Europe has implemented Feed-In Tariffs. Shouldn’t We Learn from their Experience?

Europe’s feed-in tariffs have led to higher electricity prices without having positive impacts on emissions reductions, employment, energy security, or technological innovation. In Spain, the feed-in tariff has helped create a rate deficit so great that it imperils the sustainability of Spain’s electricity system. Despite these real-world experiences, some believe we should implement the same policies in the U.S. Recently ClimateWire carried the following item, with opening language provided:

RENEWABLES: UC Berkeley’s Kammen recommends upgraded feed-in tariff (07/09/2010)

A new paper from a leading climate policy expert makes the case that California should have a feed-in tariff like the ones in Germany and Spain that have been credited with creating unprecedented demand for solar power.

Dan Kammen is a professor of energy, policy and nuclear engineering at the University of California, Berkeley, and was an adviser to President Obama on energy policy during the 2008 campaign. He is backing a state-set price for renewable energy fed back to the electricity grid. The price guarantee, known as a feed-in tariff, would promote the development of wholesale distributed generation—mainly solar, but also some wind, biogas, biomass and geothermal power.

Here is what we know about how those schemes actually worked in those countries.

First, Germany, cited by President Obama as a green-economy model— ten times we think—according to the old-line, state-supported think tank RWI-Essen. From the Abstract of “Economic Impacts from the Promotion of Renewable Energy Technologies: The German Experience”, RWI-Essen, November 2009 (emphases added):

We argue that German renewable energy policy, and in particular the adopted feed-in tariff scheme, has failed to harness the market incentives needed to ensure a viable and cost-effective introduction of renewable energies into the country’s energy portfolio. To the contrary, the government’s support mechanisms have in many respects subverted these incentives, resulting in massive expenditures that show little long-term promise for stimulating the economy, protecting the environment, or increasing energy security.

From the body of the report:

While utilities are legally obliged to accept and remunerate the feed-in of green electricity, it is ultimately the industrial and private consumers who have to bear the cost through increased electricity prices. .. Overall, the level of feed-in tariffs increased nearly six-fold between 2001 and 2008….

This high support for solar electricity is necessary for establishing a market foothold, with the still low technical efficiencies of PV modules and the unfavorable geographical location of Germany being among a multitude of reasons for solar electricity’s grave lack of competitiveness… Even on-shore wind, widely regarded as a mature technology, requires feed-in tariffs that exceed the per kWh cost of conventional electricity by up to 300% to remain competitive.

[T]he system of feed-in tariffs stifles competition among renewable energy producers and creates perverse incentives to lock into existing technologies…

[A]lthough Germany’s promotion of renewable energies is commonly portrayed in the media as setting a “shining example in providing a harvest for the world” (The Guardian 2007), we would instead regard the country’s experience as a cautionary tale of massively expensive environmental and energy policy that is devoid of economic and environmental benefits. . . .

[T]he commonly advanced argument that renewables confer a double dividend or ‘win-win solution’ in the form of environmental stewardship and economic prosperity is disingenuous. In this article, we argue that Germany’s principal mechanism of supporting renewable technologies through feed-in tariffs, in fact, imposes high costs without any of the alleged positive impacts on emissions reductions, employment, energy security, or technological innovation….

Second, numerous empirical studies have consistently shown the net employment balance to be zero or even negative in the long run, a consequence of the high opportunity cost of supporting renewable energy technologies. Indeed, it is most likely that whatever jobs are created by renewable energy promotion would vanish as soon as government support is terminated. . . .

How about Spain? According to a 2009 study from King Juan Carlos University in Madrid, “Study of the effects on employment of public aid to renewable energy sources”, subsidizing renewable energy was a complete disaster. In fact, the study said that for every new job depending on energy price supports, at least 2.2 jobs in other industries will disappear. Once again a key contributor was the feed-in tariff scheme:

Optimistically treating European Commission partially funded data, we find that for every renewable energy job that the State manages to finance, Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.

Therefore, while it is not possible to directly translate Spain’s experience with exactitude to claim that the U.S. would lose at least 6.6 million to 11 million jobs, as a direct consequence were it to actually create 3 to 5 million “green jobs” as promised (in addition to the jobs lost due to the opportunity cost of private capital employed in renewable energy), the study clearly reveals the tendency that the U.S. should expect such an outcome.

At minimum, therefore, the study’s evaluation of the Spanish model cited as one for the U.S. to replicate in quick pursuit of “green jobs” serves a note of caution, that the reality is far from what has typically been presented, and that such schemes also offer considerable employment…

Here is what the Spanish government said in an April 2009 Royal Decree issued on the heels of this study’s findings:

The rate deficit, manly caused by the feed-in-tariff system to support renewable energies, “is deeply harming the system and puts at risk not only the financial situation of the electric sector companies´ but also sustainability of the system itself. This dis-adjustment turns out to be unsustainable and has grave consequences since it deteriorates the security and financial capacity of the investments necessary for providing electricity at the levels of quality and security that the Spanish society demands.”

So, by all means, let’s have an open and honest debate about how President Obama’s models for a centrally planned “green” economy have worked out, particularly in Spain and Germany and specifically their feed-in tariff schemes. Given the reality, however, you shouldn’t count on that occurring.

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