Archive for the 'European and German energy law' category

What Excessive Costs?

Oct 05 2014 Published by under European and German energy law

I disagree with Michael Liebreich, who does not like feed-in tariffs. But in his latest piece for a conservative website, he asks a great question:

Germany may have reached over 25% renewable electricity, but at what excessive cost to its household energy users?

I am not aware of any “excessive costs” of the feed-in tariff system, compared to auction systems favored by Liebreich. That’s because an auction system increases the complexity of the regulation (something Liebreich says he doesn’t like). It increases the risks for anybody brave enough to participate, and, as a consequence, the amount of interest they need to pay their banks. There is the completely new risk of failing to succeed with any bid. There is the completely new risk of having to pay high penalties because the project gets delayed for one reason or another.  So I am far from convinced that feed-in tariffs come with “excessive costs”.

But the nice thing is that we will now see how exactly this will play out. The latest reform in Germany wants to phase out feed-in tariffs and phase in auction systems. We will see if that leads to “less regulation”. And we will see if it will lead to less costs.

I would be surprised if it does.

Anyway, at this point, it doesn’t matter much any more. Costs of solar are down so far (as a result of the German feed-in tariff Liebreich disagrees with) that increasing them somewhat with a less efficient auction model won’t change the big picture any more. Solar and wind energy will continue their explosive exponential growth world wide.

Also, a feed-in tariff system like the German one that makes the rates dependent on installation records actually is a very simple auction model, with a minimum of regulation. If the market goes down below the target rate, the feed-in tariff goes down slower or goes even up again. That means the feed-in tariff is reacting to the market, as opposed to being fixed only by the state.

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Another Smil Mistake

Oct 01 2014 Published by under European and German energy law

Craig Morris writes another  long debunking article pointing out some mistakes in something Vaclav Smil wrote about the German Energiewende.

Morris points out more than five errors. But there is also is this extraordinary claim by Smil:

The levelized cost of German photovoltaic electricity is easily four times that of coal-based generation.

Let’s do some fact-checking.

Right now, the feed-in tariffs for solar are between 9.16 and 13.05 cents Euro (since today, depending on the size of the project).

Since Smil wrote “easily”, we’ll take the lower figure (9.16) and divide that by four to get 2.29 cents for coal-based generation in Smil’s alternative universe.

In reality, the latest study quoted at the relevant German Wikipedia page gives cost for new coal between 6.3 and 8.0 cents.

This is important. The biggest success of the German feed-in tariff system was to bring prices down. Which will help deploying solar faster everywhere.

The basic premise of Smil’s article is wrong as well. Of course opponents of the transition to renewable energy in Germany like the INSM losers have noticed this and tried to make hay from this particular talking point.

The only way to avoid this problem with a feed-in tariff would be to approve lower surcharges for low income households, as there are already exceptions for industry and railways.

But that would make the system even more complicated, which is really not warranted for the couple of Euro a month the average household actually pays in surcharge costs.

The last time I wrote about Smil here was under the headline “Smil mistake“, pointing out a simple error in one of his books. This is another one.

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The Hammelburg Story

Sep 29 2014 Published by under European and German energy law

This story is showing in German right now at the website of Hans-Josef Fell, the former Green member of Parliament who was one of the authors of the German feed-in tariff.

It is about the experience of the small town of Hammelburg. It has a population of around 11,000.

In 1993, the local electricity provider decided to pay 2 German mark per kWh for solar electricity, up to a capacity of 15 kW, and finance that with a surcharge of 0.0015 mark (about 0.o7 cents Euro). A private company was founded and investors came up with 210,000 German mark (around 100,000 Euro). They installed solar panels and got their feed-in tariffs.

At the time, Hans-Josef Fell had high hopes. He thought in 1996 that Germany might be able to reach a whopping 80 MW a year if that principle of a feed-in tariff was extended to the whole country.

The actual success of this model was better by close to two orders of magnitude. It is interesting to look back and see that 80 MW a year was something people would value as a high number.

Now the solar panels at Hammelburg have worked for 20 years. And they are expected to work for at least another 20 years.

That’s another point worth noting. Solar panels are not going away once they are paid for (after twenty years). Those couple of kW in Hammelburg are among the first that celebrate such an anniversary. But they won’t be the last.

I leave it as an exercise for the reader to figure out what that means for the price of solar electricity (hint: it is much lower than what you’d get if you assume only 20 years of operation).

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“Germans Have Been Buying Price Decline”

Sep 16 2014 Published by under European and German energy law

From this article by Justin Gillis at the New York Times on the transition to renewable energy in Germany.

