German Council of Economic Experts Critical of Energy Policy and Current Promotion of Renewables

Yesterday the German Council of Economic Experts (GCEE) submitted its Annual Economic Report 2011/2012 to Chancellor Angela Merkel. The report also deals extensively with German energy policy. GCEE criticises the German reversal of its energy policy following the nuclear catastrophe in Fukushima and the costly promotion policy for renewable energy. It calls for a radical rethinking and a European approach for the expansion of the share of renewable energy instead of a a go-it-alone national approach.

The German Council of Economic Experts (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung) is an academic body advising German policy makers in questions of economy. Each year in mid-November the Council publishes its Annual Economic Report.

The report notes that the German government performed a nuclear policy volte-face after the meltdown of the nuclear reactor in Fukushima. It replaced its 2010 energy policy that provided for an extension of the operating times of the 17 German nuclear power plants by another amendment of the Atomic Energy Act (AtG), according to which nuclear energy will be abandoned completely by 2022.

In view of the inevitable conflicts of aims and interests, the probable technological and economic problems and the necessary huge innovation advances that will have to be made, GCEE thinks that the goal of engineering a complete exit from nuclear power generation within a decade will alone require superhuman efforts at all levels.

The costs incurred by the reorganisation of the energy supply system need to be continually weighed against competing alternative uses of the national economic resources in order to safeguard the ongoing democratic legitimation of this project, the council says. While the new policy also offers great opportunities for demonstrating Germany’s capability in substituting nuclear energy by renewable energy, Germany can “simply not afford to allow its about-turn in energy policy to end in abject failure”, the council warns. Hence, it calls the successful systemic integration of renewable energies a key technological, political and financial challenge in implementing the new energy strategy.

According to GCEE, the costs that had already been incurred by the year 2010 vis-à-vis expected future electricity prices amount to a present value of over EUR 80 billion. The present strategy, which conflates the sensible instrument of emissions trading with the extremely costly promotion of alternative energies – and which, to make matters worse, is fragmented into differing national promotion policies – clearly fails the test of economic efficiency, the council criticises. It was extremely doubtful whether the additional promotion of renewables could make a contribution to climate protection given that the European Emissions Trading System (EU-ETS) already defined a binding ceiling for the emission of greenhouse gases, the council added, explaining that while emissions would be cut by generating electricity from renewable energy sources, emission rights in this area would be simultaneously freed up that could then be traded on the market and deployed in other areas covered by EU-ETS.

Any further expansion of electricity generation from renewable energies in line with the European Union’s expansion goals must therefore be achieved at a much lower cost than under the current expansion scheme, the experts conclude. Otherwise the transformation in energy policy could well forfeit public support. The council proposes to radically rethink the current system of promoting renewable energies. It calls for a new system that is more market-oriented and that increases the incentive to exploit economies of scale, particularly through an efficient dispersal of production sites in Europe. It will not suffice to pursue a transformative energy strategy as a go-it-alone national approach, the report says. Instead it was required to take greater account of the European dimension of the national expansion targets for renewables agreed at the level of the European Union.

This necessitates instruments that, unlike the Renewable Energies Act, distinguish between the cost-efficient construction of electricity generation capacity and dedicated promotion of innovation, the council believes. It proposes to replace the German system of fixed feed-in tariffs pursuant to the EEG by green electricity certificates. To be able to exploit specific locational advantages for renewable energies in Europe, the system should be harmonized throughout Europe in the medium term, the council says, calling for a harmonisation of promotion rates in Germany across all technologies as a first step. Besides, the council demands that the promotion of renewable energy sources should favour the most cost-efficient options, while the goal of finding new technological solutions should be left to an autonomous tecnology policy.

Regarding the harmonisation of the promotion schemes for renewable energy in the EU states, the report is in line with German EU Energy Commissioner Günther Oettinger, who has repeatedly spoken in favour of a harmonisation in the past.

Source: German Council of Economic Experts

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