What policy lessons can the United States learn from Germany's experiences expanding its renewable energy market? During today's OnPoint, Rainer Baake, former deputy minister at the German Federal Environment Ministry and a key architect of Germany's energy transition, discusses his country's experiences crafting a federal policy on clean energy. Baake, now director of Agora Energiewende, also talks about the relationship between states, municipalities and the federal government in creating policy.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Rainer Baake, former deputy minister at the German Federal Environment Ministry and a key architect of Germany's energy transition. Mr. Baake is now director of Agora Energiewende. Mr. Baake, thank you for coming on the show.
Rainer Baake: Thank you.
Monica Trauzzi: I hope I pronounced all of that OK.
Rainer Baake: Absolutely correct.
Monica Trauzzi: All right. Well, Germany is often looked at as the success story on the clean energy and renewable front. When you crafted the energy transition, what were the key hurdles you identified that Germany sort of had to overcome?
Rainer Baake: Well, of course, we had some technical problems, because in the year 2000, nobody of us knew what technologies would work and what wouldn't work. We also didn't know whether this development could happen so fast. But we started. And we put all the different technologies on one line and created a feed-in tariff, which was a very stable environment, because every investor received just that amount of money he needed as an incentive to invest. So people then started investing in windmills, in solar panels, in biomass generators, and now we are 13 years smarter, and we have seen an incredible development. We went from five percent in 1998 to 23 percent of renewables in our grid system. And there are two technologies that have really prevailed. The prices came down, and they are there in Germany now in big numbers, and that is wind and solar.
Monica Trauzzi: So from a policy standpoint, what did you do right?
Rainer Baake: Well, we created a stable environment for investors. The support scheme was predictable. It was simple to understand, and it was giving incentives for innovation, and thereby the prices came down. I think the third party is very important, because with those prices of the year 2000, I don't think we could have paid for this amount of renewables. It was only possible because of innovation and reduced costs.
Monica Trauzzi: So it was all about engaging private investors in order to encourage the development of renewables?
Rainer Baake: Yes. That's true. Private investors, but private investors to a huge extent meant private people and farmers. We have a very unique structure -- ownership structure in Germany. Fifty percent of the installed capacity in renewable sources is in the hands of private people and farmers.
Monica Trauzzi: How were you able to keep technology costs down while continuing to try to boost the use of renewables?
Rainer Baake: Well, by law, we told everybody, if you invest one year later, you receive a smaller tariff, and if you invest two years later, an even smaller tariff. So there was a degression in these tariffs, and that put a lot of pressure on our industry through innovation to reduce costs. And in the stable environment, of course, it was affordable to invest in new technologies, and that's exactly what we wanted to see.
Monica Trauzzi: The European economy is rapidly evolving at this point, and also relationships between the E.U. nations is changing. How is that affecting clean energy policy and the push for clean energy in Germany?
Rainer Baake: Well, first of all, let's talk about the German experience. We also had quite some difficult times after the world crisis, 2008-2009. But the renewables kind of carried us through this crisis, as together with other technologies, of course. But the sharp decline that we saw, for example, in car production and other areas, we did not see in the field of renewables. The support scheme was so stable that the renewable business was one of the drivers, the economic drivers. We have seen not exactly the same, but similar developments in other European countries. For example, Denmark is going a very similar way to Germany, and you see renewables down in Spain, in Italy, and other countries as well. They have not achieved these numbers so far, yet, but there is actually pretty much of a consensus that we want to reduce our greenhouse gases by 2050 substantially, and that is only possible by larger portions of renewables. So even though the policies are different in Europe, there is a big consensus that we need more renewables, and we have at least for 2020 binding targets for 20 percent, and we're debating now about new targets for 2030.
Monica Trauzzi: So how is Germany continuing to fund its clean energy transformation now?
Rainer Baake: Right now, through these feed-in tariffs. That means that the consumers pay the difference between the feed-in tariff and the wholesale price that can be achieved at the energy market.
Monica Trauzzi: And have there been any challenges to consumer acceptance?
Rainer Baake: Yes, of course. We have an ongoing debate over energy costs and prices, but if I look at the last 15 years, private households in Germany always spent 2 percent of their expenditures on electricity costs. That has not really changed. And the industrial consumers, you have two groups. You have the group of the very energy intensive industry, like for example aluminum or steel or chemical plants. They are not participating in paying for this surcharge. They have been freed to a large extent. But at the same time, they're benefiting very much from this development because we have seen the wholesale prices at our energy exchange drop by 50 percent between 2008 and 2013. So way back, you paid about €90 to €100 per megawatt hour. Now you're paying half of that money. And this also due because of high shares of renewables, because they come in and they push out the more expensive generators, and the price at the wholesale market is going down.
Monica Trauzzi: So here in the U.S., we've seen the states lead in many ways in creating renewable portfolio standards. We don't have a federal RPS here in the U.S. What's your view on state versus federal? How has Germany handled that? And what is the relationship between municipalities, the states and the federal government look like there?
Rainer Baake: Well, I think the situation in Germany is quite different from your situation here. The energy policy is being decided on the federal level, and the states have influence via our Second Chamber, but they don't really have an energy policy. We have one single market in Germany, but also in Europe. In Europe, with the limitations of the transmission lines between our countries, Germany is trading electricity with all our neighboring countries, but there are certain limitations. But within Germany, it's one market, and the market design is being decided by the federal government.
Monica Trauzzi: So do you think there's a lesson to be learned there for the United States in terms of who should be engaging on policy and leading the way?
Rainer Baake: I don't want to give any advice. You have to decide these questions on your own. I can only say what worked in Germany, and then you have to see what you do with these experiences in your own country.
Monica Trauzzi: There is continued uncertainty on tax incentives here in the U.S. For the wind industry, for example, they're getting year to year extensions of their tax breaks. In your opinion, how many years of certainty does an industry require in order to make the appropriate investments?
Rainer Baake: Well, I'll give you an example. If you want to invest in a new plan for producing windmills, you're not going to do that if you only see a market for the next two or three years. Yeah? You want at least 15 years of certainty in order to invest so much money into a very expensive plant. So in Germany, with our support scheme, where we guaranteed the investors return on their investment for 20 years, that created a very stable environment. And that made it possible that we created 380,000 jobs in the renewable business, because it was a good and relatively secure investment for many people. And if I compare it to other European countries, yeah, you can get the kilowatt hour from a windmill or a solar panel cheaper in Germany than in most other countries.
Monica Trauzzi: All right. An interesting story. We'll end it right there. Thank you for coming on the show. I appreciate it.
Rainer Baake: You're welcome.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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