European Economic Stability Threatened by Renewable Energy Subsidies

October 31, 2013

The stability of Europe's electricity generation is at risk from the warped market structure caused by skyrocketing renewable energy subsidies that have swarmed across the continent over the last decade

The CEOs of Europe's largest energy companies, who produce almost half of Europe's electricity, joined voices calling for an end to subsidies for wind and solar power, saying the subsidies have led to unacceptably high utility bills for residences and businesses, and even risk causing continent-wide blackouts.

  • Under subsidy programs, wind and solar power producers get priority access to the grid and are guaranteed high prices.
  • In France, nuclear power wholesales for about €40/MWhr ($54/MWhr), but electricity generated from wind turbines is guaranteed at €83/MWhr ($112/MWhr), regardless of demand. Customers have to pick up the difference.

The subsidies enticed enough investors into wind and solar that Germany now has almost 60,000 MWs of wind and solar capacity, or about 25% of that nation's total capacity.  Sounds good for the planet.

The problems began when the global economic meltdown occurred in 2008.

  • Demand for electricity fell throughout Europe, as it did in America, which deflated wholesale electricity prices. However, investors kept plowing money into new wind and solar power because of the guaranteed prices for renewable energy.
  • Meanwhile, electricity prices have been rising in Europe since 2008, just under 20% for households and just over 20% for businesses, according to Eurostat.
  • Since renewable capacity kept rising and was forced to be taken, utilities across Europe began closing fossil-fuel power plants that were now less profitable because of the subsidies, including over 50 GWs of gas-fired plants, Mr. Mestrallet said.

In a warped parody of free market economics, some countries are building gas-fired plants along their borders to fill this void in rapid-ramping capacity, and that scares the markets even more, since gas is so expensive in Europe, that the price for electricity will climb even higher.

As the European Commission meets this week to discuss the issue, a parallel threat looms in America as a result of a similarly well-intentioned maze of mandates and subsidies over the last decade. It has been kept at bay only by our much larger energy production and our newly abundant cheap natural gas.

Source:  James Conca, "European Economic Stability Threatened by Renewable Energy Subsidies," Forbes, October 20, 2013.

 

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