Questions & Answers

Why is Germany switching from feed-in tariffs to auctions?

In 2014, the European Commission called for a harmonization of renewable energy policy among member states in its guidelines on state aid for environmental protection and energy. Specifically, countries are to switch to auctions unless there is a detrimental impact on the national market.

German government officials have mainly argued that the policy switch is needed because the first phase (up to 25 percent renewable electricity) of the Energiewende focused on the fast build-up of renewables, whereas the second phase (up to 50 percent renewable electricity) requires a more coordinated approach. In reality, no studies have been conducted to investigate whether feed-in tariffs or auctions are better at the point that Germany has reached.

With this change, renewable electricity targets can no longer be exceeded. The volume tendered may not necessarily be built if winning bids turn out to be based on unprofitably low prices by the time construction begins; in that case, the target is not met. But firms will not build more than a standard because there is no business case then - i.e. no buyer.

By switching to auctions, German policy makers also take themselves out of the firing line. For many years, a bitter dispute was waged over the growth of PV in Germany, for instance. While the government originally aimed to only have one gigawatt built annually, the average in 2010-2012 was 7.5 gigawatts. During these years, solar rates were also excessively high because the price of PV plummeted faster than anyone had expected. Under feed-in tariffs, a wrong price was the fault of the government. If auctions fail - either to bring down the price or to build the full volume - the outcome will be considered market failure. It is not difficult to understand why policy makers would prefer the latter.