What Excessive Costs?

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.

Published by kflenz

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

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