Germany Raises Feed Price
Germany has proposed to increase the price they pay for wind energy for newly constructed wind farms. This has significant implications for Ontario’s Standard Offer Program.
The price when approved will go up by 1.2 Euro cents per kWh for projects built in 2009, or 1.8 cents Canadian, and will be 9.1 Euros. Germany is the most advanced country in the world when it comes to wind policy. They know what it costs to produce electricity from wind, so when they deem it necessary to increase the price, you know it is needed. The German tariff is much smarter than Ontario’s already. The amount paid (or length of time that a high price is paid) varies depending on the wind, with less windy locations, where the cost of production is greater, receiving more per kWh. This allows a more even development, instead of concentrating turbines in only the windiest locations. Germany also pays extra for offshore development, which is required, as today offshore turbines cost more to build and maintain than their onshore cousins.
This change will result in Germany deploying more turbines in 2009, which will reduce the availability of turbines in the rest of the world, and increase their price beyond what it would otherwise be. Ontario needs to compete for supply with the rest of the world, and in the wind business, what happens in Germany matters.
The increase in the price paid to wind is driven by the increasing price of turbines, which is cause in part by rising materials cost. Steel, copper, and concrete prices have risen around the world, and this affects the cost of turbines. But the principal cause of the increase in turbine prices has been caused by their supply and demand.
The OPA is scheduled to review the prices offered under the Standard Offer this year. This review is now more urgently required – the Standard Offer Price will allow development only in the windiest locations, and perhaps not even there.
The rising price of turbines, and continued tight market for equipment justifies an increased price on its own. But perhaps even more compelling is the rising price of energy from other sources. The Bruce refurbishment has announced a capital cost overrun of up to 24% already, and the two units are not yet completed. A significant part of this cost overrun is passed on to ratepayers. The price of natural gas has risen by over 40% in the past few months, so gas generated electricity costs more. The price of coal and uranium are also setting records. Not to mention oil.
In this context, increasing the price paid on the Standard Offer, which will offer long term stability of supply and price for consumers, and increase the diversity of supply is a prudent move.
Hopefully the OPA price review will recognize the cost pressures, and the sensibility of adjusting price, and make moves sooner rather than later. And hopefully they will make a smarter price, that pays more in less productive areas, so wind can supply electricity in some less windy areas too.
May 13th, 2008 at 12:59 am
From Above:
“They know what it costs to produce electricity from wind, so when they deem it necessary to increase the price, you know it is needed.”
I’m going to have to disagree with this statement. Germany announced this move last year due to the wildly successful implementation of solar power in their country. The government recognized that the funds they had set aside (at least from the utilities) for use in support of renewables had achieved their solar goals far in advance of the plan because they set the FiT for PV extremely high, the highest in the world.
After achieving their solar target ahead of schedule, they transferred money and effort to the wind and specifically off-shore wind because they recognize that off-shore wind is still an emerging market that Germany, with investment, can become a world leader in this field in the same way that they did with PV. This is in contrast to the on-shore wind industry which has already gone through the consolidation stage and is already accepted in the industry as competitive with fossil fuels.
Which brings me to my next point. You state that they raised the off-shore wind FiT because they recognize that costs are higher. But you also stated that fossil-based energy sources have experienced a never before seen run-up in prices across the board. So wouldn’t that mean that wind would be even more competitive without subsidies?
Finally, I disagree with the policy of providing higher FiTs to wind developments in less-than optimal wind sites. That’s like giving SUV buyers a bigger tax break because they get poor fuel economy, its idiotic. Unless there is some legitimate reason not to develop all of the optimal wind sites, these should be developed first and supported by adequate transmission. This should be relatively easy in Germany because all of the off-shore wind is located in one general geographic region.
I wholeheartedly support all of the policies that Germany has implemented that have accelerated the growth of renewable energies nearly across the board. I just think the reason that they increased the FiT for off-shore wind had less to do with what you argued and more to do with their success in PV and desire to be a global leader in off-shore wind.