German Renewable Energy Act
Encyclopedia
The German Renewable Energy
Act (in German: Erneuerbare-Energien-Gesetz, EEG) was designed to encourage cost reductions based on improved energy efficiency
from economies of scale
over time. The Act came into force in the year 2000 and was the initial spark of a tremendous boost of renewable energies in Germany.
, Nordex
and Repower
in the wind industry and Q-Cells
, Schott Solar and SolarWorld
in the solar industry. Germany is today among the world’s three major renewable energy economies (Renewable Energy Network 21, 2011). Due to its success, the German Renewable Energy Act can serve as an archetype of similar legislation in other countries.
The founding fathers of the Act were:
a) Investment protection through guaranteed feed-in tariffs and connection requirement: Every kilowatt-hour that is generated from renewable energy facilities receives a fixed feed-in tariff
. Furthermore, the network operators must feed in this electricity into the grid preferentially to the electricity generated by conventional sources (nuclear power, coal and gas). Renewable energy plant operators receive a 20 year, technology specific, guaranteed payment for their produced electricity. In particular, small and medium-sized enterprises SMEs have been given new access to the electricity market, along with private land owners. The Federal Ministry for Environment, Nature Conservation and Nuclear Safety (2010) argues that anyone who produces renewable energy can now sell his ‘product’ for a 20-year fixed price.
b) No charge to Germany’s public purse: as of today, the promotion of renewable electricity is still necessary. The EEG rates of remuneration clearly show what electricity from wind, hydro, solar, bio and geothermal energy actually cost. Unlike fossil fuels, there are no external costs such as damages to the environment, the climate or human health. The remuneration rates are not subsidies as such since they are not paid for by taxes. On the contrary, the “polluter pays principle” (OECD, 2006) is distributed to the consumer: who consumes more pays more. The remuneration rates are paid for by every consumer with the electricity bill.
c) Innovation by falling feed-in-tariffs: periodically lowering rates of remuneration for new plants (degression of 1% per year) exerts cost pressure on manufacturers. Thus, technologies are becoming more efficient and less costly.
source (RES) receives a different payment guaranteed price according to its generation cost, ranging from 3.58 - 9.67 €-Cents per kilowatt-hour for hydropower to 35.49 – 51.7 €-Cents per kilowatt-hour for solar power (Rickerson, et al., 2007; Hirschl, 2008). Solar power recompense in the first half of 2011 ranges from 21.11 - 28,74 €ct/ kWh depending on installation size and form, with a further decrease of 9% to 15% foreseen in June, 2011.
provides financial certainty, it is more cost effective and less bureaucratic than other support schemes such as investment or production tax credits, quota based renewable portfolio standards (RPS), and auction mechanisms.(EC, 2005; Morris, 2007; Butler & Neuhoff, 2008)
The economic outcome of the EEG for Germany has been impressive. According to the Green Energy Act Alliance, 2011, the net benefit of the EEG exceeds the additional costs of initial investment - by 3.2 billion Euros. Building a safe and clean power supply incurs costs. However, Krewitt and Nitsch (2001) compared the external costs avoided in the German energy system to the compensation to be paid by grid operators for electricity from renewable energies and found that results clearly indicate that the reduced environmental impacts and related economic benefits outweigh by far the additional costs for the compensation of electricity from renewable energies.
In addition, the feed-in tariff
generates more competition, more jobs and more rapid deployment for manufacturing, and does not pick technological winners, such as more mature wind power
technology versus solar photovoltaics technology (EC, 2005; Morris, 2007; Butler & Neuhoff, 2008).
, Vattenfall
, RWE
and EnBW
). The more decentralized clean energy is produced (since the ratio of renewable energy of today 17% will be growing in the following years), the more necessary it gets to adapt the grid infrastructure.
Furthermore, yet another challenge is the storage of electricity that is of paramount importance in order to be able to store and transport electricity generated by renewable energies.
In summary, the renewable energy age has just begun and will more and more become part of our everyday lives in Germany, mainly thanks to the German Renewable Energy Act.
Renewable energy
Renewable energy is energy which comes from natural resources such as sunlight, wind, rain, tides, and geothermal heat, which are renewable . About 16% of global final energy consumption comes from renewables, with 10% coming from traditional biomass, which is mainly used for heating, and 3.4% from...
Act (in German: Erneuerbare-Energien-Gesetz, EEG) was designed to encourage cost reductions based on improved energy efficiency
Efficient energy use
Efficient energy use, sometimes simply called energy efficiency, is the goal of efforts to reduce the amount of energy required to provide products and services. For example, insulating a home allows a building to use less heating and cooling energy to achieve and maintain a comfortable temperature...
from economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
over time. The Act came into force in the year 2000 and was the initial spark of a tremendous boost of renewable energies in Germany.
