Feed-In Frenzy

A simple green tariff has transformed Germany. Why isn’t Canada following suit?

Image courtesy of Solon AG

The gritty industrial town of Bitterfeld, Germany, is about an hour southwest of Berlin by train, but until very recently it was the ruined epicentre of another civilization entirely. As the hub of the Eastern bloc’s chemical industry, it was once declared the dirtiest town in Europe, serving as the inspiration for a sort of German curse—in loose translation, “If we don’t meet in this world, I’ll find you in Bitterfeld.” By 2001, the town was at the black bottom of ten years with one of the highest unemployment rates in Saxony-Anhalt, the state that in turn suffered from the highest unemployment rate in all of Germany.

That same year, a handful of solar entrepreneurs set up shop in a local industrial park. Today their little start-up is Q-Cells, the world’s largest manufacturer of photovoltaic cells. It presides over a burgeoning industrial hub christened Solar Valley by its ecstatic boosters. Unemployment here has plummeted from its 25 percent–plus peak in the 1990s down into the mid-teens. The economic development director of the regional municipality of Bitterfeld-Wolfen (which includes a number of other blue-collar burgs), a shy young gent named Christian Puschmann, told me he’s constantly updating the employment figures on his agency’s website to keep up with the delirious pace of expansion.

Puschmann was keen to show me the exuberant reality of Solar Valley, so we met one typically grey Saxon afternoon at Q-Cells’ headquarters and set off on a tour of booming Bitterfeld-Wolfen. He trolled slowly down winding industrial park avenues and rail yard access roads, pointing out the sights from behind the wheel of his modest, aging subcompact with palpable pride. Here were the vast warehouses containing Q-Cells’ production lines, its next-generation spinoffs, and its competitors’ goods. Around the bend were a Swiss supplier of PV components and a maker of solar panel glass. We skirted Thalheim, the once-sleepy town closest to the Q-Cells complex. “This small village had so much money they didn’t know what to do with it,” said Puschmann in his gentle, halting English. “They built a new stadium; they made streets and lamps and whatever.”

We passed through a broad expanse of detritus left behind by the chemical industry of the former GDR. Puschmann pointed out the small deliverers—businesses of fifteen or twenty employees that serve the solar industry. Then we came to a larger facility. “This is the wafer production for the solar cells. It’s only a hundred million investment,” he told me, his voice drenched in good-natured sarcasm. “One of the smaller ones.” Q-Cells alone had invested half a billion euros in the region over the previous two years.

Finally, he dropped me at the Bitterfeld train station with a reluctant auf Wiedersehen. He’d wanted to squeeze in a visit to the new lake they’d made by pumping water into an old open-pit brown-coal mine near the market square. Stylish homes were going up around it, in hopes that high-tech workers would forsake their commutes from Leipzig and Berlin. Things were happening in Bitterfeld. In Bitterfeld! This was what he wanted me to know.

Curiously, not once did Puschmann mention climate change. The defining issue of our time may have provided the impetus for Bitterfeld’s renaissance, but it was by now an incidental detail. There was too much else happening here—and up and down the length of Solar Valley, and all over Germany—to dwell on such gloomy topics. This is one of the upsides of acting boldly: you wind up too busy to wring your hands.

In much of the world, the official response to climate change from government and business leaders has been decidedly underwhelming. Few seriously dispute the assessment of Scientific American that stopping climate change represents “the most imposing scientific and technical challenge that humanity has ever faced,” but the reaction, particularly in Canada, has been a series of half shuffles, tentative and provisional and multiply compromised. We throw a little R&D money around and implement voluntary efficiency programs and pilot projects, but we are deathly afraid of big steps. Germany, meanwhile, has taken one giant step, skipping past the frustration and acrimony of a hundred incidental ones. To the surprise of a great many North American skeptics, the country has given birth to one of the world’s most verdant green industrial heartlands.

The engine of this radical transformation is the single most effective climate policy measure yet devised: a straightforward law called a feed-in tariff that obliges power distributors to purchase electricity from renewable sources for a fixed time, at fixed rates above market prices. The German fit (the Renewable Energy Sources Act, by name) sets the price for green power far higher than market rates—as much as seven times higher in the case of solar energy.

Although Germany is not particularly windy and is kissed each year by about the same amount of sunlight as southern Alaska, it is now a global leader in the generation of energy from sun and wind, and in the production of solar panels and wind turbines. Its renewable energy industry employs about a quarter of a million people, and brought in almost $40 billion in revenue in 2007, up 10 percent from 2006 and nearly four times the figure for 2000. Seemingly every green power company on the planet has set up at least part of its shop there in recent years, including Arise Technologies, a solar company headquartered in southwestern Ontario, which announced in September 2007 that it would establish its first industrial-scale production facility in eastern Germany.

