Four lessons Obama should learn from Merkel’s energy revolution

Four lessons Obama should learn from Merkel’s energy revolution

Germany’s “Energiewende” is managing the biggest transformation away from fossil fuels and nuclear power and toward renewables of any advanced economy. It hasn’t all gone smoothly.

“The Energiewende has a lot of challenges attached, political as well as practical,” said Famke Krumbmuller, an analyst at Eurasia Group, a political consultant. “It had to be fine-tuned several times to make it viable.”

Since 2011, when the Fukushima nuclear disaster in Japan horrified Germany into shutting down its own atomic program, here’s what Merkel has learned about managing a big transition in energy.

 

Contain runaway electricity costs

The Energiewende built on Germany’s experiment granting across-the-board incentives to renewable energy that took off in 2004. Support for wind and solar came in the form of a feed-in tariff, which granted above-market rates for clean energy.

Giving the industry a formula showing what it will get paid created a boom in installations — and sent electricity bills soaring. Subsidy costs ballooned (see chart above), pushing electricity prices to the second-highest in the European Union after Denmark.

Merkel has since shielded the German industry from the increases and slashed aid for renewables. The fee Germans pay to finance renewables is forecast to fall for the first time this year.

Obama may have an easier time protecting consumers from increasing prices because the cost of wind and solar are falling so rapidly and shale gas fracking technology is making energy cheaper in general in the U.S., Krumbmuller said.

 

Modernize the power grid before blackout risks rise

Wind and solar work only when it’s breezy and sunny, so adding more of their output to the grid strains a system designed for steady flows.

Germany has had to reroute excess wind power through neighbors such as Poland and the Czech Republic because its own grid couldn’t handle the surges. While Germany has managed to avoid widespread outages, it’s investing 21 billion euros ($23 billion) on an electricity superhighway that will link giant wind farms in the North Sea to factories in the south.

Obama still has nuclear plants to back up renewables, yet the U.S. grid is less reliable and older than the German one. An upgrade is urgently needed.

 

Source: Bloomberg

Date: August 2015

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energy policyGermanyrenewables

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