Their laws defined that the difference in cost and revenue (subsidy) was to be partly absorbed by the electricity client

Renewable energy in 15 years - lessons from Germany

Samuel Doe Ablordeppey Business News Oct - 12 - 2016 , 07:00

Travelling from across German cities Munich and Frankfurt by train is a full expose. Exposure to well-planned communities, first class infrastructure with purpose and a gamut of smart approaches to meeting the needs of the society.

The most intriguing find happens to be one of the very reasons the trip facilitators chose the journey on train; it allows the delegation to be more exposed to the solar rooftop initiative and how Germany is deploying Renewable Energy (RE) sources to meet power supply.

It is the outcome of a decision back in 2000 to explore renewable energy sources of power generation when Germany thought that the traditional sources of fuel, mainly fossil fuels, would deplete in the near future. Besides, their costs were becoming too expensive and environmentally unfriendly to rely on.

Necessity being the mother of invention, the Deutschland set out in search of cleaner fuels and energy, and that was not limited to power generation, but to automobiles, including vehicles and motor cycles, as well as to electrical appliances such as refrigerators.

RE, Germany in 15 years

From about seven per cent of power in the generation mix in the year 2000 coming from renewable sources mainly hydro generation with a few experimental solar and wind power plants, Germany now produces around 33 per cent of power from renewable sources into the electricity grid.

Its first experiment was a solar system under its 1,000 Households Rooftop Solar project. This was to establish technical feasibility and improve learning curve.

“The 1,000 roofs went well, but was extremely expensive. It cost about 50 to 60 dollar cents per kilowatt-hour (kWh), while the grid cost around five or six dollar cents,” a Senior Energy Expert at GIZ head office in Eschborn near Frankfurt, Dr Joerg Baur, explained during a recent conversation with a delegation from the Energy Commission of Ghana.

The mission to Germany was put together by the Delegation of German Industry and Commerce in Ghana (AHK Ghana). The leader of the delegation, Mr Michael Neulinger, supported Dr Baur to brief the mission about Germany’s success story of increasing RE in its generation mix.

How the system ramped up

The Germans believe in building strong systems that can yield desired outcomes. For the solar rooftop programme, a system was put in place that provided enhanced tariffs for participants in the programme. It was particularly for investors who produced and fed into the electricity grid. Those meant for households also received subsidies on their investments. Called the feed-in-tariff (FIT), it covered their cost of capital and the annual payback for the credit for the investment.

The subsidy meant that comparatively, households that installed own solar systems could make some modest profit, as an additional stream of income. The feed-in-tariff is the rate individual power producers receive for connecting their (excess) power into the electricity grid. Once private producers met certain technical conditions, they could feed in and the power utility was obliged to connect them and buy the electricity at a given rate (the feed-in-tariff).

“The early birds applying for the rooftop programmes also received subsidies and enhanced tariffs, called the feed-in-tariff. This was a general feed-in-tariff scheme and enabled the German energy regulator to design tariffs unique for wind, biomass and biogas, solar electricity from co-generation,” Dr Baur added.

Feed-in-tariffs (FIT)

While the FIT was around 45 euro cents for solar (about US$0.50), the investment costs were around 35 euro cents. This guaranteed about 15 to 20 per cent return on investment.

The intervention paid off. More households embraced the programme with a high rate of photovoltaic (PV) solar system installations on rooftops of homes, factories, green fields, parking lots and the likes, depending on the size of the project.

It was also a major boost for private sector investments in solar, especially as investors bought empty spaces to install larger (about 80 megawatts) solar systems. Between 2010 and 2011, therefore, Germany had almost seven gigawatts (GW) of photovoltaic solar systems installed in just a year.

The role of credit

There was an interesting twist in the course of events with the outset of the world economic crisis in 2009. With the collapse of Lehman Brothers, credit became cheaper.

“So all of a sudden, solar became much cheaper, not because the panels became cheaper, but the interest rates that you will pay on the credit were cheaper. So they were not able to adjust the prices as fast as it would have been necessary,” Dr Baur said.

Another phenomenon that changed the phase of solar was the establishment of bigger PV production manufacturers in China. This brought down the prices further.

A lot of private people in neighbourhoods pooled resources and invested in wind turbines or solar. According to Dr Baur, small independent RE producers now make up the more than one million electricity producers that Germany has. That’s one million legal entities that feed electricity into the grid. Germany’s population is 80 million.

Who pays?

Their laws defined that the difference in cost and revenue (subsidy) was to be partly absorbed by the electricity client. So this was a cross subsidy, where all consumers of power paid renewable energy levy as a subsidy for those feeding into the grid.

Ghana has just developed a code for feed -systems. It has also set feed-in-tariff, but it is yet to be revised after about three years of announcing the initial rates. What Ghana does not have is a system of determining the tariffs periodically. There is also no cross subsidy for feed-in producers.

Conversely, in Germany, the tariffs are adjusted several times in a year to reflect realities in the market, especially based on new investments and power coming on stream. The system drives down prices when installations increase. At the same time, if market prices for solar and wind go down, the levy will be increased. This further attracts more solar and RE installations by the private sector.

Current tariff regime

Currently, Germany’s RE power sector is very competitive, as it now invites bids for power producers to set tariffs. That is, producers are the ones that indicate at what tariff they could produce power from RE sources.

The system has reached an advanced stage where keen competition, rather than incentives and subsidies, are driving the market. The auction system, together with other frameworks, has culminated into a matrix where the tariffs are now determined on the first day of each month, using historical market data of about two months.

It is built around information flow, where additional installed capacities are announced. The more the installations, the cheaper the FIT levies become for clients. That also influences the level of investments in the market.

Till date, Germany has an installed capacity of 40GW of PV solar, 40GW of wind energy, in addition to its main hydro power which has not changed. This is against the country’s peak consumption of 80GW.

Power consumers in Germany, therefore, pay about seven euro cents per kilowatt hour (kWh) as RE levy, a marked departure from the recent past when they paid about 13 euro cents/kWh in total. Overall, their average power bill is about 29 euro cents for power for kWh for residential clients (for industrial clients, electricity is much cheaper).

The downside

While many would see this as a big success, German power experts themselves think that could be a mistake. This is because it cost every electricity consumer to sustain the growing RE power sub-sector.

The downside is that for REs such as solar, only about 75 per cent of power could be generated out of the installed capacity, while only about 40 per cent of wind could be generated out of the installed capacity of wind turbines.

Backlash

Germany has four main utilities covering the four poles – north, south, east and west. There are also small utilities that belonged to cities or bigger groupings of villages and communities. For instance, a community such as Frankfurt would have its own utility.

Interestingly, almost all the utilities wrote off renewables and solar as being too expensive and inefficient. They thought it would work well only during the day. It turned out to be their biggest mistake, as they were late to themselves invest in solar PV, wind and biogas.

Way forward

Ghana has borrowed extensively from Germany’s renewable energy framework. The German development cooperation (GIZ) and its development bank, KfW, has been instrumental in assisting the Energy Commission to develop the system. The Renewable Energy Act, the 200,000 Solar Rooftop programme and the feed-in-tariff system each draw significantly on the German framework.

What Ghana can do differently is to avoid the few pitfalls that Germany had in developing the local RE power sector. Systems can be designed to increase credit availability for RE investments; the FIT regime should be used as a tool to incentivise investments, while the Solar Rooftop programme should be carefully implemented to provide access to willing participants, and not for political activists.

These would help the country achieve the target of generating about 10 per cent of power from renewable sources by the year 2020.