The whole quote would be “The Germans were not really buying power – they were buying price decline”, attributed to Hal Harvey, CEO of the “Energy Innovation” think tank.

I agree with the sentiment that the price decline was the more important result of installing all that renewable energy in Germany. But clearly Germany has also bought some power in the deal, and some price declines in the long term and in the short term wholesale markets.

My way of saying that is that the ebbing tide lifts all the boats.

The article closes with another quote, this time from Markus Steigenberger of Agora Energiewende. “Indeed, the German people are paying significant money. But in Germany, we can afford this – we are a rich country. It’s a gift to the world.”

Exactly. And it is not only a gift, but also payback for the fact that Germany as one of the early industrialized countries has profited most from the irresponsible use of fossil fuel over the last two centuries. Germans have a moral obligation to help with the solution of this problem.

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Germany Dirtiest Country of the World

That’s not a title to be proud of. I like the World Cup win much better.

Unfortunately, Germany is the largest producer of lignite in the World. I just learned this because I read this blog post by Craig Morris about Germany’s large lignite reserves, and their relation to the transition to renewable energy. Morris points out that Germany might continue producing “cheap” lignite electricity even once it is not needed any more domestically and export it.

Wikipedia explains that Germany has over 14 percent of the World’s lignite reserves and is the World’s largest producer. At least the trend is in the correct direction: Production is down to 169 million tons in 2010, from 388 million in 1980.

I think Germany should greatly reduce production of lignite. The way to do this is easy. All that is needed is to stop granting permits to expropriate citizens’ real estate for these projects, which typically require whole villages to relocate. The only way that can be done under German Constitutional law (Article 14 Paragraph 3) is if the project is necessary for the common welfare (Wohl der Allgemeinheit).

Digging lignite out of the ground and burning it to produce electricity is making global warming worse, since that is the most CO2 intensive way of producing electricity. There is no fuel as dirty as lignite. As such digging it out of the ground is incompatible with the common welfare. Common welfare interests require phasing out the dirtiest energy first. They certainly don’t require expanding lignite mining.

If it is impossible to expropriate real estate owners, companies who want to relocate villages to get at the lignite buried below them will have to pay much higher prices. That in turn will remove the only remaining advantage of this dirty fuel: Price.

Another way to increase the price of lignite would be to reduce production (phaseout profit theory). In contrast to coal, lignite is sold at localized prices, since it doesn’t make sense to transport lignite over long distances. Reduce supply each year by 3 percent (which would result in a reduction around 60 percent over the next 30 years) and watch prices go up. That’s good for the owners of these lignite resources, good for people who else would see their home villages disappear in a big hole, good for future generations (who will have left more of the valuable resource left), and good for the climate.

And all it takes to do that is to stop relocating people and destroying whole villages.



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FIT as Efficient Auctions

Jul 23 2014 Published by under European and German energy law

Craig Morris at Renewables International kindly quotes my recent blog post about the recent German reform of the feed-in tariff. And he makes a very interesting point in closing his post:

No problem – show me a bidding process that is more cost-effective than feed-in tariffs and provides greater competition between market players large and small (not between energy sources; solar and wind complement each other, they do not compete with each other), and we can throw out feed-in tariffs. If the Commission is saying that we have to transition from FITs to bidding processes that are better , then there will be no such transition at all, for no such bidding processes exist.

The case for phasing out feed-in tariffs and replacing them with auction models is based on the idea that this will reduce costs. There is a true core to that idea. If you hand out feed-in tariffs that are higher than what is necessary under market conditions, electricity consumers will end up paying higher surcharges than needed.

But actually the present system (especially after the last reform) already makes sure that the feed-in tariffs are not above what market conditions require.

That’s because they are based on deployment records. If those are high, the feed-in tariffs get slashed. If they are too low, they stay constant, or may even increase.

That clearly is a reaction to market conditions.

And in contrast to auctions, there is no need for a complicated process to auction off individual projects, something that certainly won’t work for small rooftop solar.

We also know that the feed-in tariff has actually a rather good track record in reducing costs, to the point that it won’t matter ever so much that those costs will go up again slightly under the failed auction model Germany just introduced, with the EU Commission illegally requesting that to happen.

While I think it is a great point Morris made here and I agree completely with that, there is one technical detail where I disagree with his post. Morris writes:

Essentially, the ECJ made a distinction in its ruling of 2001 between “illegal state aid” and “legal state aid,” with German feed-in tariffs from the 90s constituting a legal form.