Short facts
(DENA, 2011) reports that as of January 2011, around 17% of electricity, 8% of heat and 6% of fuel used in Germany is generated from renewable sources, further reducing Germany’s energy imports. In addition, 110 million metric tons of CO2 emissions were cut due to the use of renewable energies only during 2010. The renewable energy industry employs today more than 350,000 people in Germany (up from 30,000 people in the year 1998) and is home to several world market leaders like EnerconEnercon
Enercon GmbH, based in Aurich, Germany, is the fourth-largest wind turbine manufacturer in the world and has been the market leader in Germany since the mid-nineties. Enercon has production facilities in Germany , Sweden, Brazil, India, Canada, Turkey and Portugal...
, Nordex
Nordex
Nordex is a German company that designs, sells and manufactures wind turbines. The domicile is located in the German city of Hamburg, production takes place in Rostock, China and Jonesboro, Arkansas. The company was founded in 1985 in Give, Denmark. Since then the company steadily grew...
and Repower
REpower
REpower is a German wind turbine company founded in 2001, purchased December 2009 by Suzlon Energy Ltd. Its product range comprises several types of turbines with rated outputs of between 1.5 and 6 megawatts. It created the 5M, in 2005....
in the wind industry and Q-Cells
Q-Cells
Q-Cells is a manufacturer of photovoltaic cells, established in 1999. Its core business is the development, production and marketing of crystalline silicon photovoltaic cells....
, Schott Solar and SolarWorld
SolarWorld
SolarWorld is a German company dedicated to the manufacture and marketing photovoltaic products worldwide by integrating all components of the solar value chain, from feedstock to module production, from trade with solar panels to the promotion and construction of turn-key solar power plants...
in the solar industry. Germany is today among the world’s three major renewable energy economies (Renewable Energy Network 21, 2011). Due to its success, the German Renewable Energy Act can serve as an archetype of similar legislation in other countries.
Founding of the German Renewable Energy Act
The German Renewable Energy Act is the successor to the 1991 Electricity Feed Act Stromeinspeisungsgesetz.The founding fathers of the Act were:
- Prof. Dr. Klaus TöpferKlaus TöpferKlaus Töpfer is a German politician and environmental politics expert. From 1998 to 2006 he was executive director of the United Nations Environment Programme ....
(German Federal Minister of the Environment, retd.), Member of the Christian Democratic Union (Germany)Christian Democratic Union (Germany)The Christian Democratic Union of Germany is a Christian democratic and conservative political party in Germany. It is regarded as on the centre-right of the German political spectrum... - Dietmar Schütz, President of the Federal Association of Renewable Energies, Member of Parliament, Social Democratic Party (Germany)
- Hans-Josef FellHans-Josef FellHans-Josef Fell is a member of the Green Party in the German Parliament. Fell framed the German Renewable Energy legislation, together with Hermann Scheer...
, Member of Parliament, Alliance '90/The GreensAlliance '90/The GreensAlliance '90/The Greens is a green political party in Germany, formed from the merger of the German Green Party and Alliance 90 in 1993. Its leaders are Claudia Roth and Cem Özdemir... - Dr. Hermann ScheerHermann ScheerHermann Scheer was a Social Democrat member of the German Bundestag , President of Eurosolar and General Chairman of the World Council for Renewable Energy...
(Member of Parliament Social Democratic Party (Germany) - Sigmar GabrielSigmar GabrielSigmar Gabriel is a German politician currently chairing the Social Democratic Party of Germany .On 15 December 1999, after the resignation of Gerhard Glogowski, who had succeeded Gerhard Schröder in office, Gabriel became Minister-President of Lower Saxony and served until 4 March 2003...
, German Federal Minister of the Environment, Member of the Social Democratic Party (Germany) - Josef Göppel, Member of Parliament, Christian Social Union of BavariaChristian Social Union of BavariaThe Christian Social Union in Bavaria is a Christian democratic and conservative political party in Germany. It operates only in the state of Bavaria, while its sister party, the Christian Democratic Union , operates in the other 15 states of Germany...
- Jürgen TrittinJürgen TrittinJürgen Trittin is a German Green politician. He was Federal Minister for the Environment, Nature Conservation and Nuclear Safety from 1998 to 2005 in Germany.- Life and work :Trittin was born in Bremen...
, Member of Parliament, Alliance '90/The GreensAlliance '90/The GreensAlliance '90/The Greens is a green political party in Germany, formed from the merger of the German Green Party and Alliance 90 in 1993. Its leaders are Claudia Roth and Cem Özdemir...
