• Bob Johnstone

08 October 2008In this article first published in D!SSENT, BOB JOHNSTONE explains why Australia should now follow the German example

ON 22 April 2008 full-page advertisements in three British national newspapers used a football analogy to depict the UK’s feeble performance in solar power compared with that of Germany. “Climate Own Goal,” ran the headline, “Solar Power: Germany-200; England-1.” If a similar ad were to appear in papers here, it would read, “Solar Power: Germany-1,000; Australia-1.” And we don’t even have the excuse of a miserable climate.

With the arrival of a new, supposedly environment-friendly government whose first act was to sign the Kyoto Protocol, Australians were entitled to expect some bold pro-solar policies. We are after all one of the world’s sunniest countries, and solar is one of the most promising technologies for producing clean, carbon-emission-less electricity. Instead, almost unbelievably, by introducing means-testing for the rebate on solar photovoltaic systems, the Rudd government has managed to hamstring Australia’s nascent solar power industry.

Meanwhile at the state level, things have also been going awry for solar. In Victoria the Brumby government, in emulation of its counterparts in South Australia and Queensland, has managed to mangle proposed legislation for a solar “feed-in tariff,” the crucial mechanism via which Germany has so spectacularly leapfrogged the rest of the world.

This article looks at what the Germans have done right in solar, and the benefits that they have reaped. Also, at why the schemes that Australian governments have adopted are doomed to fail, with dire consequences for the environment and the economy.

Let’s start with some facts. Today, Germany generates more than half the world’s solar electricity, with an installed capacity of around three billion watts. Close to half a million German households have solar photovoltaic-i.e., electricity-generating as opposed to water-heating-systems clamped to their roofs (compared with fewer than 5,000 in Australia). In addition to such small-scale systems, Germany also boasts lots of large-scale ones. For example, fields filled with rows of panels by pig farmers (selling power is more profitable than pork). The resultant reduction in carbon emissions is roughly ten million tonnes per annum.

In 2000 the Bundestag passed the Renewable Energies Law (Erneuerbare Energien Gesetz, or EEG) which introduced a nationwide solar feed-in tariff. Since then a whole new German solar industry has sprung up. It employs around 40,000 people-more than the German coal-mining industry-mostly in the former East Germany. Some five thousand companies, almost all entrepreneurial startups, are active in the sector. The most spectacular success story is Q-Cells, a manufacturing firm founded in 1999. Last year Q-Cells overtook Sharp of Japan to become the world’s largest producer of silicon solar cells. In 2007 the company grew by 59 per cent, with sales of around A$1.3 billion. At a single greenfield site near Leipzig, known to locals as “Solar Valley,” Q-Cells and its affiliates-which include CSG, formerly Pacific Solar of Sydney-are building five massive factories. (Two others are under construction in Malaysia and Mexico.)

Surveys indicate over 80 per cent of Germans are pro-solar. The constituency is broad-based. In addition to environmentalists, supporters include farmers, unionists, business interests, and Lutherans (900 of whose churches have solar panels on their roofs, “protecting God’s creation”). In 2006, Bavaria in Germany’s sunny south became the first region in the world to generate one per cent of its electricity from solar. Analysts estimate that Germany as a whole will reach one per cent by 2015 (up from 0.4% in 2007), and ten per cent by 2025. This prediction is based on the success of wind energy, which went from almost zero in 1994 to more than 6 per cent in 2006, and on the fact that the German PV industry as a whole continues to grow by more than 30 per cent per annum.

As we have seen, the crucial mechanism which has enabled this unprecedented high-tech industrial revolution in what was supposedly “old” Europe is the solar feed-in tariff enacted by the EEG. This guarantees a premium rate for a period of twenty years for all electricity generated and fed into the grid by owners of solar systems. Individuals who purchase a solar photovoltaic system can thus be confident that they will recoup their investment, plus a modest profit (of around 6 per cent, just like power companies make), doing well by doing good. The electric utilities are responsible for making the reimbursements, which are paid for by imposing a small surcharge-around one per cent-on everyone’s electricity bill. The big difference brought about by the German feed-in tariff is that it has changed the decision to invest in solar from a moral one, which is applicable only to well-heeled tree-huggers, to a financial one, which is applicable to anyone who wants to make money. It also gives certainty to businesses, which are willing to invest because they know that there will be a market for their products.

