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Germany Gets Realistic about Renewables

The following is a guest post from Matt Wald, senior director of policy analysis and strategic planning at NEI. Follow Matt on Twitter at @MattLWald.

The German parliament voted on July 8 to slow the growth of renewable energy, by ending lavish subsidies intended to develop as much wind, sun and biomass as quickly as possible. Instead, the government will pick and choose which energy projects make sense for the system based on reliability, cost, and other criteria.

The German electric system is suffering a more extreme version of some of the same problems seen in in the U.S.

In Germany, the burden of aggressive renewable subsidies falls on households, because the government exempted major industrial consumers, to avoid damaging their international competitiveness. Per kilowatt-hour, households pay 29.5 European cents (about 32.6 U.S. cents, roughly triple the average price in the U.S.) The price is 30 percent higher than the European average, according to European Union statistics.

And in Germany, a lot of this energy, especially wind, comes at times of low demand, and is produced in areas far distant from load centers, so it is not useful. We have the same problem here; surplus energy pushes prices to zero or even below, but subsidies make developers profitable anyway.

And subsidized renewables are not always the best way to reduce carbon emissions. The National Academy of Sciences recently found that the cost of Federal subsidies for renewables, for each ton of carbon saved, is a stunning $250. Some states provide added subsidies, or force electricity customers to subsidize renewable energy by setting quotas for utilities, called renewable portfolio standards. Renewable sources of electricity displace electricity from fossil-fired plants, saving fuel and carbon emissions. But they also threaten to displace nuclear generators, which are highly reliable (operating over 90% of the time), and are also emissions free. (Also, U.S. nuclear plants get no compensation for being carbon-free.)

Policies insisting on a high proportion of renewable energy, rather than on simply non-emitting generation, create distorted market conditions that are forcing premature retirement of non-emitting, highly reliable nuclear reactors that are generating electricity at very low costs. Such policies have the unintended consequence of increasing emissions (due to the use of natural gas for replacement power) rather than cutting them.

While the United States hasn’t yet reached the same situation as Germany, the Federal government and the states could avoid some of the same missteps.

UPDATE: On August 1, when the New York Public Service Commission approved a plan to recognize nuclear power’s contribution to carbon emissions reductions, and to keep several reactors running, the Commission took note of Germany’s situation. The order, available here, said in part, “New York can look to another leader in renewable power – Germany – for a lesson in the unintended consequences of losing zero-emissions attributes from all its nuclear plants. Germany’s abrupt closure of all its nuclear plants resulted in a large increase in the use of coal, causing total carbon emissions to rise despite an aggressive increase in solar generation.”

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