To most North American economists and policy wonks, the German fit reeks of any number of heresies, whether price fixing or central planning or some other acridly socialistic term deemed synonymous with eco-nomic suicide. But the frenetic activity at eastern German economic development offices is a direct result of the fit’s unorthodox pricing scheme, and one European nation after another has chosen to follow the German lead. The fit—an easily copied piece of legislation, unencumbered by the elaborate rules and fine calibrations of cap-and-trade regimes—has now spread to France, Greece, Ireland, Italy, and Spain.

It has also crossed the pond, after a fashion, inspiring Ontario’s pacesetting Standard Offer Program. The Ontario government’s version, however, is watered down, freighted with artificial growth caps, implementation deadlines, and other caveats—a bold leap reconfigured as a series of furtive hops. Nonetheless, it is Canada’s most ambitious renewable energy program. It even looks, from a certain angle, like a fine start.

If, however, the goal is to formulate a new and truly transformative energy policy—if, in other words, the goal is to succeed—then Canada’s most ambitious program needs to be reassessed against the model that inspired it. Which foundation is better suited to supporting a twenty-first-century economy? The one propped up by aging hydro plants, flirting impotently with renewables while dumping money into unproven clean coal tech-nology and environmentally problematic, chronically cost-overrunning nukes? Or the one already on track to generate 30 percent of its power from green sources within a quarter century, buoyed by a massive industrial and infrastructure boom? Wouldn’t the latter be the definition of well positioned? A case study in strategic advantage? The very model of a national paradigm shift? An example, finally, of real green ambition?

Germany’s leading-edge, fit-driven green economic model arose out of its climate policy, which is among the world’s most ambitious. In 2007, the German government said it was willing to seek a 40 percent decrease in carbon dioxide emissions by 2020 if other EU countries made similar commitments—a reduction in absolute volume (not intensity) below 1990 levels that is fully double the European Union’s current target. The country is already nearly halfway there. As of 2006, it had already shrunk its carbon footprint by 18.5 percent. The lion’s share of this reduction was accomplished by shuttering obsolete East German factories in the wake of reunification, but after a few years of stagnation the feed-in tariff has helped renew the downward trajectory.

The first fit was enacted in California in 1978, with Portugal, Denmark, and Japan adopting similar legislation by the early 1990s. Germany, though, is widely regarded as the contemporary fit’s birthplace and best-practices model. It was the product of the so-called Red-Green Coalition, the partnership between the old-left Social Democrats and the newly ascendant Green Party that governed the country from 1998 to 2005. The coalition passed the Renewable Energy Sources Act in 2000, and, although this was already far and away the most aggressive renewable energy law the world had seen, substantially intensified it in 2004. Solar power was given a particularly big boost, with the going rate for solar energy generated from German household rooftops amped up to seven or eight times the market rate. (It was nudged back slightly after a mandatory reassessment this June.)

These deliriously high rates were designed not just to cover the extra cost of bringing new installations online, but to allow a small profit for producers—much as traditional North American energy markets operated prior to the deregulation wave of the 1980s. The fit thereby guaranteed a market for companies willing to make sizable up-front capital investments, sparking the construction of not just renewable en-ergy installations, but a renewable energy industry. The chief architect of the German law, the veteran Social Democrat parliamentarian Hermann Scheer, summed it up thusly: “It is the most successful new job creation program we ever had, and the most cost-effective job creation program.” Best of all, it does the job without direct taxation: the cost of the fit is embedded in the price of energy and distributed equally to all power consumers. The more you use, the more you pay.

The highest estimates for the German fit have it adding about one eurocent to the cost of a kilowatt hour of power. That equates to about thirty-six euros per year for the average German consumer—fifty bucks a year, give or take, for 250,000 new jobs and a rapidly rising share of renewable energy on the national grid. The amount of green energy consumed in Germany leaped from roughly 6 percent in 2000 to 14.2 percent in 2007, and it is on target to reach at least 25 percent by 2020. What’s more, that fifty-buck average masks the money-saving contributions of some 400,000 German homeowners who have installed rooftop solar panels, becoming power plant operators in their own right and, in some cases, paying a near-zero net cost for their electricity over the course of a year. Those 400,000 have embarked on a fundamental inversion of the industrial age’s energy economy, transforming themselves from rate-paying power con-sumers into profit-making power producers. If that’s not a paradigm shift, nothing is.

Until very recently, some North American experts viewed the German fit as a lurch toward disaster. In 2006, I mentioned the tariff to John Anderson of the Rocky Mountain Institute, one of the world’s most influential energy efficiency think tanks, and he responded with a melodramatic, stage-whispered “Oh, God!” Then he quoted the going rate for German solar power, saying, “I could put monkeys in cages to make power for that and make money. Good Lord!” Then he settled down and told me, “A certain amount of that kind of thing your economy can stand. But it can’t become a very big part of it, or your economy goes down the toilet.” And then, in the next breath, he wondered if he was overlooking something.

