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Europe slashes subsidies for renewables as energy prices rise  

Credit:  By Graham Lloyd | The Australian | July 25, 2015 | www.theaustralian.com.au ~~

More than three million people a week watch the heute-show, Germany’s answer to The Chaser, which cuts through the pretence to slaughter society’s holy cows. Last year heute-show host, comedian and journalist Oliver Welke, sacrificed the holiest of them all, Germany’s multi-billion-euro renewable energy transformation that routinely is held up as green-friendly world’s best practice. “Could it be that the Grand Coalition has gone nuts?” Welke said.

His comments followed release of an expert panel report commissioned by the Merkel government that found the much lauded Renew­able Energy Act (EEG) a failure.

“So she (Merkel) pays these academic eggheads and as a thank you they give her in writing that she’s dumber than a box of hair!” said Welke. “Her own experts write ‘the green energy policy makes energy prices go up up up … and leads to less climate protection’,” he said.

Cue the canned laughter. Increasingly, however, it is not funny. Particularly not for German electricity consumers whose power bills have risen to become the second highest in Europe, behind Denmark.

And not for German industry, which has threatened to shift manufacturing offshore because it cannot compete with lower energy prices in the US.
Proving that Welke’s quips were not all jest, the German government has since slashed subsidy support for new wind and solar projects after it was forced to face the economic reality of what had been promised.

The German experience is relevant for Australia given the ALP’s pledge this week to boost Australia’s renewable energy target to 50 per cent by 2030 without any real details on how this would be achieved and the possible cost.

Also relevant is the green energy subsidy train wreck unfolding in Britain since the national election. This week, the Cameron government’s Energy and Climate Change Secretary, Amber Rudd, cut the subsidies to small-scale solar projects following earlier cuts to subsidies for onshore wind, large-scale solar and energy efficiency schemes.

The newly re-elected government also has angered the renewable energy industry with the introduction of a tax on producers of green power.

But Britain and Germany are not alone.

Since the global financial crisis, renewable energy subsidies have been slashed across Europe including Spain, Italy, The Netherlands, Denmark and elsewhere.

The lesson around the world is that while projections for future investment in renewables remain high, the free ride from electricity users in developed nations is coming to an end.

Britain’s Department of Energy and Climate Change has estimated the cost of renewables in Britain could reach £9.1 billion ($19.3bn) a year by the 2020-21 tax year compared with a proposed budget of £7.6 bn.

“We can’t have the situation where industry has a blank cheque and that cheque is paid for by people’s bills,” Rudd told BBC radio.

“My priorities are clear,” she told the Financial Times. “We need to keep bills as low as possible for hardworking families and businesses while reducing our emissions in the most cost-effective way. Our support has driven down the cost of renewable energy significantly. As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies.”

After all, isn’t that what the renewables industry had promised?

But Jim Watson, from the UK Energy Research Centre, has warned that if solar subsidies disappeared completely the government risks the industry “dropping off a cliff”.

The change of approach to renewables does not suggest that governments in Europe have weakened their concerns about climate change or resolve to cut carbon dioxide emissions as part of a grand compact due to be declared in Paris in December.

But the more tough-love approach being adopted reflects public anger at rising power prices and concerns that public support may stifle innovation rather than promote it.

This is one reading of the report at the centre of the German comedy skit.

The report was prepared by the Commission for Research and Innovation (EFI) and recommended the Merkel government abolish all subsidies for green energy. The EFI report concluded that the system of feed-in-tariffs, under which the green power producers were paid guaranteed above market prices, was fundamentally flawed.

Subsidy support was neither a cost-effective way to address climate change nor was it producing a measurable effect on innovation, when assessed by the registration of patents.

“For both these reasons, there is no justification for a continuation of the EEG,” the report said.

The findings were seized on by German industry, including the BDI Industry Association, which represents about one-quarter of the German economy.

BDI managing director Markus Kerber told Reuters all support for renewable technologies must be designed in a way to “help companies be competitive and to innovate”.

But the EFI report findings were rejected by Germany’s economy ministry and environment groups.

Since the report was released, however, the German government has radically overhauled its feed-in tariff structure and renewable energy subsidy schemes.

Caps have been put on the amount of new onshore wind and solar that can be added to supply and the rates paid for renewable energy supply have been cut.

Support for renewables continues to be granted for a 20-year period but at much lower rates after the first five years.

Except for small plants, most renewables power sales will be sold by “direct marketing”, with payments supplemented by premiums similar to the support rates. The new scheme replaces feed-in tariffs, which the EC has ordered to be phased out over 2016-2020.

The government also has pulled back from placing a promised levy on coal-fired power plants and baulked at ordering the immediate shutdown of the most highly polluting.

Coal producers also have been told they will be compensated if they participate in a new “capacity reserve” system where coal-fired plants are kept in reserve and brought online when needed.

The reserve system again highlights a key weakness of the renewables revolution to date, intermittency.

Despite expanding its coal-fired industry to help replace ­baseload power surrendered through the closure of nuclear plants in the wake of the Fuku­shima disaster in Japan, Germany is still forced to draw heavily on nuclear power from neighbouring countries to back up renewables when the wind fails to blow or sun to shine.

Supporters of the renewable transformation say these pur­chases are balanced by the sale of surplus renewable energy to neighbouring markets at other times.

But this misses the fundamental point that, unlike coal, gas and nuclear, exactly when renewable energy will be available cannot be guaranteed to match when it is needed.

The proof of intermittency in Australia is the extent to which South Australia draws on brown-coal fired generators in Victoria to secure its electricity supply during times of low wind.

The EU is pushing to greatly expand the trade of electricity between states to mirror Australia’s National Electricity Market.

In addition to guaranteed above-markets rates, intermit­tency helps explain why the addition of large scale renewables can lead to higher prices for electricity consumers.

“When you study the states of Australia that have had dramatic increases in their household power bills in recent years you will find a direct correlation to the number of wind turbines that have been connected to the grid in those states,” independent senator John Maddigan told the Senate last month. “You will find the same correlation in European countries.

This is irrespective of whether wholesale electricity prices fall as a result of additional renewable energy forcing its way into an already oversupplied market.

Indeed, Germany has some of the lowest wholesale electricity prices in Europe but some of the highest retail prices.

This is because any money received on the spot market is of only secondary consideration for renewable energy suppliers who receive additional subsidy payments.

But an oversupply of electricity from renwables – and the depressing effect it has on spot prices – is potentially devastating for the economics of traditional generators.

This is why Germany is being forced to consider paying subsidies for coal and gas plants to keep them on standby.

Supporters of renewable energy argue many of these problems will be overcome as electricity grids develop through the take-up of new battery storage technology and more sophisticated monitoring and control systems.

The big generators, in Europe and Australia, are anticipating the change.

In a recent interview, former World Energy Council European chairman Johannes Teyssen said the energy world was diverging.

“On the one hand, the energy world of the future – characterised by renewables, intelligent networks and tailor-made customer-orientated energy solutions – is taking shape rapidly,” he said.

“On the other hand, the classical energy world – of the backbone systems characterised by high-volume production and trading structures for electricity, gas and other commodities – remains irreplaceable for the public good.”

But renewables will not simply replace conventional energy ­sources and, poorly handled, the transition carries grave risks to the security of once-stable electricity supplies.

More than anything, governments are learning that electricity consumers all around the world are becoming more wary of paying twice for power.

With the pullback of government subsidies, the renewable energy industry is challenged to innovate, both on cost of production and security of supply, and prove it is capable of standing on its own

Source:  By Graham Lloyd | The Australian | July 25, 2015 | www.theaustralian.com.au

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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