What is the feasibility of the power supply system

Integration of renewable energies into the power supply system

So far, the mostly uncompetitive power generation based on renewable energy technologies has been promoted in Germany with the help of a system of feed-in tariffs. Technology-specific remuneration, usually fixed over a period of 20 years, is granted for the priority feed-in of “green” electricity into the public grid. This type of financial support for “green” electricity, which has been laid down in the Renewable Energy Sources Act (EEG), which has been in force since April 2000, is viewed worldwide as an exemplary and particularly successful support model and has been copied in numerous countries.1

In addition to climate protection and technology policy motives, which are explicitly mentioned in the text of the EEG2 law, the promotion of alternative technologies in public is mainly justified by the fact that their subsidized dissemination would create a large number of jobs. The Federal Environment Ministry points out that the number of jobs created in the “renewable energies” sector rose by 55% from 2004 to 2007 to 249,300.3 Once again, “renewables” are spoken of as a “job engine for Germany”. 4 If the EEG continues to exist, the BMU5 expects more than 400,000 jobs by 2020. While the climate protection effects of the EEG will be completely neutralized if it coexists with the emissions trading established in 2005, as has been done by numerous economists such as Blankart et al.6 and already was stated in 2004 by the Scientific Advisory Board of the Federal Ministry of Economics, 7 the aim of this article is the critical discussion of the employment effects of the EEG and its implications for technological development.

Employment effects

The above figures and predictions about the employment effect only reflect the gross, but not the net employment effects and conceal the real implications for the economic well-being of a society by ignoring the adverse effects of this type of supposed employment promotion. In this way, conventional electricity generation is being replaced by “green” electricity. This is accompanied by negative employment effects for conventional electricity suppliers, not least in upstream sectors such as conventional power plant construction. The number of jobs that were lost or not created there in the course of the EEG subsidies - although difficult to grasp because of their non-existence - must be subtracted from the number of jobs actually created in the renewable energies sector in order to arrive at the net employment effects.

The actual employment effects are clearly overestimated for another reason. It can be assumed that those employed in the field of renewable energies were not all unemployed before and that they got a new job solely through their support. In fact, this is unlikely. Apart from the fact that the problems of unemployment can be solved with other, specially created instruments, it is not the typical unemployed who are used in the construction of renewable energy systems.8 Rather, it must be assumed that the beneficiary sector is looking for qualified people Personnel enters into competition with other competitive sectors.

It can therefore be assumed that the subsidized employment in the field of renewable energies will lead to high competition for qualified workers and that the actual employment effects will be far less than the gross employment figures mentioned above would lead you to believe. Even if only unemployed people were to be paid for by promoting renewable energies, the other sectors would have fewer unemployed people available for possible recruitment, so that fewer jobs could be filled there than would otherwise be possible

Burdens from higher prices

Above all, however, when determining the net employment balance, it should not be forgotten that the non-negligible subsidy costs also lead to job losses outside of the electricity generation sector or at least to the abandonment of job creation. The annual feed-in tariffs of currently 12 billion euros per year to be paid by consumers via an increase in electricity prices reduce economic activity in other sectors. There are two important aspects to consider here. First: Even if the burden on one of the approximately 82 million household members seems comparatively low, the loss of purchasing power of private consumers as a result of higher electricity prices adds up to a total of over 100 billion euros over the funding period of up to 20 years With the exception of the energy-intensive companies, which are largely spared by the higher electricity prices, the investments of the industrial electricity consumers are also billions less than without subsidizing the new renewable energies due to the higher electricity prices.

As the budgets of industrial consumers are reduced by higher electricity prices, fewer funds are available for more profitable investment alternatives. The loss of purchasing power associated with higher electricity prices and the withdrawal of investment capital have negative effects on jobs in other sectors.11 This raises doubts as to whether the job effects of subsidizing “green” technologies can turn out to be positive on balance.

This raises the fundamental question of whether it is the market that would favor competitive conventional electricity generation technologies or the policy that promotes inefficient “green” technologies can provide more employment and thus greater welfare overall. The superiority of politics must be viewed with skepticism here - its comparative advantage is not necessarily to be assumed in the immediate creation of jobs.

The ultimate goal of good politics should be to maximize social welfare, not to create jobs. It must not be the task of politics to increase the number of employees in alternative electricity generation by specifically promoting labor-intensive “green” technologies. If employment were the goal, highly paid cycling and rowing professionals should join the CO2-low power generation via many small generators can be used. This example, which should not be taken seriously, makes it clear that it would be a fundamental mistake to want to increase the size of the production factor labor instead of looking at the factor labor as a means of production which not only generates benefits but also generates costs. In this example, the costs per kilowatt hour of electricity produced would be so strikingly high that this is immediately obvious.

