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On Energy Finance: German Solar Four Times Higher Than Finnish Nuclear Energy

The cost of subsidizing solar PV installed in 2016 depends on the FIT rate that year. Right now the rate varies by system size between 0.135-0.221 euros/kWh (US$0.17-0.28/kWh). Following ammendments made to the EEG law in 2012, the degression rate for the FIT fluctuates by total new installed capacity — it can decrease by as much as 2.8%/mo if certain deployment targets or reached, or it can increase by 0.5% if fewer than 1000MW are installed on an annualized basis. Assuming FIT rates drop by about half by 2016, a more than reasonable assumption IMO, the cost of subsidizing solar installations will vary between about US$0.09-0.14/kWh — still more costly than the Olkiluoto reactor, but not by nearly as large a margin as the cumulative cost of subsidizing panels installed 2000-2011. And let's not forget that the EPR has an expected lifetime of 60 years, compared to a warranteed lifetime for PV panels of 25-30 years.

Of course as solar penetration rises the cumulative cost of the EEG law rises along with it. This year the German government increases the EEG renewables surcharge — the electricity tariff paid by households to cover the cost of subsidizing renewables — to 5.3 €cents/kWh, or US$0.068/kWh. The EEG surcharge now makes up the largest non-market tariff on German electricity bills. German electricity prices have already doubled since 2000.

Another ammendment to the EEG law was a cap on the total capacity of solar that can be subsidized by the FIT at 52 GW. This shouldn't be that surprising given the massive swings in output from solar PV in Germany. On that famed sunny Saturday afternoon last May, the roughly 30 GW of German solar generated about half of the nation's electricity — but total annual solar generation was less than 5% German electricity. So if total deployment were to double, solar would generate only about 10% of total electricity but often run the risk of  generating >100% of load and overwhelming the grid. New provisions are being put in place to allow compensated curtailment whereby PV owners/operators will receive 95% of the FIT rate for curtailing their solar generation when the grid doesn't need it, at which point the German government will be paying people not to generate electricity on a regular basis. The exact costs and consequences of this evolving system are yet to be seen, but they will certainly be instructive and likely evident by the end of the decade.

Finally, a few notes about motivations.

The German feed-in tariff is a national perogative predicated not just on decarbonization, but on renewables innovation, industrial policy, and the decentralization of power supply. These are all worthy goals that the German populous has thus far proven perfectly willing to pay for, and good for them. It is indeed likely the case that the world would not have seen dramatic cost reductions in solar technology in the last few years without Germany's FIT, the US's ITC, and other national solar subsidy policies. While China's powerful industrial policy, subsidized production, and likely dumping of solar products onto world markets played the biggest role in declining module costs, it is unlikely China would have pursued these efforts lacking subsidized demand in mostly Western economies. 

But these motivations are in contrast to a regular argument made that the German solar story proves that solar PV is cheap, scalable, and that solar negates the need for more costly technologies like nuclear power or other centralized forms of power production. This is simply not the case yet. In the world's most accomplished solar regime, Germany, solar provides less than 5% of electricity after a decade of deployment, electricity costs continue to rise, carbon emissions are expected to stay flat through 2020, and it's unclear how the grid will continue to deploy solar after a few more years as intermittency forces mandated curtailment policies and FIT incentives cease. The case for renewables is certainly improved by accounting for growing wind and biomass in Germany, but these two bring their own complications in the form of intermittency (in the case of wind) and public acceptance and land use implications (in the case of both). 

Germany has done more than almost any other country to develop renewables, grow clean energy markets, and bring down technology and soft costs. But to insist that the German model can be exported to the rest of the world as a coherent and comprehensive strategy for decarbonization is a dangerous stretch of reality. Global energy demand will triple or quadruple by the end of the century if we're lucky, as billions of people lift themselves out of withering energy poverty. To suggest that their needs can be met by renewables alone, and that technologies like nuclear power are not needed, while renewables are still carving out niches in subsidized markets, is foolhardy at best and dangerous at worst.

