Changing Solar and Wind Feed-In Tariffs To Reflect Regional Differences
Originally published on Lenz Blog.
Craig Morris at Renewables International discusses some interesting numbers on the regional differences in the cost of wind and solar energy in Germany.
The big picture is that wind is cheaper in the north, and solar is cheaper in the south.
For solar, that makes sense. Solar resources are better in the south.
For wind, it makes sense in the big picture. There are more good wind sites in the north, but that doesn’t mean there are no windy places in southern Germany.
Morris also goes ahead and compares these different costs per kWh to the feed-in tariffs for wind and solar. And he finds that the feed-in tariffs are insufficient for some sites, but way too high for others.
To remedy this problem, one might want to change the feed-in tariff so as to reflect these differences.
That would seem to be a good idea. So good actually, that this is already the way things are done right now for wind power.
Article 49 Paragraph 2 of the Law on Deployment of Renewable Energy has a very fine-tuned granular approach, under which the amount of feed-in tariff payments already depend on whether the site in question is above or below average.
With the large differences for solar reported by Morris it would probably make sense to have a similar approach for solar as well. Costs are about 2 cents (Euro) lower per kWh in the most southern part of Germany compared to the most northern parts. It doesn’t make much sense to have the same feed-in tariff for these very different conditions.
That in turn means that if, like the EU Commission wants, Germany moves to a system based on auctions, that most of solar under such a system would be built in the south. Projects in northern parts of the country would be unable to compete. That in turn would mean that whatever costs are saved by concentrating solar where the sun shines more would probably be offset by the need to have more power lines coming from such concentration.
Reprinted with permission.
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So the author essentially encourages misallocation of resources. If the south of a country can deliver solar cheaper because of better resources, solar should be built in the south as much as possible. Conversely, the coastal (and thus windy) north should focus on wind energy.
The result is something that is known as the advantage from trade in economics: if each actor produces mainly what it is best at producing, total production of all goods will inevitably be maximised. Trying to change that fundamental principle through subsidies is a waste of money that results in less renewable electricity generation than would be possible with a flat subsidy scheme.
That picture is of course different when solar or wind development at its optimal location would require building massive new transmission projects to centers of consumption. However, that’s not the case in Germany: the country already has a strong, unified grid that can deal with a greater concentration of solar and wind than is currently the case.
Optimal should be in between that solution (all solar south and all wind north) and its opposite. Having some fraction of solar in the north and some fraction of the wind in the south would reduce overall system variability, and that is a net system benefit that would be missed by a scheme that allowed the different sites to compete solely on cost per KWhour.
The north already has a significant-ish solar capacity installed and the south has a very significant quantity of wind turbines. After all, solar used to receive higher subsidies in the past, making it attractive even in the north. And as for wind in the south: it’s not as windy down there and higher population densities limit the number of turbines, but the per capacity installed capacity is still well above the European average.
Also, solar still makes financial sense for those achieving a high level of self-consumption, even in the north (as the source points out). The current subsidy scheme just about makes a system dimensioned for maximal own use attractive while not wasting money on vast profits for those buying a larger array than needed in order to export.
And that’s as it should be. Rooftop PV shouldn’t be used as a way of exporting electricity to the grid; that’s a job utility scale solar plants achieve at a far lower cost to the taxpayer and with equally health profit margins.
All in all, Germany is a guiding light for renewables policy. After years of vast (and much-needed) high levels of subsidy, it is now gradually switching to cheaper and more precisely targeted subsidy schemes for mature renewables (using auctions, setting growth corridors etc). In doing so, the country is gradually forcing the industry to stand on its own two feet, which is perfectly equipped to do after years of solid growth and support.
Meanwhile, the subsidy gravy train is moving on to the next frontiers: storage, offshore wind and smart grid technology.
With the renewables surcharge finally beginning to come down, new wind additions still soaring and storage growing up, the Energiewende is finally out of its expensive and fraught adolescence.
Sounds good. I agree with everything in your reply. They are way ahead of the rest of us.
I agree for a large part with you, but I am not so happy about the instruments used by the current German government.
Auctions are favoured by theoretical economists. However, empirical data shows that auctions produce less, and more expensive, RE-plants than a general feed in tariff (infamous example UK: a much better wind resource than Germany, nevertheless wind power costs much more). Auctions also create large barriers for small local projects. It makes the citizen energy transformation into a corporate energy transformation. Furthermore, the winners of the auction still get a feed-in-tariff, and thus there is no transition to a direct marketing of RE-power.
