Projektbericht Rheinisch-Westfälisches Institut für Wirtscha sforschung Economic impacts from the promotion of renewable energies: The German experience Final report Board of Directors: Prof. Dr. Christoph M. Schmidt (President) Prof. Dr. Thomas K. Bauer (Vicepresident) Prof. Dr. Wim Kösters Governing Board: Dr. Eberhard Heinke (Chairman); Dr. Henning Osthues-Albrecht; Dr. Rolf Pohlig; Reinhold Schulte (Vice Chairmen); Manfred Breuer; Oliver Burkhard; Dr. Hans Georg Fabritius; Hans Jürgen Kerkhoff ; Dr. Thomas Köster; Dr. Wilhelm Koll; Prof. Dr. Walter Krämer; Dr. Thomas A. Lange; Tillmann Neinhaus; Hermann Rappen; Dr Ing. Sandra Scheermesser Scientifi c Advisory Board: Prof. Michael C. Burda, Ph.D.; Prof. David Card, Ph.D.; Prof. Dr. Clemens Fuest; Prof. Dr. Justus Haucap; Prof. Dr. Walter Krämer; Prof. Dr. Michael Lechner; Prof. Dr. Till Requate; Prof. Nina Smith, Ph.D. Honorary Members of RWI Heinrich Frommknecht, Prof. Dr. Paul Klemmer †, Dr. Dietmar Kuhnt RWI Report Published by: Rheinisch-Westfälisches Institut für Wirtschaftsforschung Hohenzollernstraße 1/3, 45128 Essen, Germany Phone +49 201/81 49-0, Fax +49 201/81 49-200, e-mail: rwi@rwi-essen.de All rights reserved. Essen 2009 Editor: Prof. Dr. Christoph M. Schmidt Economic impacts from the promotion of renewable energies: The German experience Final report – October 2009 Impressum Rheinisch-Westfälisches Institut für Wirtscha sforschung Economic impacts from the promotion of renewable energies: The German experience Final report – October 2009 Project team: Dr. Manuel Frondel, Nolan Ritter, Prof. Colin Vance, Ph.D. (Project management) We highly appreciate the research assistance by Fabian Schef- fer and would also like to thank Daniela Schwindt for designing the report’s layout. We are grateful for valuable comments and suggestions by Prof. Christoph Schmidt. Report [...]... whereas in the following 15 years the tariff per kWh may be considerably less, depending on the effectiveness of the individual converter If a converter’s electricity output turns out to be low, which is actually the rule rather than the exception, the period of high tariffs can easily stretch to the whole 20 years of subsidization 15|40 Economic impacts from the promotion of renewable energies As there... technologies 25|40 Economic impacts from the promotion of renewable energies Hence, although Germany’s promotion of renewable energies is commonly portrayed in the media as setting a “shining example in providing a harvest for the world” (The Guardian 2007), we would instead regard the country’s experience as a cautionary tale of massively expensive environmental and energy policy that is devoid of economic. .. fact, the promotion of renewable energy technologies ceteris paribus reduces the emissions of the electricity sector so that obsolete certificates can be sold to other industry sectors that are involved in the ETS As a result of the establishment of the ETS in 2005, the EEG’s true effect is merely a shift, rather than a reduction, in the volume of emissions: Other sectors that are also involved in the ETS... be curbed via the ETS, rather than by subsidizing renewable energy technologies such as PV and wind power After all, it is for efficiency reasons that emissions trading is among the most preferred policy instruments for the abatement of greenhouse gases in the economic literature 4 Impacts of Germany’s Renewables Promotion Given the substantial cost associated with Germany’s promotion of renewable technologies,... 0.00 0.00 0.00 11.67 33|40 Economic impacts from the promotion of renewable energies The columns in Table A5 show the net cost per cohort of annually installed modules, while the rows show the real net cost per year A particularly striking result of the presentation given by Table A2 is the dramatic cost increase related to the cohort installed in 2005, the year following the EEG amendment in 2004 Annual... to be “competitive” in the sense that feed-in tariffs are then lower than the assumed wholesale price of electricity As a consequence, 17|40 Economic impacts from the promotion of renewable energies investors in wind power converters may contemplate selling electricity at the power exchange rather than accepting the then lower tariffs Table 6: Net Cost of Promoting Wind Power if the elevated tariff holds... leaving only Germany’s export sector to benefit from the possible continuation of renewables support in other countries such as the US Third, rather than promoting energy security, the need for backup power from fossil fuels means that renewables increase Germany’s dependence on gas imports, most of which come from Russia And finally, the system of feed-in tariffs stifles competition among renewable energy... of the discussion on the economic merits of renewable energy In this regard, as Michaels and Murphy (2009) note, proponents of renewable energies often regard the requirement for more workers to produce a given amount of energy as a benefit, failing to recognize that this lowers the output potential of the economy and is hence counterproductive to net job creation Several recent investigations of the. .. Most disconcertingly, with each year the program is extended, the annual amount of feed-in tariffs for PV increases considerably because of the substantial addition of new cohorts of modules receiving the subsidy, as is displayed in Figure 4 for the case of extending the program to 2010 In quantifying the extent of the overall burden, we focus on the total net cost of subsidizing electricity production... current prices of CO2 emission certificates: Since the establishment of the European Emissions Trading System (ETS) in 2005, the price of certificates has never exceeded 30 € per tonne of CO2 Although wind energy receives considerably less feed-in tariffs than PV, it is by no means a cost-effective way of CO2 abatement Assuming the same emission factor 19|40 Economic impacts from the promotion of renewable . 38 Economic impacts from the promotion of renewable energies 4|40 Economic impacts from the promotion of renewable energies: The German experience. Wirtscha sforschung Economic impacts from the promotion of renewable energies: The German experience Final report Board of Directors: Prof. Dr. Christoph