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EXECUTIVE SUMMARY

A Spanish windfarm in Aragon. Photo: Bobby Harris

LOTS TO LEARN
What the German and Spanish renewable energy
experience can teach the United States

This paper assesses the strengths and weaknesses


of policy guiding investment in renewable energy
in Germany and Spain. By comparing the European
situation to that of the United States, this paper
provides policy recommendations tailored for
strengthening renewable energy investment in the
United States.

Brian Vaughn and Evan Day


HNRS 350.2, David Salvesen, 6/23/2015

INTRODUCTION

The European Unions 20-20-20 plan targets a 20% reduction in greenhouse gas levels, a
20% share of renewables in energy consumption, and a 20% improvement in energy efficiency
by 2020 (European Union, 2015). At face value, these goals appear daunting, but this
overarching European Union policy holds its member nations accountable. Energy policy
promoted by two countries, Spain and Germany, has been skewed toward renewable energy
since these installations alleviate all three 20% targets.
Germanys hand has largely forced advancements in renewable energy economies of
scale. A country with the same latitude as the tip of Alaska drove world renewable prices down,
particularly in wind and solar, now experiences zero-carbon energy prices lower than those of
fossil fuels (Friedman, 2015).
Although these two states initially implemented similar policy, they have since embarked
down separate paths. Nevertheless, their victories and failures can be juxtaposed with United
States energy policy. Germany and Spain have shown that a European Union effort to push for
renewable energy as a group could be comparable to United States federal policy toward its 50
states.
FEED IN TARIFF

A feed in tariff is the single most effective policy mechanism to increase the share of
renewable energies in the energy mix. To incentivize adoption of renewables, a government
makes the decision to guarantee a fixed price for renewable electricity production for a period of
years (US Energy Information Administration, 2013). As long as electricity sourced from
renewables is given priority access to the grid, installed capacity should increase dramatically.
This has been the case in both Germany and Spain, with varying degrees of success based on
commitment to policy decisions.
The effect of the German feed in tariff on installed solar capacity

Source: Agora Energiewende


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Germany, a FiT success story


The success Germany had with its feed in tariff did not begin with the adoption of the
German Renewable Energy Act (EEG) in 2000. Since 1990, federal legislation has been
in place to support a feed in tariff. Its success was limited because banks did not want to finance
solar projects with costs so high amortization times were uncertain (Lauber & Mez, 2004). In
2000, the EEG was enacted, jump starting the adoption of renewable energies, especially solar.
The success of the EEG lies in its main principles: the guaranteed feed in tariff based on
type of renewable technology, the financing mechanism that charges ratepayers and not
taxpayers the subsidy, and the priority access of renewables to the grid (Appunn, 2014). As
adoption of different types of renewables have skyrocketed because theyre seen as a good
investment decision for cooperatives and corporations alike, Germany has effectively lowered
the price of such technologies so considerably that they are now more affordable to install,
domestically and internationally (Insights from germany's energiewende: Talk with christoph
podewils,2015).

The German electricity mix in 2014. Almost all renewable sources are growing their shares,
while non-renewables shrink (with the exception being lignite coal). Source: Agora
Energiewende
Spain, trouble with commitment
Spains windiest region of Navarra has been supporting the renewable energy sector since
the 1980s, but the 2007 feed in tariff for non-solar renewables jump started installation. The
success of Spains feed in tariff has been severely limited by a decision made in 2012 to a

The effect of the Spanish feed in tariff on installed renewable capacity

After the general FiT was established in 2007, and the solar FiT was established in 2008,
renewable installation skyrocketed ((Couture, 2012), p. 4)
halt. Spains downfall was its decision to finance its feed in tariff using government funds rather
than ratepayers.
As soon as Spain was in the grips of the global financial crisis, the government made
what was characterized by renewable activist Juan Antonio Cabrero as a shady deal with the
utilities, effectively ending the subsidy in January 2012. The government retroactively rescinded
the promised rates that investors expected to receive as the result of their 20 contracts. Now, the
Spanish government is being sued by 400 renewable energy developers from at home and abroad
(Deign, 2015).

