NCPA - National Center for Policy Analysis

Germany's Coal Binge

September 29, 2014

The German shift to renewable power sources that started in 2000 has brought the green share of German electricity up to around 25%. But the rest of the energy mix has become more heavily concentrated on coal, which now accounts for some 45% of power generation and growing, according to the Wall Street Journal.

  • Germany's feed-in tariff, which requires distributors to buy electricity from green generators at fixed prices before buying from other sources, was part of Germany's strategy to intervene in the market.
  • Germans pay for market distortions, paying about $129 billion extra on electricity bills since 200.
  • The government estimates that these market distortions could cost the taxpayer 1 trillion Euros by 2040.

This intervention tried to generate more use of green energy, but ended up having the opposite effect. The tariff, for example, deprived generators of revenue and made it harder for them to forecast demand. The more attractive option was to favor cheap coal plants whenever renewables didn't deliver as promised.

Furthermore, with Germany's phase-out of nuclear power after the 2011 Fukushima disaster, utilities have had to find a source of power that is cheap and readily accessible. Again, they turned to coal. And finally, Berlin imposed a moratorium on fracking which prevents the access to shale-gas reserves, making coal, again, the attractive option.

Germany's coal renaissance is a cautionary tale for policymakers that try to intervene in the market to promote renewables and instead have to face economic realities.

Source: Wall Street Journal, "Germany's Coal Binge," September 24, 2014.

 

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