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The politics and economics of constructing, contesting and restricting socio-political space for renewables –

the case of the German Renewable Energy Act

Volkmar LauberStaffan Jacobsson

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Introduction

• We try to give an overview of the politics of protective spaces for RES-E in Germany (late 1980s to 2013 – about 25 years)

• Apply distinction fit-and-conform vs. stretch-and-transform (re: costs, time-scale of change) and adapt them to fit our cases

• Look at the recent “affordability” controversy on RE support and at both the paradigms and the interests clashing in this conflict

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Summing up Conflicts(not for oral presentation)

• Market creation for renewable electricity was strongly contested in Germany from the start (late 1980s)

• First impulse from anti-nuclear and anti-coal (SO2, CO2) Energiewende movements (1970s, Chernobyl,…)

• Five/six episodes of rebellions against party leaders (exc Greens)• ”Political accident” of passage of Feed-in Law in 1990• Polarising controversy over philosophy of EEG (phasing out fossil

fuels) and nuclear phase-out in 2000/2004• Intense conflict over intention to delay new renewables by

delaying nuclear phase-out (2010)• Intense conflict over attempts to wind down EEG in 2012-13

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Persistent divide in the German debate

• Those who (i) emphasize high consumer cost of new technologies and not their total costs; (ii) take a short-term view on both costs and required learning periods ; (iii) neglect or play down the role of market formation in innovation and cost reduction (“F-a-C”)

• Those who (i) emphasize total costs; (ii) take a long-term view on costs and required learning periods and (iii) argue that market formation is central to innovation and cost reduction (iiii) expect lower long-term consumer costs with renewables (“S-a-T”)

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Misrepresenting the impact of the EEG surcharge on consumer costs

• Covers gap between spot market yield and feed-in tariffs paid– 0.25 Ct (2001); 1.16 Ct (2008); 5.28 Ct or 18% of household electricity

prices 2013 – a large “burden”?

• (i) Growing share of industry largely exempted from surcharge – adding in 2013 1.29 Ct/kWh for households

• (ii) Merit order effect, falling coal and ETS certificate prices lead to lower spot market prices passed on to big industry but not to households or small industry – for those, falling spot prices actually increase surcharge! 0.69 Ct/kWh in 2013

• Of the 5.28 Ct, less than half should be seen as fair addition to consumer price (of 28-29 Cent)

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Exaggerating the “burden” from renewable electricity by shifting focus from total cost to

consumer cost (1)

Technology Total cost/kWh Supply of electricity (TWh)

Total costs(billion Euro)

Onshore wind 8.0 46.0 3.68

Hydro 7.6 21.2 1.61

PV 36.7 28.0 10.28

Weighted average legacy cost/kWh – RES

16.3

Hard coal 14.8 118.0 17.46

Soft coal 15.6 159.0 24.80

Weighted average costs – coal

15.3

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Exaggerating the “burden” from renewable electricity by shifting focus from total cost to

consumer cost (2)

• The “burden” of renewables is currently negligible

• Current feed-in rate for PV is down to 9.5-14 eurocents - even PV is now becoming competitive with coal in terms of total costs

• Strong doubts about the validity of arguments referring to “cost-efficiency”, “subsidies” and “affordability” (except for the poor who always suffer)

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Ignoring inter-generational equity issues- “affordability for whom” (1)

• We need to build capital goods industries that can deploy technologies on a large scale

• Requires a long-term view due to the inherently long time-scale in that process– in the “formative phase”, a rudimentary capital goods industry

is developed that provides a technology with a reasonable price/performance ratio (takes a couple of decades)

– an additional two to three decades required to increase the capacity of the capital goods sector and deploy the technology (in further improved forms) until the market is saturated

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Ignoring inter-generational equity issues- “affordability for whom” (2)

• Onshore wind and PV are in their growth phases– EEG central to that development

• Offshore wind, wave etc. need to go through a formative phase

• Failing to provide the material means to supply “low-carbon” electricity on a very large scale with technologies that have gone through decades of improvement means shifting the costs of climate change to future generations

• An appropriate cost concept should include long-term benefits from learning, strengthening the economic case of renewables further

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Explaining discourse intensity 1 – intellectual paradigms

• In sum, the cost discourse is weak and misleading – how can we explain its ferocity?