In fact, many proponents of renewable energies see the need to generate a certain amount of energy with more employees as positive, as Michaels and Murphy12 emphasize. However, this view ignores the fact that this type of employment control reduces the output potential of the economy. Overall, this is counterproductive for the creation of jobs.

For this reason, numerous studies in the past have expressed skepticism with regard to the positive net employment effects of promoting renewable energies. The Institute for Economic Research in Halle, for example, states that if the investment costs or the displacement of private use of investment funds are taken into account, “practically no employment effects could be determined” .13 Fahl, Küster and Ellersdorfer14, the Bremer Energie Institut15 and Pfaffenberger16 made similar statements and the RWI17 or Hillebrand et al.18

A study commissioned by the Federal Environment Ministry is one of the few studies that claims that the EEG subsidy has a positive net employment effect and that more than 56,000 net jobs would be created from 2020 onwards.19 However, this figure puts the gross employment reported for 2004 in the same study into perspective This study also does not exclude the possibility of negative net employment effects if exports for the use of renewable technologies do not develop as positively as assumed.21

Opportunity costs of EEG funding

In any case, the gross jobs created through the promotion of renewable energies are bought at a high price. The creation of 50,000 green jobs in Spain required expenditure of 28.7 billion euros.22 That is 574,000 euros per job. Similar high subsidies are granted in Germany for every job in the photovoltaic industry. Based on the net costs of around 17.4 billion euros for all systems installed in 200923, the subsidies per capita would be around 290,000 euros, assuming 60,000 employees in the German photovoltaic sector24

In fact, the costs per job are likely to be higher, as the number of jobs could be overestimated by the solar association out of self-interest. It can be assumed that the craftsmen who install the systems also carry out other activities, such as installing heating systems. This means that these craftsmen cannot be assigned solely to the photovoltaic sector. It is questionable whether this is sufficiently taken into account in the information on employees, not least because of the difficulty of correctly assigning them to sectors.

These exorbitantly high sums per job must be withdrawn from other sectors. According to Álvarez et al.25, this leads to the destruction of jobs there: For every “green” job created in Spain, 2.2 other jobs are simultaneously destroyed. One reason for this is that the increased electricity prices to promote renewable energies have led some companies to relocate their factories to countries with lower energy costs.26

Finally, the opportunity costs of promoting alternative investments must not be disregarded: With real net costs of around 52.5 billion euros for the photovoltaic systems installed in Germany between 2000 and 2009, the question must be asked whether this enormous sum would not make more worthwhile ones Investments should have been financed. These include, for example, spending on education or the research and development of energy conversion and storage technologies, for which much more money would have been available if the horrendously high funding for photovoltaics had been dispensed with.

The question of what a nation has to give up for such massive funding, i.e. the question of the use of substantial funds for alternative purposes, is unfortunately rarely asked by politicians.28 This is all the more regrettable as it can be assumed that investments in education and Research can increase the welfare of a country much more in the long term than the widespread dissemination of far from mature alternative technologies that are not competitive at the present time and in the foreseeable future due to efficiency and cost disadvantages.

Technology promotion

The example of the cycling and rowing professionals who are used to generate electricity instead of in the field of sport, in which these professionals have their comparative advantages, shows that the focus of action in politics should not be the creation of jobs, but the creation of favorable framework conditions . These should allow the most cost-effective production of goods and services. These framework conditions include the promotion of research and development of new production methods in which fewer resources in terms of energy, environment, capital or even labor are used in order to generate the same output as with the existing technologies. As a result, the standard of living of the population can be increased, in that the resources that are freed up can be used to meet other human needs.

The fact that research and technology funding is undoubtedly one of the tasks of the state is due not least to the fact that the research output financed by private market actors tends to be too low.29 From an economic point of view, there is “too little” research if the Expenditures turn out to be lower than the expected income. Private actors are likely to show very little interest in the financing of basic research in particular, since the probability of direct market-based use of research successes is relatively small and the successes generally benefit everyone. In this case of market failure, it is up to the state to promote research and technology.

