The feed-in tariff system in Germany has worked. It has grown capacity to the point where one third of weekday peaks is covered by solar alone. It has made Germany Number One in solar installations. It has radically brought down prices for solar panels, making large-scale installations in China possible.
Obviously, adding all that solar energy to the mix means that some other source needs to be replaced. Right now, most of the replacement room comes from the nuclear phaseout and increased exports.
But in the next couple of decades, fossil fuels will have to go as well. For electricity, the goal is to reach 80 percent renewable by 2050. That doesn’t leave much for coal and lignite.
The point of this post is to think about a coal feed-in tariff.
It would work exactly like the successful solar tariff, with one small change. There would be a cap on the fossil fuel electricity bought under the system. That cap would be calculated from the already existing goals for renewable. Look at the renewable goal, subtract that from 100 percent, and you get the cap for fossil fuel under the feed-in tariff.
The price of that tariff would be set like the solar tariff was. Find out what it costs to produce one kWh. Add a reasonable profit and guarantee exactly that rate for twenty years.
What would be the point of such a system?
With solar, the most important goal and the biggest success of the feed-in tariff was to bring prices down. That has turned out very well. Germany’s solar tariff system has massively contributed to – barely – saving the world from catastrophic global warming.
With fossil fuel, the goal would be exactly the reverse. Prices should go up, by design.
Of course, prices of one kWh will go up anyway.
Since solar is eating coal’s lunch and wind is eating coal’s dinner, capacity factors for coal plants are already going down, and will go down further. All things equal, that means that the price of one kWh needs to rise, since the fixed cost of building a power plant is distributed over less kWh.
Carbon permits under the EU emission trade system will be reduced over the next couple of decades, which means their price will go up.
With less coal in the system, there will be less economies of scale, which means the price per kWh needs to go up.
But independent of these considerations, it makes sense to have prices for coal energy increase.
For one, it will get rid of the unrealistic idea that using coal is cheap. It is cheap only if you don’t factor in the cost of making new coal once you burnt some, if you don’t factor in the health cost from emissions, and if you don’t factor in the cost of making this planet unsuitable for human survival. All of these costs somehow are not reflected in present coal electricity “prices”. Having a high feed-in tariff for coal would come closer to the real cost of burning coal in power plants.
Volker Quaschning recently estimated these hidden costs at over 10 cents Euro per kWh.
And it would be in the interest of the coal industry.
Actually, I think the fossil fuel feed-in tariff should be set so high that the higher price per kWh compensates for the lower volume because of the phaseout. And it will do exactly that, since tariffs will be set considering whatever is necessary to make a profit in a much smaller market.
This is of course Phaseout Profit Theory, or at least influenced by that idea.
I agree with Volker Quaschning that Germany needs a concept to phase out coal. Germany has decided to phase out nuclear, and it is working. But the only thing that is clear about phasing out coal is that it can’t be over 20 percent in 2050. A concept on how to transition from the much higher percentages now to these goals is lacking.
Using a fossil fuel feed-in tariff as an instrument to phase out coal might be one possible way to do it.