German Solar Energy Gravy Train – The Coming Meltdown

Other blogs have mentioned today a report from the German financial daily, Handelsblatt here, but didn’t provide many details, and so I’ve decided to shine a little more light on the article. It is indeed frightening.

The German government has been generously subsidising renewable energy sources for years now, and it’s going to cost the German consumer a bundle – and soon.

The big price driver is solar energy. Year after year more and more panels are getting installed on German roofs and far surpassing even the most optimistic projections. But that shouldn’t be a surprise because Germany’s Energy Feed in Act (EEG Gesetz) guarantees solar energy system operators a fixed tariff for 20 years, making solar energy systems extremely lucrative for those who have them.

According to the Rhine Westphalia Institute for Business Research (RWI) the net costs of all photovoltaic system installed between 2000 and 2010 add up to a whopping $107 billion, Subsidies for renewable energy are going out of control.

An open letter written by Johannes Lackmann, former director of the German Association of Renewable Energy, caused many to take a closer look. Lackmann warns:

Companies are positioning themselves on the same square as the old industries, who failed to modernise and keep up with the market demands because they came to rely on generous subsidies paid by governments to survive. The EEG Act must not be allowed to be misused as cushion to sleep on.

Indeed the extreme comfort of the EEG subsidies will lead to an additional 9000 MW of solar energy capacity to be mounted on roofs this year alone in Germany. It’s a run-away train that will have serious consequences.

Recall that solar energy generators are guaranteed payment for 20 years. For systems going online this year, an average of almost $0.40/kw-hr is guaranteed by law until 2031. By comparison conventional energy is traded on the EEX  exchange for just over 6 cents. The huge difference is passed on to the German consumer.

According to the RWI the net costs for all photovoltaic systems installed between 2000 and 2010 over their 20 year operating life will add up to $107 billion. According to the Handelsblatt:

This sum is more than one quarter of the entire German annual federal budget. Yet the amount of solar energy as a share of the total energy produced is still puny despite the huge subsidies. It is only 1 percent.

Just the photovoltaic systems installed this year will lead to an additional $33 billion dollars in costs over their 20 year operating life. Electrical energy rates will climb 10% in 2011. Energy giant RWE just announced it will increase rates by 7.3% in August.

Sure Germany has cut back the subsidies – some, but the prices of solar panels and systems have fallen even faster, and so as a result they are even more lucrative. Lackmann thinks reductions in subsidies are long overdue, and the industry will not be doing itself a favour attempting to fight them off.

They don’t provide any incentive for investment in R&D. Leading German solar companies invest less than 2% of their sales turnover in R&D. This is far below what a company like Siemens invests in R&D.

13 responses to “German Solar Energy Gravy Train – The Coming Meltdown”

  1. Ed Caryl

    What the government gives, the government can take away. There is no way those subsidies will be paid for 20 years. The house of cards will be torn down. Can we start a pool on how many years it lasts? I’ll put money on 5.

    1. pgosselin

      Subsidies on new systems will be substantially ratcheted back I think. But the subsidies promised on systems already installed for 20 years are contractual, and thus the state will be forced to make sure they are fulfilled. Those who invested in PV systems did so on the contractual condition they’d be paid 20 years. The state doesn’t care anyway because its the cosumer that foots the bill.

      There could be a major revolt coming though. The system is cracking. Already health insurance premiums are set to be jacked up next year, energy prices will go up double digits, etc.. The consumer can only take so much before something gives.

  2. DirkH

    “Ed Caryl Says:

    June 22, 2010 at 10:45 pm
    What the government gives, the government can take away. There is no way those subsidies will be paid for 20 years.”

    Hi, i’m German. The 20 years are enshrined in law. If a government in the future stops the scheme the owners of existing installations will sue up to the supreme court and win. No way it can be stopped. Only future installations could be affected by a change in law. Two facts about it:
    -People who install solar panels on their roof will only start making a gain after 10-12 years.
    -The cross-subsidy increases the going rate for electricity by 10% ATM. So it’s not like we’re sitting in the dark here.

    It’s a nuisance and IMHO way too expensive; but it’s not the end of civilization. A good idea would be to print more Euros, ramp up inflation, that way the guaranteed tariffs would become worthless faster.

