For Brigitte Zypries the energy transition is a “model for the future with global implications.” At the start of the year, the economics minister distributed a 20-page brochure documenting this “success story.” Ms. Zypries praised the fact that a third of domestic electricity is supplied by renewable sources and waxed lyrical about “sustainable jobs” generated by the energy transition.
But with the insolvency of Solarworld, Germany’s last big maker of solar panels, Ms. Zypries should concede that her analysis is not based on reality. The miracle of green jobs is an illusion. In the domestic solar industry, nearly 100,000 jobs have been lost in recent years. More than €100 billion ($110 billion) of subsidies poured into the solar sector over the years may have put the energy transition in motion, but did not translate into a sustainable labor market. Politics are partly to blame.
The Renewable Energy Law (EEG), which guarantees operators of green plants payment per kilowatt hour of electricity produced for a period of 20 years, created a “handout industry” that cannot survive without subsidies. To make matters worse, the steady stream of money made one-time pioneers like Solarworld too comfortable. There was no pressure to reduce costs and develop innovative products, ending in its demise. What’s more, Germany lost its status as the world’s leading solar nation to China. We should be under no illusions: German leadership of the wind energy industry is also on shaky foundations.
The Renewable Energy Law created a “handout industry” that cannot survive without subsidies.
German plant makers are not as competitive as Berlin’s associations and ministries would like. Just like the solar industry, there is enormous excess capacity in the world market for wind energy plants. European firms are still market leaders, but of the world’s 15 largest manufacturers of turbines – the most important component of every wind plant – eight are Chinese. And the technological advantage of German manufacturers is crumbling. Wind plants, like solar panels, are becoming a mass product – infinitely exchangeable between manufacturers.
One of the most important lessons that can be taken from the demise of Germany’s solar industry is that Chinese competition is unbeatable in terms of economies of scale and because of low wage levels there. The production of windmills is not a unique sales proposition that enables German industry to stand out from the competition. When it comes to “simple and cheap,” others are better.
The hundreds of thousands of green jobs Minister Zypries dreams of can only be created if ecological entrepreneurs become more innovative and offer complete energy solutions. Simply installing thousands of wind plants all over the place is of no use to anyone unless the electricity, which is reliant on the weather, can be integrated into the energy grid. And the eco-industry has to lead the way. Apart from high-performance turbines and big storage facilities, it also needs clever software solutions that guarantee green power can be used at any time of the day in the electricity, heating and transportation sectors.
In a mirror image of the solar industry, wind energy firms fall short on innovation as long as EEG subsidies remain generous. That can be seen in the funds firms like Senvion or Nordex spend on research and development, which sank below 2 percent of revenues at times. But there are encouraging signs – the wind industry has new rules it has to play by.
Payments for wind-generated electricity are no longer stipulated by law. Instead they are determined by competitive tender. The company that accepts the lowest level of subsidies receives the order. In the case of three wind farms that are being constructed in the North Sea by 2025, this system has worked wonders. Utility companies EnBW and Dong want to operate with no subsidies at all. In the next few days, the results of the first auctions on the mainland will be revealed. And here too, it looks like prices will fall.
The end of high subsidies is a blessing for the wind power industry. Of course, there will be a considerable wave of consolidation and smaller project developers and turbine manufacturers will lose out. But now the necessary competitive pressure is there for firms to innovate and reduce their costs. And what a coincidence: Recent expenditure on research and development by the leading German wind power concerns has tangibly increased. Only if they succeed once and for all in “kicking the habit” of subsidies, will they avoid the spectacular demise of solar firms.
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