• (1) The divide reflects a broader debate between those inspired by neoclassical analysis of the advantages of industry- or technology-neutral policies and those advocating a more powerful state implementing industry- or technology-specific policies. – To an extent, the ferocity of the debate can be explained

by these diametrically opposite views on the nature of large-scale transformation processes

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Explaining discourse intensity(2) Clashing interests

• The large utilities suffer from loss of market share and reduced profitability of generation, particularly at peak hours. The Economist argues that deployment of renewables creates an “existential threat” to the large utilities, stating that:

• the country’s biggest utility, E.ON, has seen its share price fall by three-quarters…and its income from conventional power generation…fall by more than a third since 2010. At the second-largest utility, RWE…net income has also fallen a third since 2010. As the company’s chief financial officer laments, “conventional power generation, quite frankly, as a business unit, is fighting for its economic survival”.

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Fit-and-conform,stretch-and-transform put to the test in analysing Germany

• Fit-and-conform (FaC) and stretch-and-transform (SaT) are helpful concepts to sum up different economic logics which inspire (or are formed in the context of) different policies and are used pragmatically by different interest groups

• These paradigms define struggle between and within political parties (German Conservatives, Soc Dem) and different government levels

• Conceptual problems arise when a SaT policy is reoriented in the name of SaT values in the direction of a FaC policy, as happens in Germany since 2010-12

• FaC is invoked by large utilities to curtail ”wasteful”, long-term EEG approach, not by advocates of renewables

Germany: Development of new renewables-based electricity generation,1990-2011, in GWh (from about 1.5 TWh to 105 TWh): 70x, excl hydro

Adapted from: FME (Federal Ministry for the Environment, Nature Conservation and Nuclear Safety) (2012).

German Coal, Nuclear, Gas and Renewable Generation 1990-2012

Source: Gipe, Paul (March 2013): 2012 German Nuclear & Gas-Fired Generation Falls Further While Renewables Grow. Available on: http://www.wind-works.org/cms/index.php?i d=39&tx_ttnews[tt_news]=2259&cHash=3991f443a7d9f79482d8c8d4816c0a32, 18.03.2013.

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Figure 2. Ownership shares in biogas installed capacity in 2010 (Total: 2.280 MW)

Adapted from: trend:research (2011), p.51.

Figure 3. Ownership shares in installed PV capacity, Germany 2010 (Total: 16.917 MW)

Adapted from: trend:research (2011), p.62.

Image: Cost components for one kilowatt-hour of electricity for household consumers 2000- 2011

Source: BMU (2012): Erneuerbare Energie in Zahlen. Nationale und internationale Entwicklungen. Availlable at: http://www.erneuerbare-energien.de/fileadmin/ee-import/files/pdfs/allgemein/application/pdf/broschuere_ee_zahlen_bf.pdf, accessed 23 September 2013, p. 43.

Electricity price on the German futures market and profitability thresholds of different types of power plants, 2008-2012

Jerome à Paris (5 September 2013), The Economic and Political Consequences of the Last 10 Years of Renewable Energy Development. Available at: http://www.resilience.org/stories/2013-09-06/the-economic-and-political-consequences-of-the-last-10-years-of-renewable-energy-development,acccessed 27.09.2013.

Electricity Production and Spot-Prices: CW 24 2013

Source: Mayer, Johannes (2013): Electricity spot prices and production Data in Germany. Published by: Fraunhofer ISE. Available at: http://www.ise.fraunhofer.de/de/downloads/pdf-files/aktuelles/boersenstrompreise-und-stromproduktion-2013.pdf, 02.11.2013.

History of Price Extremes in the Day-Ahead Market

Source: Mayer, Johannes (2013): Electricity spot prices and production data in Germany. Published by: Fraunhofer ISE. Available at: http://www.ise.fraunhofer.de/de/downloads/pdf-files/aktuelles/boersenstrompreise-und-stromproduktion-2013.pdf, 02.11.2013.

Figure: 1: German PV FITs from January 2004 to October 2013

Bernard Chabot (2013) Diversity in PV Systems Sizes and Market Deployment Management from Prices: Two Strategic Lessons from the German PV Policy and Measures. P. 1. Available at: http://cf01.erneuerbareenergien.schluetersche.de/files/smfiledata/3/0/3/4/9/9/TwoStrategicLessons.pdf, 09.09.2013.