peter Altmaier) by 2022. Furthermore, between 2000 and 2013, electricity prices for consumers have doubled.
Describing the situation as “unsustainable”, the report goes on to detail how generous subsidies have “clearly generated disequilibrium” in the power markets as well as “value destruction” for investors as well as consumers, renewable companies, electric utilities and financial institutions.
Speaking of “profound effects” on Germany’s wholesale electricity markets, the report notes that wholesale prices fell from €90 to €95 per megawatt hour (MWh) in 2008 to €37 per MWh in 2013. The steep price reduction has led to thermal power plant closures for some and subsidies for others, plus fewer new plants being built. This could “ultimately result in a deterioration of the country’s security of supply”.
The problem is that thermal power is still relied upon due to wind and solar being intermittent sources. The report says the “stopgap role” of thermal will increase costs and hurt the efficiency of traditional generation plants which are “designed to operate as consistent, baseload generators, not as cycling units”.
“American consumers and policymakers should be aware that the challenges for the energy system increase with fast growth and high shares of renewables,” said Felix ad Egg, a managing director at Finadvice, in a statement. “A number of factors must be considered to ensure a transition to renewable energy as part of a broader energy strategy that does not impact the reliability of the electric grid or the stability of pricing for electricity users.”
Finadvice, which was formed in 1998, advises utility companies, energy trading firms, renewable businesses and institutional/infrastructure/private equity investors from its offices in Austria, Switzerland, Germany, the Czech Republic, Poland, Romania and India.