Germany’s Energy Revolution

Germany’s plan for “energy revolution” finds its roots as an anti-nuclear rally cry following Chernobyl, when radioactive fallout fell across German soil. In the days following the disaster, radiation levels spiked across the country. Children had to remain indoors, certain agricultural products became inedible and livestock were poisoned.

Generating safer renewable energy became central to Germany’s future goals, and the Energiewende, the so-called “Energy Revolution,” was born.

Now, in 2015, Germany is taking a hard look at its renewable energy initiative, of which is beginning to feel substantial positive effects. The cornerstone of Germany’s Energiewende is their Renewable Energy Act (EEG) first adopted in 2000, which has morphed over the years through a savvy blend of policy, regulation, market-based instruments and financial incentives into the preeminent pathway to renewable energy that we see today in 2015.

As this Energiewende evolves from its early stages, it is attracting global attention. Numerous countries have expressed their interest at following the Energiewende blueprint as their future energy plan. The Germans have expressed their faith that Energiewende is indeed working as planned, and so the signs are promising.

So what is the initiative exactly? Energiewende is Germany’s plan to comprise its energy portfolio entirely of renewable energy and sustainable development enterprises. It is a brazen move set out to tackle climate change and domestic energy security. If all goes as planned Energiewende would abolish any dependency on coal, fossil fuels or foreign energy.

The plans dictate that by 2050, there will be an unprecedented 80 to 95 percent domestic greenhouse gas reductions, a 60 percent market share for renewables in the energy marketplace and a jump in electric efficiency by 50 percent.

Compared to the less ambitious and politically tentative emission reduction agreements by China and the US, Energiewende is a “get-it-done” initiative. But there is risk involved in such dramatic steps. Energiewende takes Europe’s largest thriving economy from its conventional nuclear and fossil fuel energy system to an efficient renewable-based system over a remarkably short timeline.

Any project of this magnitude has its challenges. But unlike many projects, it has the unwavering support of a resolved German people. Historically, economic development has trumped environmental concerns both in terms of policy and political priority, but despite the fiscal concerns, Energiewende seems to be working at the 2015 checkpoint stage. Aside from its more noble goals, Germans want a first-to-market advantage where high value technologies are stamped “Made in Germany” as the world moves towards renewable energy.

At the epicenter of the Energiewende is Germany’s Renewable Energy Act (EEG). EEG is predicated on three principles to bring about the energy transformation. The first is a “feed-in tariff” that guarantees a fixed price per kilowatt hour (kWh) and priority access to the grid for renewable firms, removing the investment risk in renewable energy. The tariff is funded by the second element, an EEG surcharge (currently set down at 6.17 cents per kWh). The third element is capping the tariff, which provides for a steady reduction in the feed-in tariff over a 20-year lifespan, established to reflect the anticipated economies of scale and numerous cost-saving technological improvements.

The effects are more widespread than earlier proponents had hoped for. Since 2000 the price of electricity from an installed photovoltaic (PV) system has fallen on average 13 percent per year. During that time, Germany’s demand attracted Chinese manufacturers, driving down the initial investment and making households not only consumers but also producers. As a result, there was a shift from centralized large-company oligopolistic energy producers to highly efficient distributed production of grid power. Japanese leaders have also expressed a great interest in using the German Energiewende model for its own energy transition.

While many countries were moving towards renewables by requiring utility companies to produce more green power under quota system style policies, Germany’s feed-in tariff system afforded virtually any worthwhile project to go up quickly and as a result the ownership of power production transfers to the citizenry. It has often been referred to as the “democratization” of power. Today, more than half the investment in renewable are in the hands of small investors, greatly strengthening small and mid-sided business, while providing jobs and tax revenues from empowered local communities generating their own renewable energy. This ruralization of energy has strengthened the German economy, improved its energy security and is stabilizing the cost of power, as it is unfettered by fluctuating commodity costs.

The feed-in approach has significantly impacted Germany’s place in renewable energy, but they pale in comparison to their implications for international markets, especially developing nations. Over the past few years they have inked deals with India, Morocco, Bangladesh, Nigeria, Montenegro and Vietnam, among others. Many of these deals involve loans ranging from the hundreds of millions to several billion in euros, all in the interest of implementing more renewable and efficient means of creating power.

In developing countries, the switch from a large-scale power plant to a large number of smaller generators, where the citizens and community get involved, holds the greatest promise. In countries like India, almost half the household population is off the grid and without electricity. There is increasing evidence that decentralized renewable energy is the only practical measure to ensure that all its people, particularly in more remote villages, have access to reliable power and at affordable rates.

In the States we are just beginning to realize how affordable this new brand of renewables can be. The technological advances and economies of scale found in Germany have drawn attention from US domestic power companies. Texas utility Austin Energy recently signed a deal where it now purchases electricity from Sun Edison under a 25 year deal for record setting 5 cents a kilowatt-hour. According to Austin Energy the move is expected to lower rates for customers, as solar rate compares to averages of 7 cents for gas on the low end, and to 13 cents for nuclear on the upper end. The deal was originally devised to purchase 50 megawatts, but was bumped to 150 megawatts for obvious reasons. Austin is currently breaking the 25 percent renewable energy mark and plans to reach 35 percent by 2016. Areas like Texas are in an excellent position to leverage solar power given the abundance of sunshine, especially when compared to Germany whose position is similar to the Pacific Northwest and Alaska.

Energiewende still faces challenges, and experts and policy makers are watching it closely. In spite of all that has been accomplished, a wholesale adoption of Germany’s blueprint leaves some questions unanswered. Revisions to the EEG were enacted in 2014 to address developments within the plan with unforeseen consequences. But as the German’s have shown time and again, such obstacles can be overcome. This initiative is transforming energy investments, accessibility to renewables and most importantly, capturing global attention and inspiring similar projects.