The three main principles
The three main principles of the EEG are:a) Investment protection through guaranteed feed-in tariffs and connection requirement: Every kilowatt-hour that is generated from renewable energy facilities receives a fixed feed-in tariff
Feed-in Tariff
A feed-in tariff is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology...
. Furthermore, the network operators must feed in this electricity into the grid preferentially to the electricity generated by conventional sources (nuclear power, coal and gas). Renewable energy plant operators receive a 20 year, technology specific, guaranteed payment for their produced electricity. In particular, small and medium-sized enterprises SMEs have been given new access to the electricity market, along with private land owners. The Federal Ministry for Environment, Nature Conservation and Nuclear Safety (2010) argues that anyone who produces renewable energy can now sell his ‘product’ for a 20-year fixed price.
b) No charge to Germany’s public purse: as of today, the promotion of renewable electricity is still necessary. The EEG rates of remuneration clearly show what electricity from wind, hydro, solar, bio and geothermal energy actually cost. Unlike fossil fuels, there are no external costs such as damages to the environment, the climate or human health. The remuneration rates are not subsidies as such since they are not paid for by taxes. On the contrary, the “polluter pays principle” (OECD, 2006) is distributed to the consumer: who consumes more pays more. The remuneration rates are paid for by every consumer with the electricity bill.
c) Innovation by falling feed-in-tariffs: periodically lowering rates of remuneration for new plants (degression of 1% per year) exerts cost pressure on manufacturers. Thus, technologies are becoming more efficient and less costly.
Payment scheme
The EEG also differentiates between technologies such that each renewable energyRenewable energy
Renewable energy is energy which comes from natural resources such as sunlight, wind, rain, tides, and geothermal heat, which are renewable . About 16% of global final energy consumption comes from renewables, with 10% coming from traditional biomass, which is mainly used for heating, and 3.4% from...
source (RES) receives a different payment guaranteed price according to its generation cost, ranging from 3.58 - 9.67 €-Cents per kilowatt-hour for hydropower to 35.49 – 51.7 €-Cents per kilowatt-hour for solar power (Rickerson, et al., 2007; Hirschl, 2008). Solar power recompense in the first half of 2011 ranges from 21.11 - 28,74 €ct/ kWh depending on installation size and form, with a further decrease of 9% to 15% foreseen in June, 2011.
The grid
The grid feed-in tariffs provide incentives to every company involved in renewable energy generation business, especially the small and medium-sized energy firms, to invest in developing and generating RES, decrease initial market entry barrier for these businesses, and reduce the costs of RES for production and consumption over a period of time.The impact of the Renewable Energy Act on the German Market
The Renewable Energy Act was the central political element of one of the greatest paradigm shifts since the start of the industrial revolution: the shift from fossil and atomic energy supplies to renewable energy sources (Green Energy Act Alliance, 2011). The German energy market has started to turn away from fossil fuels and centralized electricity structures towards a decentralized approach of energy production. With the investor friendly remuneration rates, electricity production is no longer in the hands of a few big energy companies. Chart 1 (Renewables 2010 – Global status report – Renewable Energy Policy Network for the 21st century (REN21)) shows today’s favorable position of Germany in the global Renewable Energy markets (2009).Effectiveness of the German Renewable Energy Act
Various studies, including EC's study reveal that because the feed-in tariffFeed-in Tariff
A feed-in tariff is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology...
provides financial certainty, it is more cost effective and less bureaucratic than other support schemes such as investment or production tax credits, quota based renewable portfolio standards (RPS), and auction mechanisms.(EC, 2005; Morris, 2007; Butler & Neuhoff, 2008)
The economic outcome of the EEG for Germany has been impressive. According to the Green Energy Act Alliance, 2011, the net benefit of the EEG exceeds the additional costs of initial investment - by 3.2 billion Euros. Building a safe and clean power supply incurs costs. However, Krewitt and Nitsch (2001) compared the external costs avoided in the German energy system to the compensation to be paid by grid operators for electricity from renewable energies and found that results clearly indicate that the reduced environmental impacts and related economic benefits outweigh by far the additional costs for the compensation of electricity from renewable energies.
In addition, the feed-in tariff
Feed-in Tariff
A feed-in tariff is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology...
generates more competition, more jobs and more rapid deployment for manufacturing, and does not pick technological winners, such as more mature wind power
Wind power
Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....
technology versus solar photovoltaics technology (EC, 2005; Morris, 2007; Butler & Neuhoff, 2008).