That’s not how I see the PreussenElektra case. In that case, the Court decided that the German system is not “State aid” in the first place. They did not say it is State aid, but should be allowed anyway.

That was the reasoning in PreussenElektra as well as in the recent Ålands Vindkraft case concerning measures of equal effect as quantitative restrictions (Article 34 of the Treaty on the Functioning of the European Union). The fact that the German system as well as the Swedish one does not allow electricity generated in other Member States is a restriction, but it is justified by an overriding purpose of environmental protection.

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Commission Power Grab Failure

Jul 19 2014 Published by under European and German energy law

The EU Commission may think that their illegal power grab ordering Germany around in the latest round of reform of the Law on Priority of Renewable Energy was a success.

And, on the surface, it was. Congratulations to the Commission, they did manage to have a larger influence on the final legislation than the German Bundesrat. Their idea of giving up the resoundingly successful feed-in tariff in Germany and introduce a system based on auctions has found its way into the final text of the law.

But this victory comes at a price.

For one, it is clear to anyone paying attention that the Commission has blatantly overstepped their competences. If you are interested in the legal details of that I recommend the latest paper from the Stiftung Umweltenergierecht (in German). There is just no reasonable doubt possible about the fact that this is a major Constitutional crisis for German democracy.

When the feed-in tariff was enacted in the first place, that was done by a democratically elected coalition of the Green and the Social Democrat Parties. When it was ended in 2014, it was done on orders from the Commission, who is not democratically elected by anyone, and who has no business whatsoever to give the German legislators any orders in this situation.

In basic Constitutional theory, the Commission is part of the executive force. Giving them the power to legislate instead of Parliament is a serious violation of basic Constitutional values. Having them grab that power when they don’t have it in the first place makes this even worse.

That in turn makes it very hard to accept this introduction of an auction model for me. I was not convinced of its merits in the first place. But the fact of this illegal power grab actually succeeding makes me feel something close to seething hot anger at this failed policy.

Not a good place to start from. But now comes the fun part.

The German legislation until now was only a starting point setting a framework for the introduction of an auction model. To actually pull it off, there remains quite a lot of work to do and details to discuss.

Who is going to be responsible for the auctions? What exactly is the model for such an auction? Are people bidding in such an auction trying to form a contract with the entity who holds it? Are sanctions for someone winning an auction but failing to follow through a penalty for breach of contract (Vertragsstrafe) or an administrative sanction?

This will be one big, complicated mess. Good luck with trying to pull this off in the first place. It will of course be completely impossible to reduce costs with such a stupid basic idea.

Factors raising costs going forward are easily identified. Everyone brave enough to still consider building any solar project in Germany will need to hire a couple of lawyers to wade through the thousands of pages of regulations needed to actually pull an auction system off. It introduces a huge new layer of complexity.

Then they will need to pay their banks double of the interest they needed to pay under an easily understood and reliable feed-in tariff, because the bank will correctly perceive the risk as much higher. There is the completely new risk of failing to succeed with any bid. There is the completely new risk of having to pay high penalties because the project gets delayed for one reason or another.

The German Ministry of Economy is now in the process of trying to figure out how to do auctions for large-scale solar projects in a first experimental phase. And they are asking for comments.

I am not going to comment there, since that might possibly help with improving the auction model, which is the last thing I want. I want them to test their stupid idea and fail spectacularly.

But I note with interest a long paper the Ministry has commissioned, which discusses some of the possible alternatives. That paper states on page 9 that they expect the resulting price for large scale solar projects to be higher than the feed-in tariff in place right now. They note correctly that the transition to an auction model introduces a whole new set of costs, which will make the whole exercise more costly than a feed-in tariff model.

The fun part I was referring to earlier is this: Now an auction model gets its chance at bat. It will fail, of course, like it has failed almost everywhere else it has been tried. But we will see for the first time how utterly and indisputable that failure will be and have an opportunity to compare it to the feed-in tariff system in place until now.

There are basically three ways to measure the failure. One is the amount of cost added by the transition to an auction model. That will remove the idea behind this kind of thinking that auction models help to reduce costs. The costs will increase, as the study states at page 9. The only question is by how much.

The second is the complexity of the system. The study notes as one of their goals to find a system easily understood by citizens, so as to have citizens accept the transition to this model. They also note that this will be quite a challenge, considering the failure of this model in many foreign countries, and that the system needs to be transparent and easily understandable to achieve acceptance (page 10).

Their problem there is that it is completely impossible to build a “transparent and easily understandable” auction system. One of the big advantages of feed-in over auction is that the system is much easier to understand. No amount of tweaking at the details will ever change this fundamental disadvantage of auctioning.

