What the U.S. can learn from Germany to promote clean power

Germany has sprinted ahead of the U.S. in terms of embracing clean energy and becoming the world’s largest solar market. That means Germany has learned some valuable lessons that the U.S. could benefit from. Eicke Weber, director of the Fraunhofer Institute for Solar Energy Systems ISE, lamented during the opening of the Intersolar conference in San Francisco on Tuesday that American policies aren’t doing enough to drive down the cost of solar electricity.

Key federal and state policies in the U.S. offer rebates and tax credits to offset the cost of installing solar panels that generate electricity. But Germany, on the other hand, has a national policy in place that requires its utilities to buy solar electricity at premium pricing via 20-year contracts. This policy, passed in 2000 and often called a feed-in tariff, is meant to ensure that those who invest in solar get a good return.

U.S. Doesn’t Go Far Enough

Weber said the subsidies favored by Americans don’t provide enough incentives to reduce the cost of going solar quick enough. For example, a policy that promises profits for anyone who installs solar, from homeowners to project developers, is far more appealing than rebates and tax credits. Weber also pointed out that a residential solar system in Germany is priced at $3.50 per watt while the price is around $7.50 per watt in California, the largest solar market in the U.S. (California’s solar program administrator says the average is $7.35 per watt).

“You have to be an idealist to put PV on a roof” in the U.S., Weber said. “A good return on investment is more powerful than telling people to save the climate.”

Germany’s policy also sets more attractive pricing for rooftop installations, a design that encourages a wide distribution of solar instead of centralized solar power plants. Promoting distributed solar installations reduces the need to build expensive transmission lines to bring solar electricity from solar farms to cities. In Germany, only 11 percent of the solar systems are mounted on the ground, Weber said.

Controversial Set Pricing

Federal and policy makers aren’t ignorant of German’s achievement, but they shy away from setting electricity prices, a practice that utilities commonly don’t like and one that generally goes against the free-market principal that Americans embrace (or like to think they do).

The rebates and tax credits offered by U.S. and state governments certainly encourage distributed solar as well since they are available to home- and business owners. But federal and state policies also put a big emphasis on centralized power plants. More than half of the states require their utilities to buy a certain amount of clean electricity, but do so through competitive bidding rather than pre-set electricity pricing.

The belief is that building large power plants is more economical, and competition should drive the price downward. The federal government has approved over $16 billion in loan guarantees to 15 large solar power generation projects in the past two years alone. By providing loan guarantees for these projects, the government is promising to pay back the loans if the borrowers can’t.

In California, regulators considered a feed-in tariff policy that would model after Germany’s, but decided against price setting. Instead, it approved a 1 GW program late last year that requires utilities to hold auctions to buy electricity from the lowest bidders. Proponents say the auction system makes sure consumers get cheaper solar electricity. Critics warn that the program could lead to a lot of underbidding by developers who won’t be able to build the projects at the end.

German Nuclear Plans

Germany also has reacted quickly to the nuclear disaster that befell Japan earlier this year by voting to shut down its nuclear power plants by 2022 and invest even more in renewable energy. The impact of a nuclear disaster is simply too great for the government to continue its support for nuclear, Weber noted. He believes nuclear will fall out of favor in the U.S., too, even if the country doesn’t pass a ban on nuclear because nuclear power will simply be too expensive to compete with renewable energy.

Already, the U.S. Energy Information Administration reported last month that renewable energy production in the country surpassed nuclear in the first quarter of this year.

Photo courtesy of SunPower, GigaOM, BrightSource.