Brazil has used auctions to develop wind, and gradually bring the price down, with great success. It’s now begun with solar.
I’m not convinced you can blame high British onshore wind costs on the auction régime. NIMBY opposition, coupled to local decisionmaking over planning, and the centralisation by Mrs T of business rates (property taxes) that removed lovcal benefits from approval, have made it risky and time-consuming to build a wind farm in England.
Wind has gone great guns in Scotland, under the same financial régime. The difference is that Scotland kept local rates. The planning committee balances Donald Trump’s loud whines against funding a school refurbishment, and comes down on the side of the developers.
The UK is just an example. There are several studies comparing a larger number of countries that come to the conclusion that feed in tariffs are more efficient. The main reason is that auctions cause a large administrative overhead and introduce big risks for the project developer: They have to do a lot of work, and make high costs to prepare the bid, with a big chance that somebody else wins the auction.
You did not address my other concerns: an auction system excludes small citizen projects and does nothing to make a transition to a market based system where renewables are paid according to their value to the overall system.
There’s nothing to learn from a comparison between the UK and Germany.
The slow renewable development in the UK suffers mainly from the same issue that every form of development (including things as basic as housing) suffers from: NIMBYism.
Germany has a broad social consensus around the need for renewable development. In the UK, local resistance to onshore development of wind, sun and anaerobic digestion is extreme – thus driving renewables offshore, where costs are high.
Other countries have had some succes with auctions, Brazil comes to mind.
Germany will be the first case study that allows to compare the merits of feed-in and auction: a country switching from one system to the other makes it act as its own control group, allowing for a paired difference test – still the gold standard in most branches of science.
Renewable power plants spread over a wider area not only reduce transmission costs and transmission losses, they also increase total renewable power output and smooth power output. link
link
According to this study, Bavaria has the highest wind energy potential of all federal states in Germany: link
And the feed-in tariffs for Wind power in Bavaria are still significantly lower than for Offshore wind power and last year Wind power still covered only 8.4% of electricity demand in Germany. link
Therefore, if costs and renewable share play a role, Germany will have to build wind power in the South.
But this is not the main-point of this article. Utilities pushed for the introduction of auctions to displace feed-in tariffs, because they know that this will slow down the growth of the renewable share significantly.
The 4 big German utilities only own 0.2% of all PV power in Germany: link
Remember that Bavaria is by far the largest of the Länder. Using the same methodology, you could argue that Canada has better solar resources than, say, Panama: it’s a lot bigger, so it receives a lot more solar iradation overall. That’s not the way it works though.
According to your same study, tiny Shleswig-Holstein has one third of the wind potential that Bavaria has. Niedersachsen, also considerably smaller than Bavaria, has almost the same potential.
But all that is beside the point. According to the article this one is based on, wind is profitable everywhere in Germany – it’s just more profitable in the windiest areas. That’s not a bad thing: the tariff is currently high enough to allow wind development everywhere, but mainly where the potential is greatest. That’s perfect.
The real issue lies in solar: subsidy regimes for solar are already generous (after all, solar is still very expensive compared to wind) and this article advocates raising them further just to encourage development in areas that are entirely unsuited to large scale solar deployment: the cloudy, bleak German coast.
As the source points out, solar for self consumption is still viable in the north. Its solar aimed at providing electricity to the grid that doesn’t make sense there, and why should it?
Will auctions slow down renewables? For starters, the growth corridors should continue to act as market guide and guarantor – I doubt the government will allow for a systematic failure to meet its targets.
More importantly, wind is now cheap enough to continue its current pace of development through the mechanism of auctions – and many wind farms are already choosing direct marketing because it’s more attractive. Small scale rooftop PV will still enjoy the old system. The only big losers will be expensive utility scale solar plants, but where those every sensible anyway in Germany’s climate? In southern Bavaria perhaps, but nowhere else.
Again, if costs and renewable power share play a role, Germany will have to build wind power in the South:
1. Wind power in the South is still cheaper than offshore wind power.
2. The Northern states cannot produce enough wind power by themselves. Even the entire country can only cover 65% of the entire electricity demand with onshore wind power. link
3. The total energy demand is four times higher than the electricity demand.
PV is very sensible in Germany and the current feed-in tariffs for PV do not generate any significant costs. At 5 cents/kWh above wholesale electricity price, they only generate additional costs of 0.06 cents/kWh even at 7.5 GW yearly growth rate. link
Besides those 0.06 cents/kWh for PV would reduce the unemployment rate, reduce CO2-emissions and reduce the costly dependence on fossil fuel imports. link
http://www.unendlich-viel-energie.de/media/image/4497.AEE_Avoided_costs_fuel_imports_due_to_RE_jul13.jpg
It’s very unfortunate that the growth of PV is currently choked to support utilities and their fossil fuel power plants.