The Spanish electricity mix in 2014. Source: Energy Trilemma Index

What can the US learn?


It is clear from experience that feed in tariffs grow renewable energy capacity in the
United States, based on what we know from test cases in California and Gainesville (Peach,
2014). After Californias implementation of a feed in tariff for wind and solar in January 2008,
the share of generation from renewables grew steadily and continues to grow, as seen in the

graph above. If feed in tariffs are to be successful in the United States, the burden of paying for
the tariff should fall on ratepayers, not the government, to avoid the Spanish situation. An often
repeated criticism is that Germans pay higher prices for electricity than do American ratepayers.
However, because Germany has been successful in implementing efficiency standards while its
relatively kilowatt hour price has increased to fund the feed in tariff, its ratepayers pay lower
bills than Americans do (Morris, 2015). The United States should pursue higher energy
efficiency standards alongside an implementation of a national feed in tariff.
In summary, modern policies of Advanced Renewable Tariffs require:

Priority access to the grid,


Priority purchase of generation from renewable resources,
A financing program that passes costs to ratepayers
Differentiated tariffs based on the cost of generation plus a reasonable profit.

Distributed energy resources

In the future, a more distributed system will allow for more stakeholders to participate in
electricity generation, enriching communities formerly dependent on utilities (Martinot, 2015).
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The future of the grid will look vastly different from the one which exists today. Rather
than a centralized system in which utilities have a monopoly on power production from large
installations, a mix of small, medium and large installations owned by different stakeholders will
feed an intelligent grid.
Germany, the land of distributed energy resources
A major tenant of Germanys Energiewende, or energy transformation, was the
commitment to spreading the benefits of the transformation to as many in German society as
possible. As a result, Germanys solar photovoltaic capacity was spread across 1.3 million
residences, businesses, and industries and exceeded the capacity of any other single power
generation technology in the country. (Electric Power Research Institute, 2014), p. 10)

While the United States has remained staunchly committed to the centralized utility model in
years past, Germany has committed to the distributed model as part of its Energiewende. The
result? A quickly growing distributed energy system that benefits communities and grows the
share of renewables. (Electric Power Research Institute, 2014, p. 10)
Small communities in Germany have quickly reaped the benefits of distributed energy
resources. The town of Wildpoldsried in southern Bavaria earned 6 million from excess
electricity sales (Peach, 2013). The renewable energy projects in the town are owned by citizen
cooperatives, providing excess income to farmers, priests and teachers alike. The same is true for
Schnau, the town of 2,500 in Baden-Wrttemberg. This town took over its utility, bought the
grid by creating a nationally financed campaign against nuclear power, and is now run on 100%
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renewable electricity and is an electricity exporter (Davidson, 2012).


What can the US learn?
A transition to renewable energy is not only a question of climate change mitigation. It
can be used as an economic revitalization tool of rural communities, enriching citizens who are
struggling to find other sources of reliable income. By reducing the barriers to the adaption of the
distributed energy model, the United States could simultaneously grow its share of renewables in
the energy mix and provide alternative sources of income for impoverished rural communities.
Net metering
Net metering policies enacted by both the United States and Spain encourage two-way
energy flow meters. Customers are billed for their net energy production, so whatever electricity
used is compensated by electricity generated. In 2011, Spain permitted small energy producers
(under 10 kW) to feed into the grid at no extra cost (Roberts, 2011). Similarly, net metering has
bolstered Californias solar market. Of the 219,000 net metering devices in the United States,
around 115,000 are in California (Solar Energy Industries Association).
Though a great starting point for encouraging distributed renewable energy generation
typically using solar photovoltaics, net metering is not a long term solution for the proliferation
of renewable energy (Berger, 2015). Germany, for example, does not allow net metering. Net
metering has no respect for supply and demand curves since small energy generators use the grid
as a storage system and offload power at any time.
In the figure below, typical power usage for a citizen of Vermont varies drastically when
renewable energys intermittency is considered. In the United States, the relationship between
revenue and kW power generated becomes problematic when net metering is involved. The
utility here, would lack monetary compensation for its fixed infrastructure costs from connecting
users to the grid, while simultaneously requiring grid updates to accurately account for a
renewable energy share (Berger).

