Thursday, June 7, 2012

Germany Looks to Removing Subsidies for Energy Projects

NASDAQ has an article on some of the latest events in Germany which are pulling it away from feed-in tariffs (FIT) in a push towards mechanisms with a market function (such as renewable energy certificates - REC).

Germany Rejects Subsidies for Energy Projects, Says Market Can Provide:
BERLIN--Germany's economy minister and environment minister Tuesday rejected demands for more state subsidies for the construction of new power plants and grid expansion in Germany.

"The market alone is best suited to handle a task of that size," Energy Minister Philipp Roesler said during an energy conference in Berlin.
The ministers are developing a framework to promote alternative energy without relying on government subsidies.

"We have to combine both, an understanding for markets and political responsibility," said Environment Minister Peter Altmaier, a senior ally of Chancellor Angela Merkel, who took over at the ministry last week.
The entire article can be read at the NASDAQ site:

The German Energy Blog has a related post noting:
The former Liberal Economics Minister Rainer Brüderle and the President of the Monopolies Commission Justus Haucap have warned of the high energy costs caused by fixed feed-in tariffs paid for renewable energy pursuant to the German Renewable Sources Act (EEG). They suggested a system change towards a more market-oriented support system.
For two impressive older documents with the economic principles involved in the increasingly active debate on government policies in the electricity sector, I'd suggest German Council of Economic Experts – Annual Report 2011/12, and Statkraft's "Postition on Capacity Markets for the German Power Market"

From the German Council of Economic Experts Annual Report:
The main problem of the Renewable Energies Act is thus the costs associated with its (apparent) success. It has proved to be very effective in fostering extra capacity, but is at the same time extremely inefficient. In particular, the 20-year guaranteed minimum remuneration period at the prices valid at the time of constructing the renewables plant means that the renewables structure currently in place will continue to involve very high payment obligations for a lengthy period. Hence it would be impossible to lower the costs of the Renewable Energies Act in the foreseeable future even if the promotion of newly installed plant were to be ended immediately. This is because an immediate stop to the renewables expansion programme would merely reduce the volume of promotion over time only in so far as a plant that has been producing electricity for 20 years reaches the end of the promotion entitlement term. In this way additional costs had already been incurred by the year 2010 vis-à-vis expected future electricity prices amounting to a present value of over 80 billion euro.
From "Statkraft":
...Capacity mechanisms might easily distort the market, might lead to over investments or inefficient investments and can for example block a market driven development of demand side participation. ... Further improvements in the functioning of the power market in the longer term can be found in a gradual redesign towards a more market based support scheme for renewables (to allow for a more market based dispatch and reduction of generation in case of over-supply and security problems)

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