The Feed-in Tariff (FiT) has proven to be the most successful policy for climate protection and sustainable development. As the cornerstone of overwhelming renewable energy development worldwide, it has resulted in significant greenhouse gas emission reductions, green jobs, revenues for governments and citizens and cost-competitive alternatives to harmful fossil fuels. Despite all that, the FiT is currently under attack. This is especially so in frontrunner country Germany, where the government has approved the phase out of the FiT through recent reform. But as Anna Leidreiter explains, the Feed-in Tariff is a better policy than is commonly understood.
Success story of the FiT
Today, the FiT is the most widely adopted policy for renewable power generation policy at the national and state/provincial levels. In 2000, only 14 jurisdictions worldwide had implemented a FiT – a number which increased to 99 by 2013. As of early 2013, 71 countries and 28 states/provinces had adopted some form of FiT policy.
Back in 2000, Germany was one of the first countries to implement a FiT law (called the Renewable Energy Source Act) – thus becoming a role model for the world. Fourteen years after parliamentarians passed the proposed legislation, the country is harvesting the benefits of its impressive renewable energy (RE) deployment.
Feed-in Tariffs are resulting in an average of 27% of renewable electricity in Germany. On sunny weekends, this goes up to nearly 75%. The FiT policy has been instrumental in saving about 100 Mt of CO2 , spurring technological innovation, creating 370,000 jobs as well as generating high revenues for communities and regions. About 20 million Germans today live in so-called 100% RE regions (in total about 140 country-wide) that aim to supply 100% of their electricity and often also heat demand with renewables. These regions create local value by avoiding the high costs of energy imports, creating local jobs and generating tax income.
Finally, the German FiT made renewable energy mainstream and provided the necessary first steps to build up a global industry. Thus, renewable energy is cost competitive with highly subsidized fossil fuels across the world.
Winner and losers of the FiT
As in any system transformation, there are winners and losers of this energy revolution. Due to its inclusive design, the German FiT enabled new stakeholders to enter the market and thereby leveraged private investment. More than 800 energy cooperatives as well as private investors, farmers, banks and enterprises own about 95% of total installed RE capacity. Citizens are essentially the backbone of the energy transition in Germany. Energy cooperatives alone have invested about 1.3 billion euros in RE projects, thus generating revenues for communities, regions and citizens.
The other 5% is owned by the “big four” energy providers. They belong to the group that has chosen to not participate in the transition from harmful fossil resources. For decades they enjoyed an oligopoly all along the energy supply chain — from extraction to refining to distribution. While renewable energy has entered the market, their business models still rely on highly subsidized fossil fuels. As a consequence, these energy utilities are not only missing out on the benefits of renewable energy but also losing significant market shares.
For example, Germany’s second-largest utility company, RWE, posted a net loss of 2.8 billion euros last year. RWE explained that one of the reasons was a decrease in demand for its product – namely, fossil fuel-generated electricity.
The FiT is too successful for certain people
The FiT empowered citizens and communities, encouraged a movement of energy democracy and challenged the corporate oligopoly. One must bear this in mind when listening to German government representatives and others blaming the FiT as too expensive for society.
It is in this context that the German government approved the reform of the FiT law last week, which essentially initiates the phase out of the most successful climate protection and development policy in the world. In addition to the FiT reform, parliament also approved a law that allows state governments to determine the minimum distance between wind turbines and settlements. As a consequence, wind power development in Bavaria will be almost impossible due to very strict Bavarian regulations.
A final brake applied to decentralized renewable energy development was a reform of the capital investment law (KAGB) beginning of this month. The reform creates additional bureaucracy for certain energy cooperatives as they may be obliged to register at the federal financial supervisory agency (BaFin). This is an added administrative burden hindering small initiatives, which are often based on voluntary work, to access the energy market.
Instead of protecting the interest of the public and common goods, these policy changes strengthen the corporations and energy utilities. The new policy framework creates deficits for communities and regions and protects industry interests. In fact, the reforms are a collection of compromises that shields fossil autocracy and large energy utilities at the expense of energy consumers, citizen cooperatives and the renewable energy sector with its 370,000 employees. It threatens climate protection and planetary habitability – all for short-term profit.
A survey of the German Cooperative and Raiffeisen Confederation finds that the new policy development will induce energy cooperatives to invest around 300 million euros less in 2014. Marco Bülow, the only parliamentarian from the Social Democratic Party who voted against the FiT reform, said in his statement: “I am negatively impressed by the effectiveness of the conventional industry lobby in this process.”
FiT 2.0 is still needed
Undeniably, there are open questions that urgently need to be solved. The German FiT needs a reform which seriously addresses issues of grid development, market integration and financial instruments that would finally enable Germany to reach its policy target of 80% renewable electricity by 2050. We urgently need a public and policy discussion on how to price the kWh in a renewable energy-dominated system, how to manage an integrated and fluctuating system and how to ensure sustainable financing of this transition.
Nevertheless, it is striking that these are presented as negative consequences of the FiT and as problems of renewable energy technology. Benefits are concealed. Instead of informing the public about benefits and challenges of the current energy situation, the government – in cooperation with the media – creates myths around the costs of renewable energy and the finance mechanism of the FiT.
Any policy that replaces the FiT will have to look a lot like the FiT, as principles like grid priority and long-term investment security are crucial in making the shift. Successful renewable energy innovation policy regimes meet two broad criteria:
- They promote sustained multi-stakeholder engagement around an achievable, shared vision;
- They appropriately position a country or region to anticipate and benefit from renewable energy technology flows.
Indeed, this shows that the FiT is much more successful and effective than its reputation. It dramatically changes the structures in the energy market and challenges the interests of influential players. The German policy development therefore demonstrates one key phenomenon: We are at the heart of the battle between decentralization and centralization of our energy system. In this battle, the government has the legal duty to protect and empower its people – not its corporations.