Navigant Research Blog

In Germany, Net Metering Brings Unintended Consequences

Richelle Elberg — October 18, 2013

In my last blog, I discussed the problems faced by utilities, solar industry stakeholders, and consumers as solar distributed generation uptake accelerates and legacy business models are shaken to their core.

Nowhere have the problems with pro-solar policies become as clear as in Germany, where solar power accounted for 22% of generation in 2012.  But while Germany is often touted as a model of green success, the fact is that 1) German electric customers are paying about twice as much as they should for their electricity, 2) the major German utilities are suffering severe financial strain, and 3) Germany’s carbon emissions actually increased in 2012.

No Nukes, More Carbon

German leaders made the decision to rapidly decommission nuclear generation in the wake of Japan’s Fukushima Daiichi disaster.  To take up the slack, the government gave priority to individual solar (and wind and biofuels) generators over the utilities.  In other words, these private generators were guaranteed a market for their excess energy.  On June 16 of this year, solar and wind installations generated so much power that utility-owned generation plants sat idle and the wholesale prices for energy actually went negative for a time.  In response, utilities are scrambling to reduce costs, including burning more brown coal, or lignite – one of the most carbon-intensive fuels.   As a result, Germany’s carbon emissions increased  by 1.6% in 2012 versus 2011.

As for points one and two above, German consumer electric rates are higher than just about anywhere else in Europe, and more than half of that is due to taxes and fees to cover renewables programs.  The average German pays $387 per megawatt.  Finally, the major electric utilities have seen their profits shrink and their market caps fall precipitously.  Shares in both RWE and E.ON fell to 10-year lows earlier this year and earnings have been disappointing, putting thousands of jobs at risk.

Subsidies to Sales

Angela Merkel’s newly reelected government has acknowledged the need for energy industry reform.  On September 27, 2013, German utility lobby BDEW presented a plan recommending an end to guaranteed feed-in tariffs for new renewable installations and a decentralized capacity market.  The proposal suggests that green power operators must also be responsible for grid security and other technical issues and that the amount of electricity that receives support should be limited.  BDEW head Hildegard Mueler said that “Subsidy recipients must turn into merchants.”  Because Merkel’s coalition no longer holds an absolute majority, it remains to be seen whether any reform can be achieved in the near term.  Meanwhile, the head of the German energy agency Dena has estimated that German electricity consumers may have to pay a third more for subsidies by 2014.

There are environmental benefits to these higher electric rates, but the hard truth is that a transition from a century-old business model to a new one simply can’t happen in a handful of years without there being collateral damage.

In my next blog, I’ll examine what’s happening in the United Kingdom, as feed-in tariffs there have fallen sharply in recent years.

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