Solar power is unaffordable

Solar power is unaffordable
Handelsblatt, 21 June 2010

Solar energy is getting more and more popular - and therefore unaffordable. Because the subsidies are guaranteed for years, the costs have risen to high double-digit billions. Even the industry recognizes that it cannot go on like this.

German Government support for solar power is leading to significant price increases for large electricity users in industry and for private users. Consumer organisations estimate that electricity prices are likely to rise by ten percent next year alone due to subsidies for green electricity. Industrial electricity prices in Germany are already high; through the promotion of green electricity they will reach peak prices in Europe

The ultimate cost drivers are mainly photovoltaic systems. Year after year their numbers are climbing much faster than predicted. Compared to previous estimates, the increase in capacity has risen tenfold this year. For each system, the Renewable Energy Act guarantees a feed-in tariff for 20 years, which is currently six times higher than the price of conventionally generated electricity. The additional costs are passed on to all electricity consumers. While prices for photovoltaic systems have fallen sharply in recent years, state subsidies have been only reduced moderately. As a result, the facilities have become very lucrative for operators. According to calculations by the Rhine-Westphalian Institute for Economic Research, the net cost to the taxpayer of all photovoltaic systems installed between 2000 and 2010 adds up to € 85.4 billion.
The promotion of renewable energy threatens to get out of control, warns Martin Kneer, chief executive of the Metal Trade Association. Excluded from the levy are only a few hundred companies, including extremely energy-intensive facilities, such as aluminium smelters.
A recent open letter by Johannes Lackmann has alarmed the photovoltaic industry. Lackmann is no enemy of renewable energies. On the contrary: He is firmly rooted in the green energy industry and was for many years president of the Association of Renewable Energies. Lackmann warns that companies in effect are placing themselves on par with outdated industries, which make up the lack of competitiveness by being subsidized. The Renewable Energies Act, which promotes green power, should not be used as a pillow. In his view, the photovoltaic industry threatens to overdo things – at the expense of electricity consumers.

Lackmann describes the consequences of a development that is heading for new highs this year. Because the promotion of green energy is so lucrative, more solar panel systems are now mounted on German rooftops than ever thought possible: The trade magazine "Photon" calculates that solar cells with a capacity of 8,800 Megawatts (MW) are added in 2010: the Rhine-Westphalian Institute for Economic Research (RWI) believes a figure of up to 9000 MW for more realistic. Compared to 2006, the newly installed capacity has increased by a factor of eleven. Even in 2007 it was assumed that a maximum 700 MW will have been added by 2010.
The completely unrestrained run on photovoltaic systems has immense consequences for all electricity consumers. For each installed system the Renewable Energy Act guarantees a fixed feed-in tariffs for 20 years, which exceed the market price of conventional electricity many times over. Facilities which go on line this year receive on average 31 cents per kilowatt-hour. This price is guaranteed by law until 2030. For comparison: at the power exchange EEX one kilowatt hour of conventionally generated electricity can be bought for around five cents. The difference is financed by all electricity consumers. Only for some energy-intensive industries there are exceptions.

According to calculations by the RWI, the net cost for all photovoltaic systems built between 2000 and 2010 over the respective 20-year funding period add up to €85.4 billion in real terms. This value corresponds to more than one quarter of Germany’s federal budget. Regardless, the contribution of solar power to total electricity consumption in Germany is very low despite the large sums of funding. It is around one percent.

According to calculations by the Consumer Federation (VZBV) the newly added photovoltaic systems in 2010 alone will cost German consumers €26 billion for the production life of 20 years. According to VZBV this will cause an increase in the price of electricity by ten percent in 2011. The energy suppliers have already announced price increases. The energy supplier RWE announced on Friday it would raise prices by 7.3 percent from August due to higher costs for green electricity.

The reason for this massive build up is obvious: while costs for the solar panels have fallen sharply in recent years, the feed-in tariffs have declined only slightly. The module manufacturers can still get quite high prices, which bring them high profits. At the same time, the feed-in tariffs guarantee plant operators a good business.

Negotiations about cuts in solar feed-in tariffs have been going on for months. The solar industry is vehemently resisting any downgrading - and is using political support by individual states. The lobby wants to prevent cuts planned by the Federal government by means of the Parliament’s lower chamber. The Conciliation Committee of the Bundesrat and Bundestag has set up a working group which is expected to come up with a compromise by 5 July. The final word, however, lies with the Bundestag.

From the perspective of Johannes Lackmann, the industry’s resistance to cuts is doing it no favours. He considers the proposal by the Federal government to cut the subsidies as overdue. Lackmann wants an automatic mechanism by which the feed-in tariffs are adjusted every six months without a long debate. From the perspective of the RWI, however, the Renewable Energy Act should be completely abolished. It does not even create incentives for investment in research and development: "Leading German solar companies spend less than two percent of sales on research and development. This puts them below the figure of Siemens," says Manuel Frondel, Head of Environment and Resources at the RWI. He thinks that targeted technology promotion is more useful than subsidizing the solar industry.

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