I – Energy by the people for the people
Germans can switch power providers. In fact, they are not only free as power consumers, but also free to become “prosumers” – simultaneously producers and consumers. They can even sell the power they make at a profit. Germany’s Renewable Energy Act stipulates that the little guy’s renewable power has priority over dirty power. German feed-in tariffs have helped produce all of this community ownership, thereby simultaneously reducing NIMBYism (not in my backyard) and increasing acceptance levels for renewables.
In most countries, the energy sector has long been in the hands of large corporations because electricity came from large central power stations. Renewables offer an opportunity, however, to switch to a large number of smaller generators, and this distributed approach offers an opportunity for citizens and communities to get involved. Germany has an unusually high level of citizen involvement in the Energiewende. One in every sixty Germans is now an energy producer.
Some countries are switching to renewables by requiring utilities to produce more green power with policies called “quota systems.” These policies set targets for utilities to reach, and penalties can be imposed if the targets are not met. The focus here is generally on cost, with the assumption being that utilities will choose the least expensive source of renewable power. For instance, the British Wind Energy Association lists wind projects as submitted, approved, refused, and built, categories that do not exist in countries with German feed-in tariffs. Rejections are thus a natural part of requests for proposals, which are also common in the US.
In contrast, no single organization in Germany has the task of reviewing wind farm proposals for approval or rejection; instead, local governments decide where wind farms can be built and how they will be designed (space, number of turbines, etc.). Utilities face no penalties because, in fact, it is not their responsibility to ramp up renewables. Utilities are also eligible for feed-in tariffs, but these firms have nonetheless rarely made such investments. Overall, the difference between the two approaches – feed-in tariffs versus quotas – is striking. Under quotas, only the least expensive systems go up after time-consuming reviews, and they remain in the hands of corporations; under feed-in tariffs, everything worthwhile goes up quickly, and ownership of power supply rapidly transfers to citizenry. In other words, Germany is democratizing its energy sector.
This focus on cost is justified in quota systems (like Renewable Energy Portfolio Standards in the US) because excess profits would go into the hands of a small group of corporations. Proponents of such quota systems correctly charge that the cost impact of feed-in tariffs is generally greater than the cost of quota systems, but they overlook two aspects: first, countries with feed-in tariffs generally install a lot more renewable generating capacity; and second, if properly designed, profits from feed-in tariffs go back to small investors, not multinational players, thereby breaking the stranglehold that large corporations have on the energy sector. In other words, many of the people who face slightly higher retail rates also receive revenue from those increases.
Proponents of quota systems argue that they are “technology-neutral,” meaning that they do not prefer one technology over the other. They charge that feed-in tariffs “pick winners.” But the charge is unusual in light of the different market outcomes. Quotas promote the least expensive type of renewable energy, which has generally been onshore wind up to now. Not surprisingly, PV – relatively expensive until recently – has sometimes failed to win bids in auctions altogether unless there was a set-aside for photovoltaics (though that situation may be changing now that PV is so affordable). In contrast, markets with feed-in tariffs for all renewable sources generally see a buildup of everything. And if you want an energy transition, you will need a proper mix of renewable sources, not a focus on the cheapest one.
Ironically, the allegedly “technology-neutral” policy (quotas) has led to a focus on a single energy source (onshore wind), while the policy that allegedly “picks winners” has led to a healthy technology mix. Furthermore, while auctions are called “competitive,” competition takes place between energy sources; companies also compete with each other in auctions, but the auctions lead to greater market concentration. Feed-in tariffs have produced far more open markets, with new players competing on a level playing field against incumbents.
Until recently, the American Wind Energy Association (AWEA) had a section on its website called Projects, which listed wind farms by location, size, and owner. At the time, Germany had the most wind power capacity of any country in the world. Nonetheless, DEWI, the organization that collates statistics on German wind power, said they never produced such a table: “We cannot say who owns a particular wind farm in Germany because ownership is splintered across scores, and sometimes hundreds, of local citizens and businesses.”