May 23, 2013    View Comment    

On Energy Finance: German Solar Four Times Higher Than Finnish Nuclear Energy


We used a CF of 0.09 to generate the rough average per-kWh cost of the FIT scheme in Germany.

May 23, 2013    View Comment    

On Cap And Trade Lives, And Works, In Northeastern US

RGGI attributed the decline in emissions to “increased use of natural gas for electricity generation resulting from lower natural gas prices; state investments in energy efficiency and renewable technologies; increased use of renewable energy, in line with state renewable portfolio standards; and weather patterns.”

But what is the magnitude of these various factors? And, assuming RGGI effects are duplicative (on top of, say, state-level RPS's and the natural switch by utiltiies to natural gas), what is the net impact of the cap-and-trade policy on regional emissions and on technoligical innovation?

June 12, 2012    View Comment    

On Did the Federal Government Invent the Shale Gas Boom?

Thanks again for the post Michael. The Breakthrough Institute has just compiled a summary of all writings and research into the history of US federal government investment in shale gas. In the post, we respond to some of the criticisms leveled in your analysis. Follow the link for the full summary:

Notably, claims that fracking has been in use since the 1940s are an accurate but misleading reaction to our investigation. Hydraulic fracturing was used in the 1940s in limestone deposits, not shale deposits, the latter of which are much more technically difficult to drill commercially. Before efforts initiated by the federal government and contributed to by gas companies like Mitchell Energy, operators would drill through shale to get to limestone, unable to tap the vast quantities of gas in shale.

Gas industry officials like Dan Steward, former Vice President of Mitchell Energy, emphasized in interviews the importance of government involvement in shale gas research. George Mitchell himself regularly lobbied for DOE fossil energy research spending during the 1980s when Congress repeatedly attempted to zero out DOE research budgets.

If government investment in shale was displacing private investment, that would be news to the dozens of gas company partners that collaborated in early pilot testing and demonstration projects and worked with Congress to establish the Gas Research Institute, which would apply with FERC for research proposals using the revenues from a federally approved surcharge on natural gas. Mitchell Energy worked with the federal government for subsidization of their first horizontal drill in 1991, 5 years after a joint DOE-private venture successfully completed the very first multi-fracture horizontal well.

This is to say nothing of the 20-year tax credit for unconventional gas, or the application of microseismic imaging, an innovation sourced from Sandia National Labs that was originally unassociated with shale research and proved absolutely essential to drilling operations.

The history is clear that in many cases of technological development, private gas companies were eager partners with federal R&D and demonstration efforts.

March 13, 2012    View Comment    

On Did the Federal Government Invent the Shale Gas Boom?

If we were higher in those rankings before, we did it while guaranteeing the purchase of early microchip manufacturers. Private sector entrepreneurs took that foundational government innovation and built Apple and Microsoft. Steve Jobs took microchips, the Internet, GPS, cellular technology, touch-screen technology, and voice recognition and built the iPhone; without initial government research, investment, and procurement, there's no reason to believe those core technologies would have developed.

The same task must be accomplished with clean energy technologies. Government subsidies must be designed to drive cost declines, performance improvements, financing capabilities, and demonstration/public procurement. The ultimate goal is to deliver subsidy-independent clean energy technologies to the private sector, where entrepreneurs, engineers, and investors can do with them what Jobs did with the iPhone.

It's true that our current subsidy system is inefficient. But throwing it out, as opposed to reforming it, would likely result in a crash for the industry. These technologies remain too costly and difficult to integrate into the grid; public support is required to change that. 

December 21, 2011    View Comment    

On Did the Federal Government Invent the Shale Gas Boom?


I agree -- open-ended production subsidies are not the solution. Government support for clean energy should come in the form of smart and well-led basic and applied research programs; a subsidy system that rewards innovation, not production; financing tools for briding the Technology and Commercialization Valleys of Death; demonstration projects leading to large-scale deployment; and public-private partnerships that drive nascent clean energy technologies towards low price and high performance. 

