Feed-In Tariffs Aid the Growth of Green Industries

solarpanel.jpgHow has Germany, a country not especially known for its suntans, become the world leader in solar power? Despite its geographical limitations, the land that brought us Volkswagon and Octoberfest may now be paving the way for a PV revolution. In 2006, they accounted for 968 megawatts of solar-generated electricity, 86% of Europe’s entire output, especially impressive considering that Europe was the largest regional market for photovoltaics that year. As a consequence, Germany has already reached the EU’s benchmark of 12.5% renewably generated electricity for its member nations. And all this has been accomplished in a relatively short period of time.

Most of the development of Germany’s solar industry has occurred since 1990, when the “Act on the Sale of Electricity to the Grid” was passed.  An updated version, the Renewable Energy Sources Act (EEG) went into effect in 2000. This law, touted by environmental advocates as the best of its kind, relies on generous “feed-in tariffs” to catalyze economic growth. These tariffs establish fixed prices above those currently on the market, essentially guaranteeing profits and creating an otherwise stable environment for investment. Utilities are required to purchase renewable energy at these rates, passing the extra costs on to their customers in the form of higher electric bills, an increase of about 5% a month for the average German household. The hope is that this controlled growth will pay off down the line as the industry is gradually weaned off of these tariffs, which decrease by about 5% a year from initial rates three times higher than retail cost. As technology improves and rates come back to market levels, electric bills will continue to come down, as well.

The effects of this policy have also filtered into other green industries. Germany has become the third largest manufacturer of solar panels behind China and Japan, and analysts are expecting employment in Germany’s renewable sector to nearly triple in the next two decades (from 250,000 to 710,000 by 2030), matching their vaunted automobile industry.

Ultimately, the success of this policy will depend on how quickly the solar industry can stand on its own feet. The German government is currently considering tweaking the EEG to cut feed-in tariffs further — 9.2% next year and 7-8% in following years — and extending it to other renewable industries such as wind power. At the moment these tariffs operate on a 20-year fixed rate contract, though this could change as well.

Whatever the result, this policy seems to be working so far. California has recently approved its own feed-in tariffs and other states are likely to follow. Critics contend that such subsidy programs are not efficient, but conventional energy industries are also heavily subsidized. At the very least, Germany has provided the rest of the world with an innovative model for financing renewable energy. Washington should take note.


Posted on Friday, April 11th, 2008 at 12:31 pm | Tagged in Energy, Legislation, Photovoltaics, Renewables | posted by Jamie

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