Three bills introduced recently would require that 25 percent of the country’s power come from renewable energy sources by 2025. Sen. Tom Udall of New Mexico said of his bill, “The global clean energy race is increasingly competitive, and our bill is the best way to help America take the lead and build a thriving clean energy economy…and create jobs.”
But a look at Germany, the second largest western economy, and its deliberate attempt to make its energy greener is instructive. Pushing green energy legislation and establishing mandatory quotas for green energy have simply not been the competition and job growth miracles they were intended to be. Though Germany has actually an oversupply of power, consumers pay higher prices than ever.
Over the last decade Germany became one of the leading forces in the global movement to subsidize green energy production and mandate its use. Germany’s renewable energy producers enjoy a guaranteed minimum price for their energy. So they can successfully produce and sell it at a guaranteed price, regardless of what customers want.
That has led to somewhat of an energy bubble in Germany. Many farmers and municipalities are producing green energy no one actually needs, but are entitled to sell it. In the end consumers have to pay for it. These policies caused a doubling of energy prices for German consumers over ten years.
Imagine you have various consumers going to a grocery store. Some of them want to buy a bottle of beer for 1 USD. Others would like to buy a bottle of champagne for 30 USD. In normal life people would just pay 1 USD for the beer and bubble-lovers would pay 30 USD for champagne. The German energy market is different. People who want the champagne pay 2 USD for it and those who want beer have to pay 2 USD. It’s a good deal for the champagne drinkers, getting subsidized by the beer buyers.
Consumers buying energy from legacy utility companies, such as coal or nuclear power producers, subsidize those who demand more expensive energy such as wind or solar power. Working-class families subsidize urban yuppies by paying for part of their energy bill. Green energy producers don’t even need to worry whether anyone wants their energy, as legislation entitles them to feed in their energy into the grid.
The German Minister of Environment, who is a big fan of the transition into renewable energies, put a 1.3 trillion USD price-tag on this change. This amount equals all the money companies and individuals in Germany earned over 180 days. These 180 days of earnings didn’t go to pay for healthcare, food, or housing.
Building a windmill in one’s yard or putting some solar panels on the roof is currently a bulletproof investment in Germany. The government even subsidized loans so individuals could invest in producing renewable energy themselves. And after getting the little green power plant started, the investor gets a guaranteed price for every kilowatt the plant produces.
Due to these bad incentives there’s often way too much energy in the power grid, forcing Germany to get rid of some of its power. German energy providers actually have to pay other countries’ grid operators to accept their energy in order to take pressure off the German grid. Countries like the Czech Republic and France have to take Germany’s energy, especially when it is very windy or sunny as windmills and solar panels are very productive on those days. On windless short winter days German utility companies have to buy nuclear power from France to light their Christmas trees.
Government intervention in the energy market, and especially laws requiring minimum quotas for green energy, raise energy prices. These higher prices are ultimately paid twice, first by taxation and then in the market, and all by the consumers.
The German example shows how legislation produced higher energy prices even as energy abounded. And it created a situation in which excess energy actually produces higher costs for consumers. Perhaps the least fair part of the whole scheme is how these prices disproportionately impact low-income households, who are forced to subsidize green energy for richer families to support politicians’ green energy visions.
Fred Roeder is the Director of Young Voices. He successfully founded a consulting firm, which focuses on healthcare consulting in post-communist countries and trans-atlantic healthcare partnerships. Fred also worked as a public policy advocate in health systems around the world (e.g. Germany, Canada, Lithuania, Romania) and conducted management trainings for the World Bank. As an Associated Researcher at the Montreal Economic Institute and a Senior Fellow at the Institut fuer unternehmerische Freiheit Berlin he advocates for sustainable healthcare systems, which allow affordability for future generations and intergenerational justice.