This subsidy system is not in place today. However, throwing out the imperfect in favor of nothing is not an promising approach. Better we transform the imperfect subsidies in place today. If we had let the chips fall where they may with microchips, nuclear power, shale gas, the Internet, and biotech, there's no reason to believe any of those technologies would exist today as they do in their current form.

December 21, 2011    View Comment    

On Did the Federal Government Invent the Shale Gas Boom?

Thanks for your comment Willem. It would be interesting to calculate the c/kWh subsidy rate for federal expenditures on shale gas before the 2000s, when shale was a very small contributor to domestic gas output. On that basis, it would have appeared that the shale subsidies (in the form of lab research, federal demonstration, direct funding of private company projects, and tax credits) were not worth it.

However, in the long run those subsidies paid off handsomely. Natural gas has grown more as an input to TPE every year in the last decade than any other energy source, with wind in second place. Shale gas that could be economically extracted more than doubled potential recoverable reserves in the United States and as this recent Black&Veatch report shows (, NG will only keep growing from here, largely driven by the ongoing shale gas revolution.

We can and should use c/kWh metrics to evaluate the efficacy of subsidies, but given the long investment commitments required for renewable energy and the potential innovations that only the public sector can finance, they cannot be our only metrics. 

December 21, 2011    View Comment    

On Did the Federal Government Invent the Shale Gas Boom?

In addition to the Washington Post op-ed, the Breakthrough Institute has just published the results of our investigation charting the decades-long support the federal government provided to the gas industry, from massive hydraulic fracturing and the Eastern Gas Shales Project in the 1970s, through the 1980s with the Section 29 unconventional gas tax credit and DOE's first demonstrated multi-fracture air-drilled directional well, to the 1990s with microseismic imaging tools and direct financial support for Mitchell Energy in their first horizontal well. Follow this link to view the results of our investigation:

As Dan Steward, former VP at Mitchell Energy, put it, "[DOE] did a hell of a lot of work, and I can't give them enough credit for that. DOE started it, and other people took the ball and ran with it. You cannot diminish DOE's involvement." 

The history is clear: the natural gas industry as we know it today relies heavily on technological innovations and techniques pioneered over several decades by the federal government. The partnership and support of the government does nothing to diminish the valuable R&D, exploration, and risk-taking performed by Mitchell Energy. As with microchips, cellular technology, the Internet, jet turbine engines, and nuclear power, the story of natural gas is another example of the private sector taking blockbuster government innovations and turning them into a highly profitable and successful industry.

December 21, 2011    View Comment    

On March of the Elites: Why Grassroots Can't Save the Climate


Thanks very much for the comment. I'll take your points one at a time...

I stand by my claim that people don't care. Polling has showed increased acceptance of climate science over the past decade, and then decreasing over the past few years, and when given a list of national issues to prioritize, the environment consistently ranks dead last. Since the grassroots organizing has mostly framed the climate issue as an environmental issue, they've chosen a very weak political starting point from which to argue from.

We have in no way made significant progress. I think the reason we disagree on this point is that we're using different metrics. You say "we have made significant progress over the past decade on climate change awareness..." etc. If that's your measuring stick, sure, we've made progress (some). But awareness does not equal action, not by a long shot. In that same decade, carbon emissions have gone up, Congress failed four times to pass a cap-and-trade bill, and clean energy remains too expensive, intermittent, and risky to deploy unsubsidized.

The grassroots climate movement certainly influenced me early on, but after a time I realized that it wasn't doing much beyond prostletizing. This sequence mirrors the role grassroots can play in the future: If the movement can alter course and adopt a policy advocacy agenda that campaigns for clean energy technology innovation and deployment, it can be effective in selecting leaders and institutions who will get the real engineering and policy in place.

Your questions "Who are these elites? Where will they come from?" etc... I see these as among the most important questions facing humanity. I believe humankind has the capacity to overcome the climate and energy challenge, but it will require that incredible feats of engineering, policy, finance, and technological innovation. Decarbonization is a technical challenge on a global scale. It is not an organizing challenge.

