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100% Renewables by 2050 -- Germany Pays the Price for its Ambition

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POST WRITTEN BY
Paul Gregory, Professor, Department of Economics
This article is more than 6 years old.

Germany has set the most ambitious agenda for renewable energy. According to Germany’s Enegiewende program, the share of renewables in electricity generation should reach 45 percent by 2030 and 100% by half century. Complicating matters is Germany’s Atomstop decision to close down its nuclear power plants under pressure from the powerful Green movement. The Atomstop agreement calls for substantial payments by electrical utilities into a special fund for storing nuclear waste.

Germany’s mechanism for achieving its ambitious renewable-energy goals is not direct subsidies but the requirement that its utilities must take wind and solar energy first into the power grid.

With wind and solar energy costing multiples more than conventional energy, their increasing share will continue to raise Germany’s wholesale electricity prices above those in other countries with less ambitious renewable energy policies. (See Figure for 2016 price comparisons).

P. Gregory

Germany’s increasing reliance on renewables has imposed direct and indirect costs on its citizens and companies.

First, Germany’s fabled manufacturing sector cannot afford much higher energy costs than its rivals. Hence, Germany offers substantial discounts to heavy energy users, such as its automobile plants. As a consequence Germany faces lawsuits from the European Union that charge it with illegal subsidies of heavy industry. Second, German households must bear the financial burden of paying among the highest electricity costs in the world as utilities pass the higher costs of renewables on to them. Third, Germany’s landscape is being ruined by unsightly wind turbines that spoil pastoral landscapes in virtually every community. Fourth, the supply of renewables varies dramatically in the course of a day or week.

This intermittency requires conventional backup sources, making coal the major source of electricity generation, but coal power is expensive because coal plants are fired up and down depending on the supply of renewables.

Germany’s two major electricity companies, E.ON and RWE, have announced stunning losses.  For E.ON, these will be the highest losses in its history. Both companies are cutting employment. RWE has cut its dividend entirely, and EON has slashed its dividend more than half. Part of E.ON’s loss is due to a $10 billion payment into the nuclear energy waste storage fund.

The financial losses by Germany’s two energy giants raise fundamental questions about who will pay for the country’s ambitious renewable energy program. To date, German households and small businesses have borne the burden in the form of high electricity prices. Now the shareholders of E.ON and RWE are being asked to step up. If they continue to face losses and cut dividends, they will not be able to attract the capital necessary for Germany’s electricity grid to survive. At that point, Germany’s tax payers will be invited to the payments window to keep companies like E.ON and RWE in business.

Germany’s electricity market, with its super ambitious goals for renewables, again illustrates Hayek’s point that the road to serfdom is paved with good intentions.


Paul Gregory is a professor of economics at the University of Houston. He currently teaches a course on comparative economic systems.  Gregory has published several articles in scholarly journals, in both Russian and English, and is an expert in Soviet economics and transition economics. His current research, funded by the National Science Foundation, is on the topic “High-Level Decision Making in the Soviet Administrative Planned Economy: Evidence from Soviet State and Party Archives.”  In the past, Gregory was involved in several funded economics research projects, and has earned multiple awards and honors, including the Fulbright Fellowship.  Gregory earned his bachelor’s in economics and master’s in Russian in economics from Oklahoma University, and his PhD in economics from Harvard University.

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