Germany's Renewable Energy 'Madness' and its Lessons for America

by ALEX ALEXIEV January 21, 2011
In his radio address on October 2, 2010, President Obama vigorously promoted his renewable energy program and yet again pointed to Germany as a worthy example to follow. Just a few days later, the leading German daily, Frankfurter Allgemeine Zeitung, in an editorial comment on green energy, called for “putting an end to this economic madness.” Finding out whether our president or the German newspaper has the evidence on their side is of fundamental importance for a well-informed energy policy by the new Congress. Fortunately, most of the evidence needed is there already.
A few months after the beginning of the 21st century, the German government passed a watershed law promoting renewable energy that was widely hailed at the time as ushering in a new green century. Known by its German acronym, EEG, the law offered huge subsidies for solar, wind, biogas and other renewable energy and guaranteed them for twenty years. To make it work, the law established a ‘feed-in tariff,’ which obligated private utilities to buy renewable electricity from private producers at prices up to seven times higher than the market price and make their ratepayers pay for it. Coming just a couple of years after the same government imposed a moratorium on building nuclear power plants and ordered the existing ones - which produced 25 percent of country’s electricity - decommissioned by the year 2021, the EEG seemed to guarantee that clean, renewable energy was at long last the unstoppable wave of the future.
Indeed, supporters of the EEG celebrated its 10th anniversary in April 2010 as a huge success story. Germany, it was said, had become the indisputable world leader in renewable energy accounting for more than half of the solar panels installed worldwide in 2010 alone, creating 300,000 new green jobs and fighting global warming by emitting 70 million tons of C02 less per annum. In short, Germany and its EEG model had become the world green energy leader that 40 other countries, including America, now followed,  A truly remarkable achievement, it seemed, for a country where neither the sun nor the wind are known for their abundance. Or was it?
In fact, even before the EEG anniversary hoopla, a very different assessment of Berlin’s green triumphs came to dominate the news, an assessment best summed up in the ‘economic madness’ quotation mentioned above.  The actual figures seem to bear out this harsh judgment. The vaunted German world leadership in renewable energy has come at the staggering cost of €120 billion ($160 billion) in tax payer subsidies to rent-seeking green ‘entrepreneurs’ to be paid by the German public. And it is likely to get worse for at least a while. Subsidies for the current year alone are estimated at over €17 billion ($23 billion) and the additional green energy surcharge per kilowatt/hour for the German electricity consumer at €3.5 cents ($5 cents) is a whopping 75 percent higher than last year’s. To add insult to injury, the German government assesses a VAT tax of nearly 20 percent on top of the surcharge making the overall additional burden close to $20 per month for the average family. Overall electricity costs are projected to increase by 7 percent this month and another 8 percent in February.
Nor do the claims of German leadership in renewable energy and creating green jobs hold much water at a closer look. The jobs created so far, most of which are low-pay and temporary, have cost an average of $300,000 each and the Germans have already lost whatever competitive advantage they may have had over the Asians. Solar panels manufactured in China, which enjoys a 30 percent to 40 percent cost advantage, will soon dominate the German (and American) market and  impartial industry observers believe that, as in the case of consumer electronics, little if any renewable equipment will be manufactured in Europe in the very near future. As for the claim of reducing CO2 emissions by 70 million tons, China’s emissions increase by nearly ten times that amount per year with no end in sight.  Many once high-flying German solar companies, such as Q-Cells, are now on the verge of bankruptcy and the renewable energy stock market index RENIXX itself is down nearly a third from 2009.
Not surprisingly, the Germans and other Europeans are finally waking up to the reality that renewable energy makes no economic sense and probably never will and that the vast government-mandated subsidies increasingly benefit only green pseudo-entrepreneurs  and the Chinese economy, while driving up energy prices and threatening German competitiveness and the economic well-being of its citizens. This realization has finally prompted some push back and last July, the Merkel government cut solar subsidies by 16 percent with another 11 percent cut to follow this month and more contemplated in the future. While continuing to pay lip service to renewable energy, Berlin also quietly did away with the nuclear power moratorium, extended the licenses of all operating plants by another ten years and is even bringing two decommissioned plants back on line. And it is not just Germany. Spain, another erstwhile green energy paragon has both cut subsidies and limited the amount of renewable energy to be subsidized, thereby delivering a crippling blow to the make-believe industry.  In stark contrast, nuclear power is experiencing a revival across Europe from Sweden to Italy and from Britain to Finland.
Unfortunately, the same cannot be said about America, where green energy fantasies are still being actively promoted by the Obama Administration with vast subsidies and assorted  faux entrepreneurs and venture capitalists are eagerly lining up to feed at the public trough. While cap & trade legislation appears doomed at the federal level for now, it is alive and well in California, which seems all too anxious to catch up with Germany on the way to energy ruin. Thirty states have already passed “renewable energy standards” (RES) - an euphemism for governments coercing private companies to buy power from other private companies above market rates - and President Obama is on record recommending a national RES.
With the mainstream media relentlessly touting renewable energy utopias, most Americans do not realize that such schemes are nothing else than cap & trade through the back door that will inevitably mean  higher energy prices, lower standards of living and more jobs in China. We already import half of the wind-turbines installed from China and it will certainly get worse, which is why the American Wind Energy Association has come out against a “Buy American” mandate. What the future holds is already on display in a West Texas wind farm, where, as Larry Bell, a professor at the University of Houston and a Forbes columnist, has written, of the 2800 jobs created, 2400 have gone to China, while America got 400 temporary ones.
It is high time for our political class to realize that renewable energy is a scam perpetrated on the American people that must be terminated. There is, of course, nothing wrong with real entrepreneurs and risk takers betting their own money on green energy panaceas and reaping huge rewards if proven right, but the fact that they have not been eager to do that tells us just how realistic they think that might be. It is well within the power of Congress to defund the renewable energy house of cards and watch it collapse as it did once before when President Reagan stopped the government handouts to an earlier green madness. Contributing Editor Alex Alexiev is a visiting fellow at the Hudson Institute in Washington D.C.

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