You may care where your energy comes from and you may practice conservation, but the vast majority of people can't or don't. They don't control where their energy comes from and they consume as many energy services as they can/want. The ability to use as much energy as we want is a mark of an industrialized and prosperous society; we are in control of our own destiny. Imagine if the same were true, but with zero carbon emissions, less resource constraint, and increased energy security. How do we get to that reality? That is the key question, not how many peope "believe" in climate change or how strong the movement is. The key measuring stick is not a measure of a political movement, but of technological progress. This fact severely limits the efficacy of grassroots organizing around climate action, but does not necessarily limit humankind's ability to defeat the challenge.

July 8, 2011    View Comment    

On March of the Elites: Why Grassroots Can't Save the Climate


Firstly, I would be very interested in your examples.

Second, it seems to me that cap-and-trade might have passed fairly easily if it were not for the supermajority requirements in the Senate (Pelosi cracked skulls to C/T through in the House). But with the 60-vote requirement, cap-and-trade was nowhere near popular enough to even get a vote on the Senate floor. So whatever mechanism got the bill to the Senate in the first place, elites or grassroots, it's important to recognize the institutional barriers.

Even if you are right and the failure to pass the APA last summer was a result of relying on Beltway elites instead of grassroots organizing, it wouldn't have mattered. At its most ambitious, APA would have placed a price on CO2 to the tune of roughly $8-15/ton, if my memory serves. Meanwhile, the gasoline price spike of 2009 was the equivalent of several hundred dollars per ton, and while this did precipitate a measureable decrease in vehicle miles driven, it was nowhere near significant enough to drive the type of technological innovation needed to secure a clean energy future.

IMO, grassroots organizing will be most effective when there is a relatively simple policy goal. Voting rights, anti-war demonstrations, gay marriage...while neither logistically or politically EASY, these protests demand, respectively, the right to vote, the end to the war, and the right to marry. Simple demands that can be achieved by a growing grassroots movement.Then there are more complex policy goals, such as health care. The economics and policy of health care are quite complex and difficult to get your head around. However, people really care about health insurance, and are thus willing to take the time to educate themselves and organize rallies around the public option, high-risk pools and regional exchanges.


People don't care about energy. They don't even think of themselves as using energy. They use light for illumination, they use heat, they use their car or their computer. As such, there is much less education about the policy fixes that can achieve a clean energy future. Grassroots organizing keeps bringing a carbon price or gloabl treaty to the table, when these are really weak policy fixes. Even worse, since the failure of cap-and-trade, the goal of grassroots organizing appears to have morphed into determined self-perpetuation: they simply want to grow the movement and spread awareness, without any real policy goals in mind. Considering how complicated the technology innovation pipeline is, and the massive challenge of replacing fossil infrastructure, we need a team of elites who understands the scope of the task and can effect change.

July 7, 2011    View Comment    

On March of the Elites: Why Grassroots Can't Save the Climate


NIMBY and BANANA are serious problems, especially with early adoption, as we in the Bay Area are seeing clearly with Peninsula opposition to high-speed rail. We must find solutions to these problems, and this is a primary example of how community organizing can be effective in clean energy. But these will be useful largely for local and community-level campaigns, not national grassroots organizing to "stop global warming now." The benefit of community-level action is that it addresses local and specified concerns; the problem with national organizing is that it addresses a global-scale existential threat with neither a positive message nor constructive policy advocacy, at least not to date.

I also do not believe that an advocacy campaign built around higher taxes and limiting human behavior will be terribly effective. That is the problem with traditional organizing around climate and energy: it focuses on the costs and extolls the many reasons why humans aren't living correctly. A better agenda would focus on the benefits and aim to empower people.

The challenge to decarbonize the economy will be expensive and will precipitate slight changes in lifestyle and behavior, but these are a means to an end, not the end itself. If ineffective grassroots agendas are to continue, I suggest they spend less time telling everyone what they're doing wrong and more time imaginging a future that is cleaner, freer, and more prosperous.

July 7, 2011    View Comment