Outlook
Regardless of the boom of Renewable Energies in the last decades, there are still many challenges that have to be met. One of them is integrating the electricity generated by decentralized renewable energy power plants into the existing electricity grid structure. The challenge here is that the existing grids were built in accordance to the centralized energy system of the four main energy companies in Germany (namely: E.ONE.ON
E.ON AG, marketed with an interpunct as E•ON, is the holding company of the world's largest investor-owned energy service provider based in Düsseldorf, Germany. The name comes from the Greek word aeon which means eternity....
, Vattenfall
Vattenfall
Vattenfall is a Swedish power company. The name Vattenfall is Swedish for waterfall, and is an abbreviation of its original name, Royal Waterfall Board...
, RWE
RWE
RWE AG , is a German electric power and natural gas public utility company based in Essen. Through its various subsidiaries, the energy company contributes electricity and gas to more than 20 million electricity customers and 10 million gas customers, principally in Europe...
and EnBW
EnBW
EnBW Energie Baden-Württemberg AG, or simply EnBW, is a publicly traded electric utilities company headquartered in Karlsruhe, Germany.-History:...
). The more decentralized clean energy is produced (since the ratio of renewable energy of today 17% will be growing in the following years), the more necessary it gets to adapt the grid infrastructure.
Furthermore, yet another challenge is the storage of electricity that is of paramount importance in order to be able to store and transport electricity generated by renewable energies.
In summary, the renewable energy age has just begun and will more and more become part of our everyday lives in Germany, mainly thanks to the German Renewable Energy Act.
See also
- Alternative Energy Index
- Alternative propulsion
- Ashden AwardsAshden AwardsThe Ashden Awards for Sustainable Energy are annual awards given by a charity of the same name that is based in London. They reward local sustainable energy projects in the UK and developing countries that protect the environment, and improve quality of life....
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- Efficient energy useEfficient energy useEfficient energy use, sometimes simply called energy efficiency, is the goal of efforts to reduce the amount of energy required to provide products and services. For example, insulating a home allows a building to use less heating and cooling energy to achieve and maintain a comfortable temperature...
- Electric vehicleElectric vehicleAn electric vehicle , also referred to as an electric drive vehicle, uses one or more electric motors or traction motors for propulsion...
- Energy conservationEnergy conservationEnergy conservation refers to efforts made to reduce energy consumption. Energy conservation can be achieved through increased efficient energy use, in conjunction with decreased energy consumption and/or reduced consumption from conventional energy sources...
- Efficient energy useEfficient energy useEfficient energy use, sometimes simply called energy efficiency, is the goal of efforts to reduce the amount of energy required to provide products and services. For example, insulating a home allows a building to use less heating and cooling energy to achieve and maintain a comfortable temperature...
- Energy Globe AwardsEnergy Globe AwardsThe International Energy Globe Awards have been awarded by a marketing-agency annually since 1999 to recognise projects that 'make careful and economical use of resources and employ alternative energy sources.' The winners, in the categories of Earth, Fire, Water, Air and Youth, are selected by a...
- Energy lawEnergy lawEnergy laws govern the use and taxation of energy, both renewable and non-renewable. These laws are the primary authorities related to energy...
- Energy policyEnergy policyEnergy policy is the manner in which a given entity has decided to address issues of energy development including energy production, distribution and consumption...
- Energy qualityEnergy qualityEnergy quality is the contrast between different forms of energy, the different trophic levels in ecological systems and the propensity of energy to convert from one form to another. The concept refers to the empirical experience of the characteristics, or qualia, of different energy forms as they...
- Eugene Green Energy StandardEugene Green Energy StandardThe Eugene Green Energy Standard was an international standard to which national or international green electricity labelling schemes could be accredited to confirm that they provide genuine environmental benefits...
- Feed-in TariffFeed-in TariffA feed-in tariff is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology...
- Global warmingGlobal warmingGlobal warming refers to the rising average temperature of Earth's atmosphere and oceans and its projected continuation. In the last 100 years, Earth's average surface temperature increased by about with about two thirds of the increase occurring over just the last three decades...
- Green energy certification schemes
- Green banking
- Ocean energy
- International Sustainable Energy Agency
- ISO 14001
- List of energy topics
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- Renewable heatRenewable heatRenewable heat is an application of renewable energy and it refers to the renewable generation of heat, rather than electrical power ....
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- V2G
- Wind powerWind powerWind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....
- World energy resources and consumptionWorld energy resources and consumption]World energy consumption in 2010: over 5% growthEnergy markets have combined crisis recovery and strong industry dynamism. Energy consumption in the G20 soared by more than 5% in 2010, after the slight decrease of 2009. This strong increase is the result of two converging trends...
- Erneuerbare-Energien-Gesetz