    Inflation is always the way out 😉

    1. Ed Caryl

      That ia true. Inflation is one way out. But if the government goes broke to the extent that paying is impossible, you can’t get blood out of a stone. Think Greece. Yes, they’ll try to get it out of the people, but think about what that will do. And I don’t agree that they CAN’T change the law. Politicians are endlessly creative.

      1. Bernd Felsche

        You mean like imposing an annual infeed levy per supplier?

        Taxes can be imposed to stop people doing things.

        Or allowing the real power generators to pass on the costs of adapting to the variable, unpredictable supply, based on the variability?

  3. Harry

    Dear Dr Gosselin,

    Thanks for this wonderful piece of critical journalism, which is not to be found in the MSM.

    I am researching along similar lines, and I am coming to the following conclusion:

    1. Detach from the grid, so you do not have to pay for something you do not want to have.
    2. Buy a Diesel generator, 10 to 20 kW
    3. Feed your home with it.
    4. Get your neighbours on your generator.
    5. Good guess, one of your neighbours has a PV with back delivery to the grid.
    6. Feed your diesel kWh into the grid via the PV connection.
    7. Everyone happy, all of us share in the profit.

    1. DirkH

      Part 6 of your plan would be illegal.
      The other parts are ok. Throw in some batteries to make sure the generator can run in an optimal performance point. Maybe use a fuel cell instead of a Diesel generator. There are methanol fuel cells available for campers and boats.

      I guess you end up with 10,000 Euro investment minimum. So ATM it’s not worthwhile for me. Prizes for this equipment will come down (several German companies already develop solutions) while electricity tariffs go up.

      The lines will cross in a few years and the tech will become widespread.
      Wait for early adopters to burn their fingers.

  4. Joe Born

    Maybe that’s a total of 9000 MW added through this year, not 9000 MW added in one year alone? Since Germany’s average power use is less than 63,000 MW by my calculation, that rate of solar-power addition would mean that on a sunny day in Germany seven years from now all non-solar plants would have to turn off during the day and turn back on at night. I’m not a power-generation expert, but I wonder whether all German power plants are quite that nimble.

    1. Bernd Felsche


      A Watt (or megawatt – MW) is a measure of power not energy. Power is the rate at which energy flows.

      The installed “capacity” of solar is in nameplate only. It’s based on 1-sun illumination at the ideal angle under ideal conditions. Any deviation therefrom; dust, clouds, orientation diminishes the output to below the nameplate output. A static installation on a “randomly” oriented roof-mounted PV system is likely to average between 10% and 50% of that nameplate output for the 3 hours either side of noon under a clear sky, having just had the panels washed. And significantly less at other times.

      The “PV capacity” is wishful thinking.

      1. Joe Born

        Mr. Felsche:

        Thanks for your response. But I actually do know what a megawatt is. My calculation of average power use was to divide the amount of annual electrical energy use (MW-hrs) by the number of hours in a year.

        I do recognize that the “PV capacity” is almost always inflated; I’ve heard that dividing by 5 or 6 will put you closer to the average power output.

        Still, installing even an inflated 9000 MW capacity in a single year seems high. I’m inclined to believe that number’s actually cumulative over all previous years.

    2. DirkH

      Yes, in 7 years at most this would have to happen. Wholesale energy prizes on the electricity exchange in Leipzig already went negative several times – when wind power delivered a lot and there was not sufficien consumption. In such situations, we pay our European neighbours to take power from our grid.

      These negative prizes will happen ever more frequently. The end consumer does not profit from it because he has to pay several taxes slapped on and the cross-subsidy for renewable power.

      So energy supply on the grid becomes ever cheaper, but the end prizes are artificially inflated, reducing demand. Growing supply, shrinking demand. We will no more be able to afford our own renewable energy and give it away to other countries.

      People will have to use less and less power, increasing the cost for the ones that are still consuming a lot, a race to the bottom of consumption and to a prize singularity. Given that the system and the laws stay in place.

      In other words, the system can’t stay in place – it will be removed within the next 7 years. It is unstable.

      1. DirkH

        I’d like to add one more thought: The mentioned spiraling cost will itself put inflationary pressure on the economy, thus the feed-in tariffs will invalidate themselves. A beautiful self-regulation. Or not so beautiful if you have Euros.

  5. Brian H

    In nature, stupidity is the only capital crime.

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