This post is one in a series I am writing right now discussing German Environment Minister Peter Altmaier’s recent proposals on reform of the Law for Priority for Renewable Energy, which fortunately have zero chance of getting enacted.
In this particular post I will address the proposal to integrate electricity generated for self consumption into the feed-in tariff system.
In contrast to most of the other proposals, this has some merit and needs serious consideration. I might want to support this idea.
Altmaier starts out noting that in 2006 about 8 percent of electricity was generated for own consumption, and that that share is expected to increase to 10 percent in 2013. There are no surcharge costs for this electricity. Obviously, if all the big consumers would start generating their own electricity and drop out of the feed-in tariff surcharge base, there would be no one left to pay for the feed-in tariff costs.
I noted this problem earlier. And since I think it is an important point, I will just reproduce the whole post I wrote last November about that:
The topic of the article is a trend in German industry and commerce to make some of their electricity themselves. People are starting to put solar PV on their roofs and consuming all the electricity, not even bothering to register for the feed-in tariff.
The lead example in that article was a fish market installing 315 kW of solar on the roof of their cooled storage room. They use all electricity from that for their own cooling, therefore reducing their need to buy from the grid by one third.
And they already save money from that, while also locking in that part of the electricity cost for the next couple of decades.
Manager Magazin says that 13% of DIHK (Association of German Chambers of Industry and Commerce) member firms already have built their own electricity capacity, and a further 16% have plans to do so. There are about 3 million member firms, and the rate in industry is even higher.
One reason for that is that when you produce your own electricity, you pay only the cost of generation. You pay no tax, no grid transmission cost, and no feed-in tariff surcharge.
With the surcharge increasing to 5.227 cents per kWh next year, that factor alone has some influence on the profitability of these projects.
So even if the anti-renewable FDP suddenly gets over 50% of the votes next year (not likely to happen) and finally is able to abolish the EEG going forward, the cost for legacy systems would still have to be paid over these surcharges. And that would assure a permanent advantage for solar, which can’t be reduced by changing feed-in tariffs or reaching the 52 GW cap.
For 2011, power consumption was at 536.8 TWh. 55.5 TWh of that was self-produced (Prognos AG, October 9th report, page 18).
For 2013, these number are expected to be 537.1 TWh and 58.5 TWh under average assumptions for GDP growth.
That’s still not a very large movement of the self-generated share. But if the trend reported by Manager Magazine is correct, those estimates by Prognos AG might be way too conservative.
And this has the potential to very strongly increase surcharges. If one considers various reductions in the surcharges for large scale industry users (estimated at 96.2 TWh in 2013) there are only 441.3 TWh of electricity left to share the burden to begin with.
If everybody in industry and commerce started to generate 50% of their energy themselves, that would leave only around 250 TWh of electricity to share the burden of the surcharges. That alone would be enough to about double them.
So while it is a welcome effect for now that higher surcharges make it easier to build solar PV for commercial users, in the long term, the present system might become unsustainable. Not because there is too much renewable energy receiving feed-in payments, but because there is too much out of the system.
Of course, getting solar panels on the roofs of commercial users without a feed-in tariff was the purpose of the EEG from the start on. It was only a temporary measure to get solar off the ground.
It would be ironical if that goal being achieved successfully would threaten the financial basis of the EEG. But that could very well happen in the mid term.
Related post: Grid parity and feed-in tariff surcharge
So I agree with Altmaier that this might become a problem. And the numbers I reported in my November post are actually even higher than a 10 percent share.
I would also like to mention that this could destabilize the system very fast, since there is a feed-back loop involved. More consumers dropping out of the system means higher surcharges for those remaining, which adds to the incentive to produce your own electricity. As noted above, that not only reduces surcharge costs but also taxes and network costs to zero.
Another point is that with solar, projects can be built in a couple of months. So we could well see a mass exodus from the network in a very short time frame. Which would be good news for the climate, but bad news for the financial stability of the feed-in tariff system.
So what about Altmaier’s proposal to deal with the situation?
The first obvious problem is that it might be difficult to find out who is generating how much electricity for own consumption. Installations that want feed-in tariffs have an incentive to register and monitor electricity generation. Installations that are only for own use will have an incentive to avoid being registered and monitored.
I recall that there are no numbers available (as least as far as I know) on how much solar capacity for own use is already installed right now.
But that is only an enforcement problem. And it is rather easy to solve. Solar and wind installations are big, visible structures. Their average yield can be easily estimated. It is therefore easier to enforce such a new system than for example tax the income from capital. People can invest their money in Luxembourg to hide it from taxation, but they can’t all go to Luxembourg with their solar panels.
I may want to come back to discuss other aspects of this proposals later. This post is already too long, so I’ll just note that this is an important question that will need further consideration later on.