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Bundesrat saves PV (and loses Röttgen)

by DoDo Sat May 12th, 2012 at 09:40:13 AM EST

Yesterday (Friday, 11 May), the upper house of the German federal parliament, the Bundesrat, voted down a reform of the feed-in law that included drastic curbs in the feed-in rates for photovoltaic solar power. The law will now be subject to an arbitration between the two houses of parliament.

The Bundesrat decision was unexpectedly clear, with the representatives of several state governments led by the Christian Democrats (CDU) voting against rather than abstaining. This is likely to further diminish the chances of the CDU in tomorrow's snap elections in Northrhine-Westphalia state, with the Social Democrats (SPD) and Greens seizing on the opportunity to attack the CDU's leading candidate, who happens to be federal environment minister Norbert Röttgen.

A non-exhaustive recap of what this is all about.

The impact of solar power on the energy market

In The 3-part view of power generation, I argued that intermittent renewables falling under a feed-in law should be seen as part of the same regime as traditional baseload: they mean plants always producing as much power as possible, and the other parts of the power plant portfolio – both scheduled (or intermediate) power and peak power – take them into account in their variability. This doesn't mean that the latter aren't impacted: market price is set by the production price of the most expensively producing plant needed to meet demand (the merit order effect), thus any change to the variability of the load-following part of power production, and the resulting change to energy prices, will impact profits and the viability of investments.

So, what is the effect of photovoltaic solar power? Let's look at yesterday's power curve in Germany (taken from the European Energy Exchange):

As can be seen, at present, on good days, photovoltaic power shaves off most of the diurnal variation in demand. On one hand, this reduces the demand for intermediate power (in Germany, impacting the total generation of high-grade anthracite coal power plants the most, squeezing profits). On the other hand, this also reduces the occurrence of high market prices around midday, making investment into expensive peaker plants less viable.

Now, how would the power market look like if solar capacity doubled but wind capacity wouldn't grow as fast? Then solar on good days would eat away at the market share of conventional baseload (in Germany, nuclear and "brown coal") while peak demand for intermediate power would shift to the night. Of course, owners of nuclear and "brown coal" power plants would not like this.

The past political angles

The traditional energy policy of all members of the federal government coalition in Germany, the CDU, the Bavarian Christian Socialists (CSU) and the (neo)liberal Free Democrats (FDP) was to support the interest of Big Energy, that is the private companies operating major conventional plants and most of the grid. There was divergence more recently: while the federal CDU saw the sign of the times and wanted to neutralise the Greens with a nuclear exit and new-found support for renewables (a strategy long advocated by federal environment minister Norbert Röttgen and adopted last year by chancellor Angela Merkel after Fukushima and the Baden-Württenberg state elections), the FDP made opposition to the feed-in law and PV in particular an ideological question.

The FDP's main "argument" was the high cost of solar power, which was odd for several reasons:

  • they display an ignorance of market pricing and the merit order effect, arguing as if energy prices were identical to production prices as in a Marxist system;
  • they keep confusing extra costs (what paying the feed-in rate for renewables costs above producing the same electricity by conventional means) with the feed-in rate itself;
  • they keep talking about the supposed impact on consumers and the industry, ignoring both repeated polls indicating wide public tolerance for eventual extra costs for renewables and the (in fact perverse) exclusion of the biggest electricity consumers from shouldering feed-in law extra costs;
  • they ignore studies that, due to the already significant rate reductions, the cost effect of future installations (and only those are affected by the increased rate cuts they wanted) is minimal;
  • they also ignore the economic effect of collapsing the renewables production industry that grew to supply the feed-in-law-created markets.

Up until this March, the divergent CDU and FDP strategies more or less cancelled each other out, resulting in a somewhat haphazard policy: rate cuts were accelerated, but the latter only matched the accelerated fall in PV panel prices, and created rate-change bubbles (see this comment on the phenomenon).

However, the FDP is in dire straits, dropped from several state parliaments in recent state elections, and its boss (Philipp Rösler, who is also the federal economy minister) switched into panic mode and sought to push through some signature policies uncompromisingly. So the CDU gave them a bone: while averting Rösler's demand for a cap on new installations, Röttgen capitulated on almost every other point, ushering in a reform including yet another one-off mid-year rate cut, various new conditions, and future rate cuts made dependent on new installations, with an explicit goal to reduce them by an order of magnitude. Perversely, the planned reform was worst for facilities in the 10-100 kW range, which mostly consists of the supposedly most desirable part of the rooftop segment (roofs of public buildings, mid-size industries, farms).