And the third metric to measure the failure will be the volume of projects actually installed under an auction system. I am not sure how that will play out.

Of course, the auction system will by definition be unable to deliver more projects than the volume up for auction. But it may very well fail to deliver even that low volume for one reason or another. It depends on how much the system fails in reducing costs if that happens or not.

An auction system by definition allows bidders to enter high prices, so maybe the additional costs will get so high that some substantial volume will get installed by some brave souls still not terrified by the 1001 pages of legalese and the new sanctions introduced for failing to follow through on time.

And of course, I may be wrong in my assessment. Maybe the experiments with this idea will show that costs really go down, like the Commission and the German coalition parties seem to think.

Then they can build on that success and extend the auction model to rooftop solar systems in 2017. That should be even more fun to watch.

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German Federal Court of Justice: EEG is Constitutional

Jul 15 2014 Published by under European and German energy law

The German Federal Court of Justice has published a decision from June 25 on an attempt to resist the German feed-in tariff system.

The plaintiff in that case paid the feed-in tariff surcharges for April 2012 (about 10,000 Euro) and claims them back with this lawsuit. They argue that the Law on Priority for Renewable Energy is unconstitutional.

The reason for that: In their view, the surcharges are a “special tax” (Sonderabgabe), which means a tax raised for a specific purpose. Such a tax is problematic under the German Constitution, because it calls in question Parliament’s right to decide about how to spend all tax income.

The Federal Court of Justice did not share these concerns. They say that this is not a tax in the first place. A tax requires that the funds raised by the surcharges become part of the state budget. They don’t. All these funds never touch the state budget, they all flow only between private persons.

That of course is also true when discussing if the system is a form of “State aid”, as the EU Commission claims. For exactly the same reasons explained in this opinion, that is not the case as well.

Some people call the new requirement for renewable energy installations over 10 kW to pay 40% of the surcharges (after a transition period) a “solar tax”. That is not correct either. Again, these funds are never in the state budget.

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NER 300 Award Decisions

Jul 11 2014 Published by under European and German energy law

The EU Commission has published a press release and a FAQ document on the final awards in the NER 300 program.

I recall blogging about this briefly in summer 2011. This program wants to provide subsidy funds for renewable energy and carbon capture and storage projects. The funds come from selling 300 million EU carbon emission allowances. In 2011 one could expect EUR 4.5 billion from that, but the final result was much less. As the European Investment Bank reports, they only got an average of EUR 8.05 for the first 200 million and an average of 5.48 for the last 100 million. That adds up to 2.158 billion, or less than half the sum expected.

The awards in this second and final round were for 18 renewable energy and one carbon capture and storage project. The latter got the biggest award at 300 million. Most of the awards for renewable energy projects are one order of magnitude smaller.

EUR 2.158 billion is not much when distributed over the whole of the EU. That would be less than 5 per capita. But even small steps in the right direction should be cheered.

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Putting the Brakes on Renewable Deployment in Germany?

Jul 06 2014 Published by under European and German energy law

The German Economy Ministry has put out a 17 page document explaining the reform of the Law on Priority for Renewable Energy in a FAQ format. Thanks to this Tweet by Heiko Stubner for the link.

According to the Ministry, the reform is not about putting the brakes on renewable deployment (page 3 of the document). They point to the fact that under the new law the renewable share for electricity is to reach between 40 and 45 percent until 2025, and between 55 and 60 percent ten years later.

The present law requires 35 percent in 2020, 50 percent in 2030, 65 percent in 2040, and 80 percent in 2050. If one averages the goals for 2025 to 42.5 and for 2035 to 57.5 percent, that is exactly what was required by half time of the ten years’ periods under the old goals.

So yes, the new goals are the old goals, at least in the big picture.

But the new FAQ also has this to say, on page 2:

Das Motto lautet nun nicht mehr „je mehr und schneller, desto besser“, sondern „je planvoller und vernetzter, desto besser.“ (The new motto is not any more “the faster and the more the better”, but “the more planned and the more integrated into the grid the better”.

Rejecting the previous idea of “the faster the better” sure sounds like putting on the brakes.

I don’t like that. But I have voted for the Green party, which lost in the election last year. So I can’t expect to have my ideas about the matter prevail. Instead, I need to accept that the majority parties building the coalition in Germany are not interested in a speedy transition to renewable energy.

But it is also true that they have at least not reduced the speed of the big goals in Article 1 of the law.

I guess that’s good news under the circumstances.


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