But Germany *is* building wind turbines in the south – even in densily populated Baden-Würtemberg I saw more turbines than in almost any other EU member state. The article the post above is based on confirms this: it says explicitly that wind is profitable throughout Germany. That development currently goes faster in the north is not a bad thing in itself: that the best spots are snapped up faster is only logical. As good sites become scarcer in the north, more resources will flow south.
Again, for domestic installations nothing will change. As for utility scale solar: your link shows solar competes well with fossil fuels (making some assumptions though), but that’s not the issue. The real question is how it competes with wind, the other utility scale renewable option. At the moment, it’s simple: it doesn’t.
For Ontario, the sensible thing is to choose the cheapest renewable source. If that were Panama (which it of course isn’t), they should go for Panama. There is no reason why energy should be domestic per se, unless you’re a reactionary Colbertist.
Actually, Baden-Württemberg has only 1.6% of all wind power capacity installed in Germany: Factual link,
which is only 0.4% of all the wind power capacity installed in the EU: Factual link
Unfortunately, thanks to the change of the EEG (to support the fossil powered utilities), the German PV installation rate has dropped by 80%: Factual link
Besides that there is no HVDC transmission link between Panama and Ontario. PV produced on an Ontarian roof is more sensible than importing it from Panama because:
1. It can be consumed directly. (PV on roofs competes at end-consumer price level as opposed to wholesale power price.)
2. No transmission and converting losses (losses are not free).
3. No transmission and converting costs (costs are not free).
4. Locally produced PV reduces the load on the grid on hot summer days. (Think of an air conditioner underneath a roof with PV in Ontario.)
Keep in mind: Facts have always been and always will be more accurate than your personal experience or opinion. That’s also a fact.
I’d like to see some data on either side on the transmission cost question. The current German grid was after all designed for the old baseload/peaker model. Throw in very large capacities of wind and solar, and you get a different pattern of long-distance flows, potentially much peakier. So in theory a local offset to support wind in the S and solar in the N might be justified.
Germany has very odd grid ownership. In Britain, France, and Spain at last, the grid is a single monopoly, state-owned or tightly regulated. Germany’s is split among four large high-voltage operators and hundreds of local distribution companies. The largest grid operator, Tennet, is wholly owned by the Dutch state. It’s not a good idea to have such a strategic asset accountable only to the voters of another country. The recent cancellation of a planned line to bring offshore wind power south suggests a certain amount of institutional dysfunction.
And the Eastern German grid is operated by Elia, the Belgian operator (which is nominally private but still heavily influenced by Belgian politicians).
However, both TenneT and Elia have so far operated with complete independence. I can’t think of a single time when Germany experienced any disadvantage from a TenneT decision.
It’s also important to note that the new power lines which are proposed in Germany will also and primarily benefit the utilities which want to transmit lignite power to the South.
The German lignite power plants are located in the East and West/North-West of Germany.
http://www1.wdr.de/fernsehen/aks/themen/kraftwerke126_v-WDRPortraitKlein.jpg
http://img.welt.de/img/wirtschaft/crop112285211/890693324-ci3x2l-w900/DWO-Strom.jpg
Since Germany has been using the Polish and Czech grid to transport power to the South, they are reducing the amount of power which Germany can transmit over their boarders.
Again you keep on ignoring the simple fact that PV from the South to the North not only needs to transmitted but also up and down converted several times. These combined losses are not just in the single digits. Besides Germany has currently not enough transmission links from North to South anyway.
Also you keep on ignoring the fact, that distributed renewable power smooths power output, which also reduces the grid costs (reduced need for spinning reserves).
http://www.sma-sunny.com/wp-content/uploads/2012/02/PVLeistung_120206_kv-1024×536.jpg
The fact, that big utilities have shown that they have no interest in renewable power is important. Eventually you may understand why the big German utilities are lobbying so hard against the growth of renewable power.
And it is actually not surprising either given the simple fact that they have more than enough fossil fuel power to power the entire country alone.
Large scale solar installations obviously do make sense given the simple fact, that they receive far less in FIT per kWh than small PV installations. link.
http://www.solarserver.de/uploads/pics/sonnenfleck_2005.jpg
Again, if costs, renewable power share and facts play a role, Germany will have to build PV power on large roofs too and distributed renewable power in the entire country.