NCPA - National Center for Policy Analysis


April 1, 2010

Green power advocates in the United States are pushing for a European-style subsidy scheme in which homeowners or businesses that install solar panels or windmills can sell their excess power back to the grid at inflated prices.  Utilities in Europe are required by the state to pay above-market rates for this environmentally friendly power, says Reason Magazine. 

These so-called feed-in tariffs were first devised in Germany in the early 1990s and have been adopted by nearly 20 other countries as a way to boost renewable energy production.  As the result of its feed-in tariff scheme, Germany has the world's second-largest installed wind capacity--behind the United States--and the largest installed solar photovoltaic capacity in the world.  However, a recent report by the independent German economics think tank, RWI, found: 

  • The solar electricity feed-in tariff of 59 cents per kilowatt-hour in 2009 is more than eight times higher than the wholesale electricity price and more than four times the feed-in tariff paid for electricity produced by on-shore wind turbines.
  • The report noted, "Installed capacity is not the same as production or contribution." In 2008, 6.3 percent of Germany's electricity production was from wind, followed by 3.6 percent from biomass and 3.1 percent from water.
  • Meanwhile, the report notes, "The amount of electricity produced through solar energy was a negligible 0.6 percent despite being the most subsidized renewable energy, with a net cost of about €8.4 billion (US $12.4 billion) for 2008."  

German consumers foot that bill: 

  • In 2008, the price mark-up due to green energy subsidies amounted to 7.5 percent of average household electricity prices. Keep in mind that German residential electricity prices are already high at about 30 cents per kilowatt-hour.
  • The average American pays about 12 cents per kilowatt-hour. 

Several European countries have decided to cut back on feed-in tariffs, says Reason.  The irony is that American states and municipalities appear to be adopting this failed renewable energy strategy just as the Europeans who invented it are scaling it back, says Reason.

Source: Ronald Bailey, "Overpaying for Green Power," Reason Magazine, May 2010. 

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