The future political angles

Above I only mentioned the federal CDU and CSU, but the picture is complicated by local factors: the production facilities of the solar industry in Germany are mostly resident in East German states whose governments include the CDU, and job loss is a concern for them. And this local opposition to federal government policies can express itself in the upper house of the German federal parliament, the Bundesrat, which consists of representatives of the state governments. The feed-in law is not subject to a Bundesrat approval, but the Bundesrat can trigger a re-negotiation by rejecting a law.

Röttgen severely mis-calculated the effects of his capitulation tocompromise with Rösler. First, already in the lower house, the Bundestag, there was enough intra-CDU opposition to force significant changes (above all, projects initiated before 1 April were exempted from the drastic one-off rate cut). Second, his comrades in the state governments showed unexpectedly firm opposition, resulting in against votes rather than abstentions in the Bundesrat. Third, the Bundesrat vote had the worst possible timing for Röttgen, whose political career advance is to be blocked by an election tomorrow.

Röttgen, who was treated as a potential future chancellor in recent years, hails from Northrhine-Westphalia (NRW) state, which is Germany's most populous and includes the Ruhr Area. Röttgen hoped that the next step of his career could be the post of prime minister in NRW once the term of the state's SPD-Greens minority government is over. (Minority governments were highly unusual and unstable in German history.) However, due to a mis-calculation of the opposition, the minority government collapsed "at the wrong time": when they still led the polls. Although the meteoritic rise of the Pirate Party in Germany and the FDP's poll bump after their success in last week's Schleswig-Holstein state elections changed the coalition arithmetic, the latest NRW polls still predict majority for SPD and Greens in tomorrow's elections.

As taz reports, chancellor Merkel sought to deflect blame from Röttgen with the unusual tactic of declaring that the defeated law revision was the government's, not Röttgen's. Still, she benefits, as she still seems to be Merkel Above All, yet again 'losing' a potential crown prince.

By the way, IWR reports that four of the nine remaining nuclear plants were down during April (three of them due to problems, one for normal fuel rod replacement). No supply disruptions were reported.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat May 12th, 2012 at 06:49:53 AM EST
Not only have there been no supply disruptions, there have been no higher prices than for nuclear power either:

On the Power Derivatives Market, the base load for the year 2013 was quoted at EUR 50.43 per MWh (Germany) and at EUR 51.00 per MWh (France) on 30 April 2012. The peak load price for the year 2013 amounted to EUR 62.11 per MWh (Germany) and to EUR 64.50 per MWh (France).

by Katrin on Sat May 12th, 2012 at 07:43:38 AM EST
[ Parent ]
The feed-in law is not subject to a Bundesrat approval, but the Bundesrat can trigger a re-negotiation by rejecting a law.

However it is subject to the usual rules. the government needs a 2/3 supermajority to overrule a corresponding majority in the upper house.

by oliver on Sat May 12th, 2012 at 01:33:27 PM EST
Apart from everything else, the PV FIT is also a subsidy for the homeowning middle classes and small businesses. And even though most of the modules themselves apparently come from China these days, the installation is performed by numerous local small businesses throughout the country = thousands of jobs.

So the unintended consequence of the PV FIT is that it has bred a pretty broad constituency with an interest in its continuation.

This may not have been the deciding factor, but I expect no one in the state governments is actually unhappy about how this vote turned out.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Sat May 12th, 2012 at 04:26:46 PM EST
the unintended consequence of the PV FIT is that it has bred a pretty broad constituency with an interest in its continuation

Unintended? I don't think so :-) I recall I read somewhere an explicit argument that the aim of the feed-in law is also to create sufficient economic weight to gain a 'political mass' like conventional power has.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat May 12th, 2012 at 06:29:08 PM EST
[ Parent ]
It is also a transfer from the cities and those with small children to elderly rural and suburban dwellers. There is considerable unease at electricity bills in Germany. It remains to be seen how long the SPD can keep course.
by oliver on Sun May 13th, 2012 at 08:30:29 AM EST
[ Parent ]
From cities to rural dwellers: possibly. I don't see how it is a transfer from families to elderly people, could you explain? Above all, DoDo has debunked the mantra that there was considerable unease at electricity bills in Germany: most people are prepared to pay slightly more for renewable energy. There is no need for it: wind and solar are driving the prices down. Not only the prices for peak demand, but also for base load, so what are you talking about?
by Katrin on Sun May 13th, 2012 at 08:58:09 AM EST
[ Parent ]
I don't see how it is a transfer from families to elderly people, could you explain?

It depends on the demographics of homeowners and the amount of income spent on electricity. People with children, especially small children, have a higher electricity bill. People with grown children don't and are likelier to have money to invest into a PV installation on their roof, which they are likelier to own.

most people are prepared to pay slightly more for renewable energy

Except those who can ill afford it. That applies mostly to poorer families with multiple children. That makes it sensitive.