These examples from Germany are common, not exceptional. Dardesheim was not even the first in 1994. That honor goes to the small town of Friedrich-Wilhelm-Lübke-Koog near the Danish border. Meanwhile, in Freiburg, Germany, a town of some 220,000 people in the southwestern corner of the country, citizens funded roughly a third of the investment costs for four turbines put up on a nearby hill, with the other two thirds coming from bank loans. The project manager says interest rates from the bank were around 4.5 percent, whereas the project paid a dividend of up to six percent to citizen investors. The citizen investments counted as equity; in other words, the banks provided relatively low interest rates because so much equity was available. On the other hand, a lot more paperwork is involved when you have hundreds of small investors instead of a few big loans from banks. But the Freiburg project, like so many others in Germany focused on greater community acceptance – so that locals can negotiate with locals, not with an out-of-town corporation that makes everyone feel like it could get its way.
The latest projects attempt to make communities not just net exporters – selling excess power to the grid and only purchasing power from it when not enough renewable energy is available – but entirely self-sufficient. For instance, the Island of Pellworm has combined solar, wind, biomass, and geothermal in a hybrid power plant connected to a smart grid with energy storage to reduce the dependency of its 1,200 inhabitants on energy imports by 90 percent.
There are also community-owned biomass projects. In 2004, a local farmer in the village of Jühnde formed a cooperative with nine other farmers who wanted to grow energy crops. More than 70 percent of village residents agreed to switch their heating systems over to a district heating network connected to a new village biogas unit. The biomass unit runs largely on local corn crops. For several years now, the villagers have been paying local farmers and businesses for their heat instead of paying for foreign oil and natural gas.
When Jühnde switched over to its renewable heat supply, it drew a lot of attention across the country and served as an example for scores of other communities – and continues to do so. Indeed, there was a bit of a boom in corn as an energy crop, which drew some criticism. People feared monocultures and were concerned about the impact on biodiversity and landscapes, but anyone who has seen the Corn Belt in the United States, soy plantations in Brazil, or palm oil plantations in Malaysia would find Germany’s largest cornfields quite small in comparison.
New projects will continue to depend on local support. If the citizens affected do not want to be surrounded by even more cornfields, the project will not go forward.
Overall, it is estimated that “energy cooperatives” – community-owned renewables projects – had leveraged more than 1.67 billion euros in investments from more than 130,000 private citizens in 2014. It is often said that only the wealthy can make such investments; for instance, critics charge that you need to own your own home to have a solar roof. But more than 90 percent of Germany’s energy cooperatives have already set up solar arrays, and a single share in such cooperatives costs less than 500 euros in two thirds of the cooperatives – with the minimum amount less than 100 euros in some cases. As the head of Germany’s Solar Industry Association (BSW-Solar) puts it, “Energy cooperatives democratize energy supply in Germany and allow everyone to benefit from the energy transition even if they do not own their own home.”
Furthermore, energy cooperatives are moving beyond power production to include grid ownership. In the 1990s, the movement began with the Schönau Power Rebels, residents of a village in the Black Forest that forced their local utility to let them purchase the local grid. Now, the movement continues to spread across the country. In 2014, Germany’s second largest city – Hamburg – voted to buy back its grid. A similar campaign in the capital city Berlin failed, however. Citizens are even to be allowed to purchase stakes in transmission lines expanded for offshore wind, albeit to a very limited extent.
The Energiewende is not just a technical challenge; it will also challenge us to change our behavior. If the goals are to be met, Germans will have to pursue “sufficiency strategies” focusing on a cultural transformation – a process that cannot be completed overnight, but will take time and require a lot of awareness-raising. Germany is a society in which people love their creature comforts, so as all of these devices become more efficient, we must ensure that people do not simply decide, say, that a car with twice as good gas mileage means they can drive twice as much for the same price. This discussion about policies to change behavior is just getting started in Germany. Already, it is clear that new ownership and financing models (such as energy cooperatives) will not only allow people to get involved in new ways, but also increase acceptance of local change and awareness of energy consumption.
Increasingly, new modes of flexibility will need to be tried out, however. Housing associations are working on flexible housing concepts to allow rooms to be easily separated in order to put an end to the unbroken growth in per capita living area over the past few decades. Elsewhere, residential complexes now have ultra-efficient washing machines for common use in the basement, and car sharing provides people with efficient mobility to suit their needs. But people should not be forced to adopt such ideas. Rather, they will come up with such solutions themselves as they become more aware of the problems posed by unpredictably fluctuating energy prices and the impact of carbon emissions.
next subchapter J - Sector Coupling