No Renewable Portfolio Standard in Germany, Says DIW

DIW (Deutsches Institut für Wirtschaftsforschung) has a short new paper out that counters claims by the anti-renewable losers of the INSM and the FDP, which want to replace the extremely successful Law on Priority for Renewable Energy (EEG) with a renewable portfolio standard in a last-ditch effort to delay the shift to renewable energy in Germany.

They point out lots of excellent reasons to reject these proposals, just as the German government recently did.

For one, experience shows that these proposals look good in theory, but fail in practice to bring the renewable energy rocket up to escape velocity. That is especially true for the experience in the United Kingdom, where the renewable portfolio standard policy repeatedly turned out to underachieve the goals.

In contrast, we know from experience that the German EEG has succeeded wildly in bringing explosive growth to renewable energy, falling wholesale prices, and radical reductions of solar photovoltaic installation costs. The latter is the most important success, since it will lead to much increased installation everywhere on the planet, and it would have been completely impossible under a renewable portfolio standard policy.

The biggest drawback of that failed proposal is that it would lead to deploying only whatever renewable energy source just happens to be the cheapest at the time, without any chance for other alternatives. That is a very short-sighted policy. It would be impossible to get to 80 percent renewable until 2050 with that.

And it would be very strange indeed to stop deploying solar just in the moment where finally prices are radically down and Germany can harvest the fruits of all the investment at higher prices.

DIW also points out that a renewable portfolio standard is actually much more expensive for those technologies that happen to get deployed. The reason is that a feed-in tariff works to assure stability for any investment. Stability for investments lowers the costs for financing. Any risk in contrast adds to the premium people have to pay at the market to get some capital for their installations.

The additional risk from the renewable portfolio standard comes from two sides. For one, there is no guaranteed price, so investors don’t know how much the electricity generated by their project will be worth over the next twenty years. And they also don’t know how much their “green certificates” will be worth, since that is another market which can swing wildly.

That in turn will favor big investors, who can deal with these risks internally, over small citizen or citizen collective investments.

Renewable portfolio standards are vastly inferior to the existing EEG. The only political party supporting them is the FDP, which is clearly anti-renewable and needs to be booted out of the German Parliament at the next occasion for that reason.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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