In August, the Bundesrechnungshof (BRH), which reviews the federal government’s finances, found that the Energiewende is proceeding without proper coordination. Up to now, there have only been press reports about leaked versions of the paper, which has yet to be made public. Craig Morris reviews what we know.
Similar to the US Government Accountability Office (GAO), the BRH is an independent body that audits the federal budget (see this Wikipedia entry in English), including stakes in private companies like Deutsche Telekom. Its recommendations are not binding, though they do have the power to embarrass the government into taking action.
Last month, Munich-based news daily Süddeutsche Zeitung (SZ) reported (in German) on a leaked paper that the BRH had presented to Chancellor Merkel. It is the final version of a draft leaked earlier this year to Junge Freiheit, a monthly magazine considered to represent right-wing conservatism. The BRH tells us that it is considering releasing the report since the leak has drawn so much attention, but nothing has happened yet.
In the draft, the BRH found not only the well-known 21.1 billion euros in 2012 in expenditures on renewable electricity, but an additional 22.2 billion euros that year in funding from the state-owned KfW Bank Group for more general climate protection measures (such as energy retrofits, renewables, etc.).
Add on an additional 1.97 billion euros in administrative costs at the six ministries involved in the energy transition and another nine billion in subsidies, and we end up with a price tag of nearly 55 billion euros each year.
What are we to make of this criticism? First, it is a wonderful example of the diverging worldviews between what we Americans call progressives and conservatives. Germany is now known – and highly criticized, especially in southern Europe – for its fiscal conservatism called “austerity.” Part of the German economic success story is a combination of hard work, ingenuity, and this frugality.
Over on the left, the figure of 55 billion annually would be a cause for celebration, not criticism. One excellent example of this mindset from the US (where conservatives would denigrate it as “tax and spend) is the annual “Who’s winning the clean energy race?” report by the Pew Charitable Trusts. This report simply ranks countries in order of their spending on “clean energy.” 55 billion euros would put Germany in first place in Pew’s ranking for 2012.
I have been critical of the simplicity in Pew’s study for years. One problem is that no account is taken of investment efficiency; whoever throws enough money at the problem wins. Thus, Pew misrepresents the reduction in feed-in tariffs for solar in Germany as a reduction in commitment rather than goal attainment.
The BRH at least attempts to measure the effectiveness of these investments, at least based on the paucity of information we have. So what are its recommendations?
The main point of criticism seems to be too many ministries working against each other or redundantly. The BRH found that four ministries simultaneously had studies conducted to evaluate the Energiewende, and no one had an overview. Furthermore, between Germany’s 16 states and the federal government, there are apparently 24 bodies that handle the Energiewende, and the whole thing is poorly coordinated – something the former Environmental Minister Peter Altmaier himself complained about.
The ministries responded by saying the Energiewende is a learning process, with changes constantly having to be made on-the-fly. Furthermore, it is worth noting that the new government has reshuffled and bundled mandates.
But even wiping out the two billion euros in ministry expenditures completely would only reduce annual Energiewende expenditures by four percent. Tweaking them through better coordination would save even less.
The BRH has nothing to say about the biggest chunk of the pie, the KfW, at least according to the press reports on the leaked documents. My feeling is that this spending is among the best and should probably be increased, not decreased. Germany needs to do far more in the field of building retrofits, and low-interest loans for clean energy projects leverage lots of private-sector investments. (The Chinese solar sector’s success story is primarily the result of low-interest – and sometimes no-interest – loans, albeit from the Chinese government, not Germany’s KfW.) Furthermore, a lot of the KfW’s loans are actually for projects outside Germany, including in developing countries. Did the BRH even make this distinction, and did they measure the effectiveness of these investments?
To the extent that the KfW funding is loans and not grants, this money will actually be paid back. The German government is currently able to borrow money from the market at even lower interest, so these loans are actually profitable.
Which brings us to the last big cost item: feed-in tariffs. According to what has been made public, the BRH makes no recommendations here, perhaps because so little can be done. Retroactive cuts to payments would be considered an unconstitutional disappropriation of private investments. The only compromise proposed has been to continue making feed-in tariff payments to producers of renewable power, but not attribute all of the cost immediately to consumers, putting part of it into a fund instead – essentially passing it on to future generations. The BRH apparently does not even comment on this option.
In the end, we are left with a list of cost items, a batch of complaints and a small number of suggestions of minor impact. For those wishing to complain about the cost inefficiency of the Energiewende, the BRH provides useful material. For those wishing to make it more cost efficient, the report itself is as ineffective as it finds its subject to be.
Craig Morris (@PPchef) is the lead author of German Energy Transition. He directs Petite Planète and writes every workday for Renewables International.
KfW is a bank. Banks have the extraordinary privilege that they are the ones to create new money, by giving out loans. Only afterwards does a bank need to make sure they have some money to back up their loan portfolio. And even then, they only need a small fraction in capital, and then lend whatever they need from the central bank. This they can do for nearly free. So KfW won’t cost the german government a cent. Unless they make bad loans that are not paid back.
KfW is one of the tricks that germany has up its sleeve to invest without having to get it out of the government budget. The FIT were another such trick: it did not cost the government a cent, but it is financed through the electricity prices. And a large part of its effect is to lower the interest rate for people that want to invest in clean energy. Because the risk is practically zero. And all the normal banks can contribute.
An important ‘structural change’ would be for all Euro countries to adopt these tricks to invest without getting the amount on their balance sheet. The EIB should do for Europe what KfW does for Germany.