A recent paper by Berlin-based think tank Agora Energiewende finds that Germany is paying now for cost reductions in the future. While other countries can expect rising power costs, German costs will stabilize and then begin to drop in the 2030s. Craig Morris explains.

Offshore wind will cause higher costs than PV in the future. (Photo by Martina Nolte, CC BY-SA 3.0)

Entitled “The development of EEG costs up to 2035,” the study (PDF in German) is only available in English as a summary. The main findings are that the primary cost driver for electricity over the next few years will be offshore wind, and the total cost of renewable electricity will decrease a decade from now even though Germany will continue to expand the share of green power.

The chart below shows the cost distribution. The German should be self-explanatory except that “Bestand” refers to existing systems (as opposed to future systems) and “Sonstige” means “other.” Photovoltaics, offshore/onshore wind, biomass, and other are broken up into systems installed before (striped area) and after (solid area) 2015.

Clearly, photovoltaics surged from 2010 to 2014 (striped yellow area). But starting now, PV will only add a small amount to the expenses (the solid yellow area at the top). At the same time, the “legacy costs” – as I refer to current expenses for previous systems – clearly taper off starting in 2029 for old PV. Renewable power generators are eligible for feed-in tariffs for 20 years, and the first boom year for PV was 2009. These old PV systems will increasingly no longer receive feed-in tariffs starting at the end of the 2020s.

By the end of this decade, the greatest additional costs will come from offshore wind power (solid dark blue area at the top). The overall impact is expected to peak at around 32 billion euros in the early 2020s. By 2035, the cost impact will be lower than it is today – and note that these figures are absolute, not adjusted for inflation.

In the years of the solar boom (especially 2010-2012), great concern was expressed about the cost impact of PV even as the prices for new systems plummeted. It was pointed out, for instance, that solar made up roughly 50 percent of total cost although it only provided around one fifth of the electricity. As we see above, the situation is similar for the rest of this decade from offshore wind, which will also make up around half of the cost impact in 2018 but only provide a much smaller amount of electricity, as the chart below shows.

Over the next few years, we will thus have a boom in the cost impact of offshore wind that outstrips the growth in actual offshore wind power – a repetition of the situation with PV at the beginning of the decade. Yet, there is no uproar about offshore wind. One explanation might be that the overall cost impact is not as great. PV added around 10 billion euros per year to the costs, whereas offshore wind will add on closer to 4 billion in the near future. Another reading is impolitic: citizens and community projects owned a lot of the PV, but they will own none of the offshore wind since these installations are too expensive for citizens to invest in. Large companies and utilities are behind the offshore wind sector, and decision-makers seem satisfied that they are at least now getting on board the Energiewende.

In my next post, I returned to an interesting finding in the Excel table Agora provides for its study: the organization models a collapse in the onshore wind market.

Craig Morris (@PPchef) is the lead author of German Energy Transition. He directs Petite Planète and writes every workday for Renewables International.