There is no need for it: wind and solar are driving the prices down

The causes are debatable, but the prices are clear. Electricity is becoming more expensive in Germany to household consumers.

by oliver on Sun May 13th, 2012 at 09:11:49 AM EST
[ Parent ]
Do you have poll numbers to support your theory?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun May 13th, 2012 at 09:26:42 AM EST
[ Parent ]
We will see how the FDP fares today in NRW.
by oliver on Sun May 13th, 2012 at 09:48:57 AM EST
[ Parent ]
whatever happens today in NRW, we won't see a stampede of the poor or of poorer families to the FDP. That much I can prognosticate.
by IM on Sun May 13th, 2012 at 10:51:37 AM EST
[ Parent ]
If exit polls hold, there was apparently a stampede of CDU voters going to the FDP. What this has to do with solar power, I can't decide.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun May 13th, 2012 at 12:11:34 PM EST
[ Parent ]
Probably nothing at all.
by IM on Sun May 13th, 2012 at 12:23:05 PM EST
[ Parent ]
Fares good. But at the cost of the CDU, so the message is a bit unclear.
by IM on Sun May 13th, 2012 at 12:20:32 PM EST
[ Parent ]
The prices for electricity are rising only very moderately. In the period of time in the table the prices for transport have risen much faster. Or take the "reforms" of health care: I have been paying for the glasses of two children ever since. More expensive than the electricity bill. And don't get me started on textbooks for school: in civilised countries they would be free. It is only anecdotal of course, but I don't know anybody who worries about the electricity bill. Families worry about the costs for football shoes, glasses and the bus ticket of their children.
by Katrin on Sun May 13th, 2012 at 09:35:21 AM EST
[ Parent ]
This is only a few weeks old:

Schlechtes Image: Stromanbieter bleiben unbeliebt Bad image: electricity suppliers remain unpopular
Noch beliebter als die Sonnenstrom-Branche ist nur das Handwerk, das auf einer Beliebtheitsskala von -5 bis +5 einen Wert von 3,2 erreichte. Die Solarwirtschaft schaffte 2,7 Beliebtheitspunkte. Gasversorger und Stromanbieter erhielten dagegen nur je ein 0,2 - deutlich schlechter als der Durchschnitt aller Branchen, der bei 0,7 liegt. Unterboten werden die Energieversorger nur von vier Wirtschaftszweigen: Versicherungen (-0,3) und Banken (-0,8), der Kernkraft-Industrie (-1,9) und der Mineralölwirtschaft (-2,1).Even more popular than the solar power industry is only skilled crafts which achieved popularity of 3.2 on a scale of -5 to 5. The solar industry managed to achieve a 2.7 popularity points. Gas suppliers and electricity suppliers on other hand received only 0.2 each - significantly worse than the average for all industries, which is 0.7. Energy suppliers were undercut by only four branches of the economy: insurance (-0.3) and banks (-0.8), the nuclear power industry (-1.9) and the petroleum industry (-2.1).
...Auch die steigenden Stromkosten schreiben die meisten Kunden dem Gewinnstreben der Versorger zu. Die Ökostromförderung spielt nach Ansicht der Befragten dagegen nur eine untergeordnete Rolle bei den Preissteigerungen. 72 Prozent der Befragten gehen allerdings davon aus, dass der Ausbau der Ökostromerzeugung zu steigenden Strompreisen führen wird. Das Branchen-Ranking bildet einen Teil des "Energiemonitor 2012", den der BDEW jährlich erstellt, und basiert auf einer repräsentativen Umfrage. Die Ergebnisse liegen seit März vor, wurden bislang aber nicht veröffentlicht....Most customers also ascribe the rising cost of electricity to the suppliers' pursuit of profit. The promotion of green power however plays only a minor role in the price increases in the opinion of respondents. 72 percent of respondents assume, however, that the expansion of green electricity will result in rising electricity prices. The industry ranking is part of "Energy Monitor 2012", which BDEW prepares annually, and is based on a representative survey. The results have been available since March, but have not yet been published.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun May 13th, 2012 at 09:42:34 AM EST
[ Parent ]
Röttgen was fired from the post of minister for the environment. Peter Altmaier is the new one.

It is surprising and shows strong disagreements inside the coalition and even inside the CDU itself.

7 years to go !

by pi (etrib@opsec.eu) on Thu May 17th, 2012 at 03:26:23 AM EST
And the heftig internecine criticism within the CDU/CSU (about the cold-hearted method and the fear it could happen to me) was described in Deutsche Welle as "mixed reaction."

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Fri May 18th, 2012 at 06:19:23 AM EST
[ Parent ]

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