Postponing Payment of Feed-in Tariff Proposal

This post is part of a series discussing a new position paper by German Environment Minister Altmaier and Economy Minister Rösler on reducing cost of the feed-in tariff system.

The first proposal in this paper is giving new installations only the wholesale market price for the first five months. The paper expects 0.5 billion in cost reductions from this measure, the biggest single impact of any of the proposals to reduce cost. That measure would affect all renewable energy options except solar.

This is progress compared to what Minister Altmaier proposed. Now market participants know exactly what to expect.

There is however a need to clarify if these 5 months are supposed to be added at the end of the twenty year period, or if it is a proposal to reduce the usual term to 19 years and 7 months.

Anyway, this is a great way to discourage investment in renewable energy, if that is your agenda (it is not mine, for the record). The individual wind park project will have much more trouble to find bridge financing for 5 months than the feed-in tariff system as a whole.

For those projects that can find bridge financing, this would work as an additional cost factor. One would need to increase feed-in tariffs (or reduce them slower) accordingly to cover that extra cost. That in turn means that this would in the end result only shift costs instead of reducing them.

Arguably, this kind of proposal actually increases the long term cost of the system, since it introduces a new cost factor not in place right now. In contrast, one of the great features of a feed-in tariff system is that it reduces financing costs because of the stability and certainty offered by the system, making the change to renewable energy both faster and cheaper.

So I am opposed to this strange idea and hope it won’t get through the Bundesrat.

Published by kflenz

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

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