From June 9 to June 13, 2008, thirty-one utility executives and managers travelled to Germany to learn about the country’s success and experience integrating significant amounts of solar energy into the electricity grid.
Throughout the five-day fact finding mission, the delegation met with numerous players in the German electricity marketplace, visited multiple solar installations, and toured the largest solar tradeshow in Europe.
The group discovered that there are many differences between the structure of utility markets in German and the US. Some of the major differences include:
Germany’s justification for the feed-in tariff (referred to as the EEG) is fundamentally based on the emergence of the solar and wind industry as an economic development tool for providing high tech goods and services to the future energy sector. The country has more annual revenue from exports than any other country, including China and Japan. Traditional industries – e.g. steel, chemicals, and automobiles – are relocating to lower cost regions, growing slowly, or not growing at all. The notion is that a feed-in tariff for renewables helps meet carbon targets and electricity demand while building industrial capacity in a key export industry that does not require cheap labor, land, or materials to grow.
With the structure of the feed-in tariff in Germany, solar electricity is exclusively fed into the grid on the utility side of the meter rather than in a net metering arrangement.
Throughout the week in Germany, the delegation heard varying reports on the cost of the feed-in tariff to each customer:
Upon returning to the US, the organizers of the fact finding mission conducted further research into the costs of the feed-in tariff. A summary of what was found is provided in the “Follow-up Information” section at the end of this report.
Based on what the delegation heard from representatives of German utilities and solar companies, the greatest values provided by the feed-in tariff structure seem to be long term stability for investors and clarity for utilities and PV system generators.
One question frequently asked by members of the delegation remains unanswered: What happens at the end of the 20-year term of the feed-in tariff? Will customers continue to sell all of the power back into the grid or will they want to go to a net metering model? Most likely net metering will offer greater economic value to building sited systems, while ground-mounted more remote systems will need to analyze the wholesale market structure and their O&M costs to determine the viability of continued operations versus deconstruction and reselling the parts.
One of the primary goals of the fact finding mission was to examine what grid integration issues utilities faced with the interconnection of large volumes of photovoltaics to the grid. Meetings with investor owned and municipal utilities as well as a major research institute revealed that even with high solar penetration (commonly 20%, and as high as 30%), grid integration issues have not been a problem for utilities in Germany. In addition, there are very clear rules in place about what is required of the utilities, thus eliminating many of the “utility barriers” put up in the US (such as complex interconnection agreements, interconnection fees, external disconnect switches, etc).
In fact, the German utilities have realized that solar electricity can provide grid stability and therefore there is movement toward PV providing grid stabilization services during grid events (VAR support, ride-through, delayed trip, etc) – similar to the evolution that has happened with wind energy in the US.
Pre-trip, many members of the delegation had heard secondhand and through various media sources that the costs of PV are expected to decline significantly in the coming years. While in Germany, this notion was reinforced by PV manufacturers and integrators who are all confident that costs for modules and systems will continue to decline, potentially significantly over the next 2-3 years.
Module costs will decline due to the emergence of cheaper thin-film technology, rapid expansion of manufacturing capacity in both module and silicon production, and rising efficiency.
Integrators pointed to major opportunities for cutting balance of system costs, perhaps in half (e.g., from about $2/watt to $1/watt for thin film installations).
When asked by the delegation about interest and plans to do business in the United States, some solar integrators cited long standing US electrical rules as an area that needs improvement and currently makes it cost prohibitive for them to work in the US market. For example, in the US buried electrical cable must be less than 600 volts and sheathed in conduit, while in Europe 1000 volt cables can be buried and marked without conduit, decreasing losses and system costs.
Upon returning from Germany, trip organizers reviewed a March 2008 report, Electricity from Renewable Energy Resources: What Does it Cost Us, from the Federal Ministry for Environment, Nature Conservation, and Nuclear Safety which contains relevant information on the production and costs of renewable electricity in Europe.
According to this report the average cost of resources acquired through feed-in tariffs was 11.4 Euro cents/kWh. The predominant resource acquired is wind, which earns a much lower feed-in tariff than photovoltaics. For tariffed customers, the average monthly bill is 60.3 Euros/month of which 2.9 Euros (roughly 6 percent) cover the cost of feed-in tariffs. It is estimated that the feed-in tariff may rise to a maximum of 4 Euros/month, declining to 0.6 Euros/month by 2030.
About one quarter of the bill (15.6 Euros/month) cover taxes (both an electricity tax and value added tax). Non-tariffed customers (+10,000 kWh/year - about 75% of load) pay negotiated electricity prices, usually under confidential contracts; the ability of the utility to pass along some or all costs of feed-in tariffs to these customers will vary substantially.
In 2007, renewables represented about 14 percent of national electric supply, up from 6 percent in 2000.
The analysis of the costs and benefits of the feed-in tariff is complex. The tariff itself does not include integration and administrative costs, which are generally incurred by the grid operator and passed along to the local utilities. Integration and administrative costs are estimated at 300-600 million Euros annually. The existence of fed-in resources lowered wholesale market clearing prices, by about 0.8 cents/kWh in 2007. It is important to add that German wholesale market prices for 2008 are 230% higher than for 2003, so the net value of the fed-in resources can vary substantially by hour and year.
The Ministry also concludes that consideration of external costs, particularly for coal and lignite, also affects net benefits. The external benefits of the existing renewables are estimated at 4.3 billion Euros annually; roughly equal to the total cost of the program.