German Council of Economic Experts and German Institute for Economic Research: On the Future of the Renewable Energy Sources Act

Yesterday the German Council of Economic Experts (Sachverständigenrat) as well as the German Institute for Economic Research (DIW) commented on the Renewable Energy Sources Act . While DIW spoke out in favour of retaining, but modernising the EEG, the Council of Economic Experts said it continued to propose replacing the EEG by a quota model. However, an immediate harmonisation of the feed-in tariffs laid down in the EEG would help to overcome a lot of the current difficulties in implementing the 2011 energy policy shift.

The EEG has come under renewed criticism because of the high costs for consumers due to the fixed feed-in tariff payments operators of renewable power plants receive.

In its annual report on the state of the German economy, presented yesterday, the German Council of Economic Experts said a year after the decision on the energy transformation it had become clear that valuable time had been wasted. Regarding the necessary expansion of the grids (in order to accommodate the growing influx of intermittent renewable energy) Germany was generally on the right track, the Council said, stressing that there was still an urgent need for action with regard to new conventional power plants (that can balance renewable power) and the promotion of renewable energy sources. In both areas more market-oriented elements were needed to make sure that costs for renewable growth did not get out of hand.

The Council of Economic Experts pointed out that it had already proposed to gradually replace the current promotion scheme for renewable energy sources (the EEG) by a quota model that did not favour one or the other technologies (as utilities are only required to buy a certain amount of green energy). As a first step the minimum feed-in tariffs under the EEG should be harmonised, the Council suggested. This would lead to more cost-efficiency, saving up to EUR 52 billion over the next eight years, according to a study by the economic research institute Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI).

To overcome the disadvantages of a price-related promotion scheme for renewable energy sources, the support scheme should then be replaced by a market-oriented quota model in which utilities are required to buy a certain amount of green energy as it was the case in other European countries. To achieve synergies with other European countries using the quota model, the support systems should be merged in the medium-term.

The Council Member Peter Bofinger wrote a dissenting opinion in favour of an amended EEG. His arguments partly correspond with those of DIW, which will be detailed below.

The DIW experts argue in favour of amending the EEG so as to lower costs and improve the system integration of renewable energy sources, arguing the quota model had little advantages, but many disadvantages.

For one, experience in Great Britain showed that the targets set in quota support schemes were often not met. Besides, what proponents of the quota model called the “technology openness” led to the least expensive renewable energy (in Germany this is currently onshore wind power) becoming the preferred technology, leading to a technological “lock-in” of one technology at the expense of others (that may be less expensive in the long-run).

While there was planning certainty for investors under the EEG, a quota model meant that investors in renewable power plants had the electricity price as well as the electricity certificate price risk. Owners of renewable power plants will receive green electricity certificates for the electricity generated under the quota scheme. If however, more plants are built than required to reach the target, the green electricity certificate prices will decrease. Due to the fact that the least expensive renewable technology is benefits under the quota model, the operators with low generation profits rake sizable profits at the expense of consumers, DIW also argued. 

The EEG does not provide sufficient incentives for a demand-based input of renewable energy, DIW acknowledges, but says replacing it by a quota model would not solve the problem. System integration depended on the market design of the different segments of the electricity market and the congestion management, DIW said.

Source: German Council of Economic ExpertsDIW

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