Because the EEG was enacted by the German government, an economic rationalist might object that it represents a prime example of the command-and-control policies practised by a notorious nanny state. Nothing could be further from the truth. In fact, it was a combination of grassroots activists and maverick backbenchers who got the bill passed, against the wishes of party leaders. To understand what has happened in Germany, you have to go back more than twenty years, to the early 1980s. In a heavily-forested country populated by legions of nature lovers, the impact of acid rain caused by sulphuric acid from coal-fired power stations was devastating. That was followed in 1986 by an even more shattering blow, the nuclear catastrophe at Chernobyl. Though Germany was not as badly affected by toxic fallout as Scandinavian countries, the reaction there was strongest. Germans were especially sensitive to nuclear because of a widespread awareness, following the deployment in Germany of the so-called “Euromissiles,” that their country would be hardest hit in any future nuclear war. Politicians had promised them that atomic power was safe. Now, confidence in their leaders shaken, citizens throughout the country formed groups to take energy production into their own hands.

In the north, Germans turned to coastal breezes to drive wind turbines; in the south, snowmelt from the mountains was ideal for hydro. In the landlocked middle of the country, however, the only resource available was the sun. But solar was by far the most expensive of the renewables. How could such a technology be afforded? That was the problem that citizens’ groups, notably the Solar Energy Promotion Association in the small city of Aachen, solved by formulating a model for what would later become the solar feed-in tariff. They were fortunate in that, while the German electricity market is dominated by big firms, there are also around a thousand municipal utilities. These were susceptible to pressure from local activists. By 1996, the Aachen model had spread to more than forty municipalities, including some big cities like Munich and Hamburg.

At the same time visionary MPs, notably Hermann Scheer of the Social Democratic Party, which (like our Labor) has been a staunch supporter of the coal mining industry, put pressure on the government to support the fledgling solar industry. One result was the so-called 1,000 Roofs Program, launched in 1990, thanks to which the number of solar-equipped households in Germany increased from six to 2,250. This program, like its successor, the 100,000 Roofs program, launched in 1998 after the “Red-Green” coalition took power, depended heavily on subsidies from federal and state governments.

Subsidies undoubtedly have a role to play in kick-starting an industry. But, as the Greens insisted, over-reliance on government largesse is fundamentally flawed. For one thing, rebates reward installation of hardware rather than the generation of clean energy, which is the goal. For another, they involve bureaucratic delays (sorry, this year’s quota is full, you’ll have to wait until next year) and red tape (would-be solar purchasers in California are required to fill in a forty-page form to qualify for their rebate). Most serious of all, as we have recently seen here, subsidies are subject to political whim, radical modifications occurring each time government changes hands. Such uncertainly is anathema for business. In 2004 the EEG was amended, increasing tariffs for solar and eliminating the need for further subsidies. Already growing fast, at this point the German solar industry took off.

Following the success of the German solar feed-in tariff, many European countries and, latterly, some US states have sought to emulate it. Few have succeeded, because they have seen fit to tamper with the four essential ingredients. These, as Hans-Josef Fell, the Green deputy who was largely responsible for drafting the EEG, explained to me when I visited him in Berlin last November, are as follows.

Access to the grid must be guaranteed. That is, the utilities must be legally obliged to accept all electricity generated by private producers.

Tariffs must be high enough to produce a return on investment, plus a small profit. The current German tariff is 49 euro cents per kilowatt-hour (roughly 80 cents Australian), about two and a half times the retail price of electricity.

Tariffs must fixed for a long enough period (typically twenty years) to give certainty. In addition to giving businesses security for market development, this also makes it easy for would-be producers to obtain bank loans.

There must be “degression.” That is, an annual stepwise reduction in tariffs by a certain percentage (in Germany currently five per cent, increasing to eight per cent in 2009). This encourages would-be solar system purchasers to buy now rather than later. It also puts pressure on manufacturers of solar systems to innovate, so that they continually reduce their production costs.

As well, the Germans recommend that there should be no cap on capacity. In practice, however, most schemes begin with a cap of some sort, which is subsequently removed.

The other regulatory mechanism used to support the deployment of solar systems is called “net metering.” Particularly popular in the US, this takes advantage of the fact that a conventional electricity meter spins backwards as well as forwards. Surplus electricity supplied to the grid turns the meter back, reducing the net amount charged. The disadvantage of net metering is that the most solar system owners can do is reduce their electricity bills to zero, they cannot actually make money. (This can induce perverse behaviour: having reduced their bills to zero, some consumers reportedly turn on extra appliances to soak up excess electricity rather than feed it into the grid for no benefit to them.) Taxpayer-funded rebates are needed to make up the difference.

