Sunday, February 2, 2014

The economics of power generation

Germany's renewable energy debate is something one could see coming down the track for years.  Electricity is economically kind of an odd duck.  While it is certainly a product its producers would just as soon charge as much as the traffic will bear, for the vast majority electricity is something that has to be consumed and the less it costs, the better.  In the real economy there is another issue—for many industrial products, electricity is as much an input as ore, chemicals, inventiveness, and labor.  If the cost of electricity goes up, every product that "contains" electricity must get more expensive.

To get around this problem, communities have built their own powerplants, organized generation as a cooperative venture, or most commonly, treated electrical power and its distribution as a regulated monopoly. In all cases, the community was trying to exercise some control over the costs of power.

Flash forward to Germany and its efforts to go green.  By being trailblazers, the Germans have signed up for some high-priced electricity.  The way the government got all those German yuppies to invest in small-scale solar and wind was to provide subsidies and promise a very generous feed-in tariff.  On paper, this arrangement provided a new source of rents.  In practice, it is making electricity outrageously expensive to poor pensioners and high-tech manufacturers alike.  And while it is easy to wonder exactly what the Germans were thinking, the truth is that in the age of neoliberalism, this was probably the only way to accomplish what they have done so far.

Of course, the biggest conceptual problem the Germans faced was a dying spark of craziness left over from the supply-siders—the idea that if they build it, they will come.  Hey, they reasoned, let's start building the windmills and figure out the integration and cost issues when they come up.  In other words, neoliberal craziness is threatening to scuttle the best-organized effort of an industrial society trying to power itself with renewables.  This is unacceptable.  Humanity simply must replace its fires.  The idea that artificial ideas—and really screwy ones at that—could be allowed to wreck such a noble effort, however flawed, is unthinkable. Such results would be nothing less than a blow to human existence.

How Germany's Transition to Renewables Is Dividing the Business Community

Germany is phasing out nuclear power, but who should bear the cost? The EU is currently looking into concessions granted to energy-intensive industries, and has initiated proceedings against Germany. Many mid-sized companies that have been forced to pay a mandatory green energy surcharge agree with the EU's actions.

Firms that have been exempted from the surcharge up to now, however, are threatening to move production out Germany should they be forced to pay it. more—includes 4:11 DW video.

Germany's green energy debate just beginning

Date 30.01.2014
Author Richard Fuchs / sms

Economy Minister Sigmar Gabriel will have to find common ground with the opposition to reform Germany's renewable energy laws. It will be a long process, as state governments take issue with subsidy cuts.

Acceptance was the key point Sigmar Gabriel, Germany's minister for economy and energy, had in mind when he announced his plans for a reform of the subsidies paid to renewable energy producers in the German parliament on Thursday (30.01.2014).

The public's acceptance will be critical for Germany to continue expanding the use of renewable sources of energy and phasing out nuclear power by 2020. But the public's agreement with the government's plans could dissolve quickly if electricity prices, which have been rising sharply, are not kept in check.

Gabriel calculated that private consumers currently pay 24 billion euros ($30.6 billion) in higher electricity bills per year to finance Germany's push to renewables. He said consumers could not be called on to pay any more but also added that energy-intensive companies needed protection from having to pay too large a burden or that Germany would face a "dramatic deindustrialization."

Germany currently pays 0.17 euros per kilowatt hour from renewable sources, which Gabriel wants to reduce to 0.12 by 2015.For Gabriel, the main issue was carefully controlling Germany's nuclear phaseout. Part of that includes reducing subsidies designed to promote the production of energy from renewable sources as well as placing targeted limits on the amount of renewable energy produced. Only by reducing the state financing of solar, wind and biomass power plants, the minister argued, could spiraling electricity costs be reduced.

Blocking the expansion of renewables

Oliver Krischer, an energy expert for the Greens, said Gabriel's reform plans would lead to a dramatic slowdown in the creation of renewable energy.

"Putting a cap on renewables is a big mistake," Krischer said.

He added that the plan to limit the growth of new land-based wind power turbines was particularly misguided.

"I does not make sense to cap the cheapest form of renewable energy, which happens to be the cheapest form of all energy production," Krischer said, adding that he thought Gabriel's proposal would end up increasing - not decreasing - electricity costs.

Should Gabriel's plans be enacted, it would likely mean Germany could not meet the climate change goals it agreed to, the Greens politician said.

"What they are planning will make it so that renewables are even able to replace the energy produced by nuclear power plants taken offline,"  Land-based wind turbines are the cheapest way to produce electricity, Krischer said

Left Party politician and energy policy expert Eva Bulling-Schröter said this would mean that Germany would end up using brown coal to meets its energy needs. "We are flooding Europe with dirty power and the German government just watches," she said.

Gabriel said he understood the opposition's points. "I regard your criticism as constructive and will approach your suggestions in an equally constructive manner," he said. Though Germany's governing coalition does not need to rely on the opposition to pass bills in the Bundestag, the lower house of parliament, Gabriel will need some support from the Greens to get his plans approved by the upper house, the Bundesrat.

States battle for wind power

Some state leaders, including Gabriel's fellow Social Democratic Party members, were also critical of his plans. Northern German states took issue with reducing the renewable energy subsidy, while southern states opposed plans to limit support for wind energy to places with the highest winds.

Gabriel promised to draft an "energy consensus" between the federal and state governments. He is also under pressure from Brussels to get the reforms enacted before the 2014 summer break. The European Commission is currently investigating whether the lower rates paid by Germany's energy-intensive companies represent illegal subsidies. If Germany is found to be in breach of EU law, it could face numerous lawsuits and fines. more


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