Load profiles averages from traditional and distributed generation customers in Vermont
(Pentland, 2013).
What should the US do?
Net metering policy can still be instrumental until the United States shifts toward a FIT
based approach as Spain and Germany have done. If political pressure makes FITs unfeasible,
real time energy pricing acknowledges the role of grid infrastructure. Net metering is
independent of time, so a stock market exchange model where electricity prices vary by hour
respects a utilitys efforts to predict proper energy loads (Berger, 2015). A blend of charges that
reflect grid network costs ranging from production fees to small connectivity fees (comparable to
Germanys EEG) could be vital for renovating the United States aging infrastructure and
keeping it technologically competent (Jenkins, 2015).
Power Purchase Agreement

Since renewable energy works the best in rural areas, policy should be aimed at
equipping the countryside with DER. Spain subsidized its renewable transition through taxpayer
money, where Germanys mechanism is the EEG established in 2000 (Mogele, 2015). Villages
like Wildpoldsried, population 2,500, in Bavaria, Germany, had energy financing issues from a
small tax base. The EEG levee made this possible, and has since been copied over 50 times
around the world (Mogele, 2015).
What should the US do?
While a FIT is ideal, a PPA, or Power Purchase Agreement, is the United States next best
option. Under a PPA scheme, property owners can buy electricity directly from a renewable
energy company who owns, operates, and manages the hardware, free from utility regulation.
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The user's risk is minimized because one doesnt own the system, and upfront costs are
transferred to monthly energy payments, usually below the utility rate. PPAs are allowed in
almost all of the United States, and they are ideal for procuring distributed generation without
helpful subsidies to lower renewables high, up-front installation cost. As displayed in Figures 4
and 5, the have proven to be the driving force behind installing both residential and nonresidential renewable energy capacity (Katherine, Speer, & Cory, 2010).

Renewable energy installed from PPA and non-PPA in the United States through 2007.
(Katherine, Speer, & Cory, 2010)

(U.S. Energy Information Administration, 2013)


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Deregulated Energy Markets

Both Germany and Spain have deregulated energy markets, unlike the majority of the
markets in the United States. In a regulated energy market, the utility maintains infrastructure,
carries out energy transmission, and sells energy to a consumer. In a deregulated market the
utility still owns the infrastructure and transmission, but a third party is allowed to sell generated
power directly to a customer (Battaglia, 2014).
The advantage of a deregulated energy market is that it eliminates regulated monopoly
structures (most major Unites States utilities) and allows third parties to compete for customers.
Customers often choose the lowest price. Christoph Podewils of Agora Energiewende said that a
deregulated market an important precondition for the German energy revolution (Podewils,
2015).
22 US states have switched to a deregulated market such as Texas, now a US leader in
wind and solar power. Before switching in 1999, Texas experienced slow renewable energy
progress and periods devoid of technological innovation. In a deregulated market, Texas thrived
mostly because its state government set an efficiency target and had an auction for a third party
player that promise to reduce energy demand in certain areas (Bounce Energy). .
What should the US do?
The United States should deregulate all utility markets in order to promote renewable energy and
efficiency strides.
Conclusion

While there are many aspects of German and Spanish renewable energy policy applicable
to growing the share of renewables in the United States, the primacy of the feed in tariff remains
unquestioned. However, if a nationwide feed in tariff is slow to be adopted, there are other
mechanisms such as distributed energy resources, net metering, power purchase agreements, and
deregulated energy markets also have the capability to increase the share of renewables, benefit
rural communities, and grow a sustainable economy simultaneously.

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