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In Australia, state governments have hit on a unique variation: cobbling together net metering with a feed-in tariff to produce a chimera known as a net-as opposed to gross-feed-in tariff. Or, as renewable energy insiders disparagingly describe it, a “faux feed-in tariff.” In other words, instead of paying a premium rate for all the electricity generated by solar systems, the utility is required to pay only for any excess, after subtracting the amount used by the householder on whose roof the system sits. Watering down the tariff in this way removes the guarantee of return on investment that is essential for the widespread adoption of solar.

In early May 2008, the Victorian cabinet announced that it would introduce a net feed-in tariff in 2009. This followed heated clashes between ministers of “green” and “brown” (a reference to brown coal, the filthiest of fossil fuels, on which Victoria depends for more than ninety per cent of its electricity) persuasions. The Age described it as “one of the most intense [debates] in recent years.” The premium rate would be 60 cents per kilowatt hour-the highest in Australia, bragged Energy Minister Peter Batchelor, the leader of the brown faction-versus the standard retail rate of 17 cents. Batchelor argued that such a rate, in conjunction with the federal rebate of $8,000, would reduce the payback time for a $21,000 solar system to less than ten years.

Environment groups begged to differ. According to Environment Victoria, the average daily Australian household consumption of electricity is 16 kilowatt-hours. Victoria gets an average of around 4 hours of sun a day. The maximum size system eligible for the feed-in tariff is 2 kilowatts. Such a system can produce an average of 8 kilowatt-hours, in other words, about half of daily average consumption. Given that owners only get paid for the excess power they produce, there is no way they can ever recoup their investment.

Environment groups also disagreed with the minister on his calculation of the cost to the community of a solar feed-in tariff. The government claimed that a gross tariff would have raised electricity bills by ten percent. “In my conscience I couldn’t have supported something that was going to put up power bills by such a huge amount for low-income families,” explained a solicitous-looking Premier John Brumby. But where had this wildly exaggerated figure come from? Certainly not from Germany, where the cost of the feed-in tariff works out in real terms to about two dollars a month, less than the price of a cup of coffee.

The following week things went from bad to worse, with the announcement by federal Environment Minister Peter Garrett that the solar rebate would be means-tested. Effective immediately, only households earning less than $100,000 would now qualify. The result was dramatic: solar installers reported that customers were cancelling their orders in droves. Having lost millions of dollars worth of business, companies started laying off workers.

The solar rebate is seen by the Rudd Government as an instance of “middle-class welfare,” a disapprobatory term of class envy that seems to be current only in Australia. The rich can afford to install solar without the aid of the state. But this view confuses social policy with energy policy. Let us be clear, deploying as many solar systems as quickly as possible benefits not just the well-heeled, but the entire community. Every kilowatt hour of clean, sustainable solar electricity fed into the grid means one less kilowatt-hour of its carbon-laden, climate-changing equivalent. Plus, photovoltaic systems operate most efficiently during the hottest part of the day, when electricity is most expensive (because utilities have to bring on power from “rolling reserve” peak-lopping plants to cope with everyone simultaneously switching on their air-conditioners). Plus, solar is distributed as opposed to centralised; having multiple sources of power is good for the grid, making it more robust. Plus, implementing solar systems mobilises private capital, meaning that less public money has to be invested in infrastructure. Plus, as the German example so vividly demonstrates, solar means jobs.

It is not too late. As poll after poll has shown, the community is clamouring for solar. Australians must act quickly if the misguided policies that our politicians have proposed are to be rectified. The coal and electric power generation industries and their parliamentary stooges will fight it every inch of the way, but we must demand an effective solar feed-in tariff along German lines. To achieve this goal, here too we should follow the German example, by joining citizen’s groups and lobbying our representatives, to prevent them from scoring any more own goals. •

Bob Johnstone is a Melbourne-based, deracinated Scot who has been writing about the impact of technology on society for twenty five years. He has served as Japan correspondent for New Scientist, technology correspondent for the Far Eastern Economic Review and contributing editor for Wired. He is working on a book about solar power. This article first appeared in D!SSENT.

Photo: Olaf Loose/iStockphoto.com