“Okay, look,” he said. “If in 1980 you’d come into my office, I’d have said I was pretty happy with telecom: had a box on the desk in the office, had a box on the wall at home. Telecom’s great. Love it. If you’d told me that for thirty bucks I could buy one of these things”—he held up his mobile phone—“and call anywhere in the world from anywhere, I would’ve laughed at you. Then if you’d told me the highest, best economic use of that was for my thirteen-year-old daughter to stand in one end of the mall and talk to her friend at the other end of the mall while they were shopping? I’d have had you committed. That’s clearly insane, right? That’s the kind of paradigm shift electric utilities are facing.”

Let’s repeat that, mantralike: That’s the kind of paradigm shift electric utilities are facing.

Certain North American jurisdictions are finally acknowledging the scope of this shift and the enormous business opportunity it represents. Witness, for example, the headline-making power play by oilman T. Boone Pickens, who has begun building what will eventually be the world’s largest wind farm, 2,700 turbines strong, on a patch of breezy west Texas land. His goal is to have 20 percent of US electricity generated by wind. In California, meanwhile, Governor Arnold Schwarzenegger’s $3.3-billion (US) California Solar Initiative has spurred the rapid expansion of the state’s solar industry. Private homes and big-box rooftops all over California are now being tiled in solar panels in unprecedented numbers, while several Silicon Valley headquarters (most famously Google’s) have parking lots shaded by banks of them, and the state’s old-school energy titans are ushering in an era of utility-scale solar farms. pg&e, for example, recently announced plans to partner with two solar companies to bring installations of 250 and 550 megawatts online—a combined capacity similar to that of a medium-sized nuclear reactor.

Now consider again Canada’s most ambitious climate policy initiative: Ontario’s Standard Offer Program for renewable energy, introduced in the fall of 2006. Like a fit, the program requires the Ontario Power Authority to purchase power from renewable sources at rates higher than the average market price—about 42 cents per kilowatt hour for solar power, and 11 cents per kilowatt hour for wind, biogas, and small-scale hydro—and guarantees those rates for twenty years. At its launch, opa expected to issue contracts for 1,000 megawatts of new clean energy over ten years. Instead, projects totalling over 350 megawatts were approved in the first six months, and by eighteen months the number had exploded to more than 1,300 megawatts.

Notwithstanding this unanticipated and unprecedented green power boom, opa recently introduced new limits on the size and location of certain types of projects, thus setting aside significant swaths of the province’s grid for power from new nuclear and natural gas plants. In July, less than two years into a program that massively underestimated the private sector’s enthusiasm for renewables, opa tabled a long-term plan that calls for renewable energy to comprise barely 20 percent of new electricity production being brought online by 2025. The remaining 80 percent would be evenly split between nukes, which have never been added to the grid on time and on budget in Ontario, and natural gas, whose production will likely be approaching its global peak by then.

It should come as no surprise, really, that opa’s commitment to renewables has wavered, even in the face of overwhelming support, because there was an overly fussy quality to Ontario’s Standard Offer right from its inception. Riddled with seemingly arbitrary time limits and caps on installation size, it seemed to represent only a symbolic commitment to green power, not the kind of wholesale reconfiguration of the energy economy compelled by climate change. Still, because the Standard Offer used Germany’s fit as its model, some green power advocates see it as a stronger foundation than the government subsidy approach favoured in jurisdictions like California. “It’s a timid first step,” says Paul Gipe, an expert in renewable energy and one of the Standard Offer’s main architects. “But it’s a first step, and we shouldn’t underrate its significance. This is the most progressive renewable energy policy in North America in two decades. The footnote, of course, is that we haven’t done anything in North America in two decades, so it’s pretty easy to step up.”

As I counted crumbling gdr guard towers on the train ride from Bitterfeld to Leipzig the evening after my tour of Solar Valley, my thoughts turned from Christian Puschmann’s boyish enthusiasm to the desperate edge I’d encountered during a recent visit to Windsor, Ontario. My host was a laid-off autoworker, a guy named Chris Holt. He was just a little older than Puschmann, I’d guess. He had two kids and a cozy house in the funky old part of town. Holt was one of only a few of his co-workers, he told me, who weren’t simply biding their time until the fix came in from enough levels of government to buy back some faded remnant of the city’s manufacturing glory. He was trying to build a green-minded grassroots revitalization movement in Windsor, but it had been slow going.

As Canada geared up for an election this past fall, pretty much the last thing Stephen Harper did before dissolving Parliament was hand Ford an $80-million subsidy to reopen an engine assembly plant in Windsor. The leader of the Opposition, meanwhile, chose to base his campaign on a carbon tax. Two different strategies that went nowhere fast—a fitting symbol, perhaps, of a political culture stuck in the slow lane in an outmoded vehicle. I know that if I were hoping to send Canada racing toward a sustainable twenty-first-century economy, I’d want one of those sleek new German-engineered engines. I’d start off with a feed-in tariff. And if anyone asked why, I’d introduce them to Christian Puschmann.

Chris Turner
Chris Turner is the author of The Patch: The People, Pipelines, and Politics of the Oil Sands. He is based in Calgary.