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Renewable Progress Is Permanent And Irreversible

Originally published on the Lenz Blog
by Karl-Friedrich Lenz

The election in Germany is close, and unfortunately only one out of seven polls sees the enemies of renewable energy FDP under 5 percent.

That’s progress, of course. They had 14.6 percent in the last election. But under German election law, any party under 5 percent doesn’t win any seats, so it matters a lot if the FDP can be kept under those 5 percent. Kicking the FDP out of Parliament would be excellent news for renewable energy in Germany, and it still seems quite possible.

But even if that doesn’t happen: As Frankfurter Allgemeine Zeitung just wrote, the recent proposals for abolishing the feed-in tariff and use a Renewable Portfolio Standard (quota model) will still have no chance of getting actually adopted. It’s still only the FDP supporting it, and they might barely survive the election, but are certainly in no position to get this proposal adopted against the will of everybody else.

On the other hand, most parties say that there is a need for reform of the Law on Priority for Renewable Energy. At this point, we don’t even know who will be in the next government. And of course we don’t know what will be the result of such discussions.

So I thought it might be a good time to reflect on a couple of things that won’t change.

That is also because Jerome wrote an excellent post at the Oil Drum a couple of days ago, titled “The Economic and Political Consequences of the Last 10 Years of Renewable Development”. That post has a focus on Germany, and on the long term.

Jerome writes:

But here’s the thing: preventing new renewables will not eliminate the current existing capacity, which means that the economics of the sector will not recover even if no new renewables were built… The wholesale market as it was designed 20 years ago (de facto based on gas-fired plants of various efficiency targeted at different points of the merit order curve setting up the marginal price) is irreversibly broken.

The key word here is “irreversibly”. I agree with this analysis and was aware of the point before, and I think there is nothing enemies of renewable like the FDP and the Monopolkommission can do at this point to get their friends in the Big Four electricity companies back to the market situation before the feed-in tariffs. Coal plants, gas plants, nuclear power plants (e.g. most of the inventory of the Big Four) have seen renewable eating their lunch, and that situation is here to stay.

Jerome also writes:

This leads us to an hidden truth: a large fraction of the massive increase in renewable energy production is not paid for by consumers, but by incumbent producers who see their revenues decline as the price they earn per MWh goes down (Emphasis in original article).

I was not aware of that. And, taken literally, that statement is wrong. Of course the surcharges pay the complete bill for the feed-in tariffs. But it is also true that the incumbent producers have taken a big hit to the profitability of their assets.

Since non-renewable electricity will still be needed for a couple of decades, the real question is how to fix the electricity market so as to enable these sources to keep working. My idea for that would be “modified merit order”. In other words, the whole market design needs to change, not only some details of the Law on Priority for Renewable Energy.

Another progress that is irreversible is the large decrease in costs for solar energy. Solar was installed in Germany at less than EUR 1,000 per kW already in June of this year. The German feed-in tariff enabled mass production. That in turn brought prices way down, to the point where solar is viable now without any feed-in tariff policy in many cases.

That’s another irreversible change. Even if the FDP got 60 percent of the vote and made Germany stop completely installing any new solar panels, those prices are not going up again.

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