State research and technology funding should, however, be carried out in a non-targeted manner, since politicians cannot identify the technologies that will be successful in the future decades in advance.30 Von Hayek31 attributes this primarily to the fact that the state generally does not have the necessary information. Accordingly, the state should promote many different technologies equally, not least because a preference for one technology, for example for reasons of industrial policy, always means discrimination against other technological developments at the same time

With the privilege of photovoltaics in Germany, which is funded exorbitantly with billions and billions of euros, the opposite is happening: Compared to the electricity output it generates, photovoltaics receives by far the most subsidies.33 The state thus measures its own knowledge in promoting this technology that actually doesn't exist. To make matters worse, the indirect type of funding for research and development (R&D) by means of feed-in tariffs has in practice not led to high research expenditures by the companies benefiting from the EEG.

Although the EEG remuneration increased more than tenfold between 2000 and 2009 and rose from around 0.9 to almost 10 billion euros, 34 the expenditures for research and development in the field of renewable energies are both in absolute terms and in relation to The sales achieved turned out to be low: The two largest German solar companies, Q-Cells and Solarworld, only gave around 1.2% and 3.3% of their sales in 2009 with EUR 26.5 million and EUR 12.0 million, respectively Sales for research.35 This means that these still comparatively young companies lag far behind the R&D expenditures of traditional companies. Siemens, for example, invested around 4.9% of sales in research and development in 2008 with EUR 3.8 billion.

In its study from June 2010, the Deutsche Physikalische Gesellschaft also criticized the fact that, despite the massive EEG support, the R&D intensity of the photovoltaic industry has fallen from 2% to less than 1.5% of sales in recent years, whereas research-intensive companies such as large pharmaceutical manufacturers have fallen have a rate of 15-20%, Intel of 15.2% or Microsoft of 13.8%. In addition, the Deutsche Physikalische Gesellschaft criticizes the fact that the low R&D activities in the solar industry are mainly focused on production-related aspects. 36

Instead of promoting technology, for which the financing of prototypes is sufficient, 37 the subsidies for renewable energies were consequently used to a large extent for the widespread dissemination of systems. Both domestic and foreign companies benefit from the spread of systems promoted in this way. The Chinese company Suntech Power, founded in 2001, rose to the top of the world's photovoltaic module manufacturers, primarily due to the German feed-in tariffs, while there has been no significant funding in China to date. Feed-in tariff systems like the EEG evidently give the competition exactly the same opportunities for technological development and export as domestic companies. Although this does not necessarily have to be rated negatively from a welfare point of view, this does not necessarily correspond to the objective of the funding.

In order to improve the competitiveness of its companies, every state would be well advised to rely directly on R&D funding instead of the watering-can-like funding by means of feed-in tariffs, from which foreign companies can also benefit and which apparently do not necessarily have too high private research expenditure Run business. Providing targeted incentives that lead to the development of better technologies is critical to gaining real competitive advantage. In this respect, a feed-in tariff system fails almost all along the line, since it largely stifles the incentives for innovation by the fact that each technology receives subsidies according to its competitive deficit.

Market distortion through the remuneration system

Even with the repeatedly cited argument of the first mover advantage of countries that gain a foothold early on in the global market and thus allegedly gain long-term advantages, it is not far off. That this argument is not tenable is currently shown by the example of Germany, which has been promoting photovoltaic technology for a decade by means of feed-in tariffs - to an extremely increasing extent since 2005 - and yet increasingly with the dominance of Asian manufacturers - especially from China - on the world market has to fight. Although the Chinese companies were not allowed to enjoy such exorbitant national funding as the German manufacturers, they were unable to secure a decisive advantage over the Asian manufacturers. On the contrary: it is likely that the high EEG remuneration for solar power is partly to blame for the efficiency disadvantages of German companies, since the incentives to make corresponding efficiency efforts were lacking.

Another market distortion arises from the degressive remuneration system (see Table 1). The remuneration does not decrease for systems that have already been installed, but for the systems to be newly installed. Although the degression is intended to save electricity consumers costs and provide incentives for innovation, the annual reduction in the tariff rates should lead to investors wanting to install the existing, mostly still inefficient technology as quickly as possible, instead of waiting patiently for a possible technological breakthrough.

Table 1
Technology-specific remuneration
Wind on-shore9,19,198,98,78,538,368,198,039,2
Wind off-shore9,19,198,99,19,19,19,18,9215
Medium compensation8,58,698,919,169,291010,8811,3612,2513,6

Sources: Federal Association of Energy and Water Management (BDEW): EEG annual accounts 2001 to 2009, Berlin 2001-2009; Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU): Act to revise the law on renewable energies in the electricity sector and related regulations, Federal Law Gazette, year 2008, Part I, No. 49, issued in Bonn on October 31, 2008; the same: The Renewable Energy Sources Act (EEG) of March 29, 2000, Federal Law Gazette, Part I, p. 305; the same: text of the EEG 2004 from July 31, 2004, Federal Law Gazette, part I, no.

