Questions & Answers

Is the energy transition affordable?

Yes – in fact, we cannot afford not to do it. Investments made in renewables today will pay for themselves over the usual 20-year service life of the equipment as conventional energy becomes more expensive. Renewables are already competitive with fossil energy in many places around the world. Furthermore, renewables are only seen as more expensive because some of the cost of fossil and nuclear energy is passed on as taxes and other external costs not included on power bills.

Essentially, the cost of renewables will continue to drop, while the cost of conventional energy – both fossil fuel and nuclear power – will continue to fluctuate unpredictably. Heating costs in Germany mainly from fossil fuels, reached record levels in 2013. To account for the price drops for oil in 2015, the government restricted the installation of oil heaters and began requiring renewable heat in 2016.

Germany’s leading economic research institute, the German Institute for Economic Research (DIW), estimated in 2012 that the cost of the Energiewende would be 200 billion euros over the following ten years, but the net effect (some energy costs will be reduced at the same time) would then be around ten euros per month per household. In 2015, Fraunhofer IWES also calculated the net cost of the Energiewende up to 2050 and found that the expenses would be less than without a transition in a conservative estimate.

When we take a closer look at the surcharge that covers renewable power in Germany, we find that it does not explain two thirds of the increase in the average retail power rate in Germany over the past decade.

Hidden subsidies

Indeed, it is worth noting that Germany ramped up renewables when they were expensive – and, in doing so, helped make them inexpensive. All along, forecasts indicated that the cost impact of the switch to renewables would peak in the first half of this decade, and now it seems clear that German investments in renewables actually peaked in 2010 and will be more than one third lower annually than that record level over the next few decades.

By investing in renewables so soon, Germany may have incurred high costs, but it also positioned itself as a major provider of future-proof technologies. In other words, as renewables become more competitive, the whole world will start switching over. German investments in PV in particular have made the technology affordable for the world, including developing countries. For example, in 2015, China built 15 gigawatts of PV, reaching 43 gigawatts overall to take the lead globally ahead of Germany. The Chinese also installed more than 30 gigawatts of wind turbines in 2015 alone. India also has major plans to build photovoltaics and wind farms - 175 gigawatts of renewables by 2022. According to Bloomberg Energy Finance, developing and emerging economies now invest more in renewables than OECD countries.

One reason that renewables seem so expensive in Germany is that so much of their full cost is paid immediately as a dedicated item (the EEG surcharge). In contrast, support for coal and nuclear power has largely come indirectly as budget items passed on to taxpayers, and because Germany has a budget deficit these costs are being passed on to future taxpayers with interest (source: Green Budget Germany).

Furthermore, the “cost” of the Energiewende cannot be seen in isolation. The non-monetary costs of energy consumption do not appear on consumers’ bills for electricity, gas, and oil. Yet, the environmental impact caused by greenhouse gas emissions and pollution quickly adds up to a considerable amount. A study published by Germany’s Energy Ministry in 2015 estimates that some 9 billion euros net was avoided in 2013 because people used renewable electricity and heat. These savings, however, are not separately listed on any invoice. Furthermore, Germany is gradually reducing its dependence on energy imports by investing in renewable energy at home – and by coming up with more efficient products that will also sell well on the global market.