As a result of these perverse incentives, investments in green technologies are made when they are expensive. The degressive design of a feed-in tariff system therefore has very ambivalent effects. It is understandable that investors in photovoltaic systems in particular do not have the necessary patience. After all, investments in conventional solar modules were very attractive after the sharp drop in prices in 2009, if you could secure the high remuneration of up to 43 cents per kWh.

Last but not least, it is to be criticized that the EEG funding mechanism is highly susceptible to lobbying and must be viewed as a classic example of an unreasonable energy policy that determines winners and losers in a seemingly arbitrary manner. With each amendment of the EEG, the remuneration for individual technologies has been increased again. In the 2008 amendment, for example, the wind power tariff was raised with reference to the sharp rise in steel prices. It is very unlikely that such a policy-driven technology promotion program will produce an energy mix that is more efficient in the long term than the mix that would have resulted without government intervention.38

Summary and conclusion

The EEG promotion of renewable energies is often presented as a multiple win-win solution with which one would meet the responsibility for the environment and at the same time ensure economic prosperity and additional employment. However, this is not the case. Instead, this funding mechanism brings with it sharply increasing burdens for electricity consumers, but without being able to stimulate the economy in the long term. The EEG surcharge will rise from 2.047 cents per kilowatt hour in 2010 to an expected 3.2 to 3.5 cents in 2011, an increase of up to 75% within one year.

As the burden on electricity consumers increases, so does the number of votes that refer to German funding policy as a historical warning and a prime example of extremely wasteful environmental and energy policy. Among the representatives and institutions who are of the opinion that the EEG funding does not offer any economic and ecological advantages in the long term, net and in the long term, include Blankart et al.39, Frondel, Ritter, Schmidt40, Weimann41, the Council of Experts for the Assessment of Overall Economic Development42 , the Monopolies Commission or Haucap, Coenen, Schweinsberg43, the Kronberger Kreis44, Frondel, Ritter, Schmidt, Vance45, the Scientific Advisory Board at the Ministry of Finance46 and the German Physical Society47. In view of this critical voting power, the federal government would be well advised to rethink its funding policy and finally commit itself to the primacy of cost efficiency in order to keep the already high burdens on electricity consumers much more limited than before.

  • 1 M. Frondel, N. Ritter: Germany's way of promoting renewable energies: Not recommended for imitation, in: Zeitschrift für Umweltpolitik & Umweltrecht, 2010, p. 261.
  • 2 Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU): Act to revise the law on renewable energies in the electricity sector and related regulations, Federal Law Gazette, year 2008, Part I, No. 49, issued in Bonn on October 31, 2008.
  • 3 Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU): Gross employment from renewable energies in Germany in 2008, Berlin 2008, p. 9.
  • 4 Ibid, p. 31.
  • 5 Ibid.
  • 6 CB Blankart, C. Böhringer, F. Breyer, W. Buchholz, T. Requate, CM Schmidt, CC von Weizsäcker, J. Weimann: The energy lie, in: Cicero - magazine for political culture, No. 12, 2008 .
  • 7 Federal Ministry of Economics and Labor (BMWA): For the promotion of renewable energies, report of the Scientific Advisory Board at the Federal Ministry of Economics and Labor, Berlin 2004, Documentation No. 534.
  • 8 Kronberger Kreis: For effective climate protection. Volume 49 of the publication series of the Marktwirtschaft Foundation, 2009, p. 33. The Kronberger Kreis is the Scientific Advisory Board of the Marktwirtschaft Foundation. It includes Juergen B. Donges, Johann Eekhoff, Lars P. Feld, Werner Möschel and Manfred J. M. Neumann.
  • 9 R. Michaels, R. P. Murphy: Green Jobs: Fact or Fiction? Institute for Energy Research, Washington DC, January 2009.
  • 10 M. Frondel, N. Ritter, CM Schmidt, C. Vance: The economic effects of promoting renewable energies: Experiences from Germany, in: Journal for Economic Policy, Vol. 59 (2010), No. 2, p. 107- 133.
  • 11 Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU): Renewable energies: job effects, effects of the expansion of renewable energies on the German labor market, short and long version, Berlin 2006, p. 3.