German Climate Policy
The disjointed nature of the German energy market poses serious challenges to ambitious German climate targets. We explore what impact the key players in the market and state incentive policies play in transitioning Germany’s economy.
The German energy market in general, and German climate policy in particular is in a particular state of flux in recent years, not least because of the rise of renewables, but because of the ownership models and financing of the renewable energy sector generally. Uncommon in many countries, citizen energy and coops play an outsized role within the renewable energy market in particular, with figure 2 highlighting the structure of the renewable energy market, with citizen energy and coops owning roughly 47% of renewable energy, a figure which has since dropped, but which can largely be understood as energy suppliers beginning to take stock of this change (Morris, 2018).
However when we explore the German utility market, we can see a diversified marketplace, with a number of large players, many of which have their origins in mergers and splits of various firms. When we look at the firms by market capitalisation we can begin to see the relative size of the market players.
However while market capitalisation is a useful measurement tool to understand “ what a company is worth on the open market, as well as the market’s perception of its future prospects, because it reflects what investors are willing to pay for its stock” – Fidelity.com, a more detailed exploration of the energy mix of these firms is contained in figure 4 below, which highlights the specialisation within particular firms, and partly explains how citizens and energy co-ops have become such an important player within the German energy market.
Incentives for renewable energy in Germany
The incentive system within Germany that seeks to support the development of renewables within the Germany energy market, is both far reaching and linked in with broader EU incentives such as the Emission Trading Scheme (ETS) (Marcantonini and Ellerman, 2013). In the context of the growth of solar and wind energy, an area in which Germany has excelled by global standards, is driven largely by the German Renewable energy act, which through the introduction of feed-in tariffs led to a period of phenomenal growth in the use of renewable energy (Marcantonini and Ellerman, 2013).
The introduction of feed-in tariff’s has led to a number of split off incentives across the German economy which has in turn led to an even greater introduction of renewable energy, one example as outlined within (Haan and Simmler, 2018) looks at the impact on land prices, within areas of Germany with a high potential for wind power generation. The paper finds that land prices increased on average by roughly €1,100 after the introduction of the feed-in tariiff, and more generally that 18% of expected wind turbine profits are capitalised into land prices (Haan and Simmler, 2018). Changes to the economic structure of energy production, is in many cases leading to a diversity of incentives that further supports the development of renewable energy resources.
Through the utilisation a price guarantee method of incentivising renewable energy, Germany has effectively sought to subsidise a market into being, an approach which has broadly been successful as is evidenced within the increased supply of renewable energy into the energy mix, indeed we can see that whilst the policy of feed-in tariffs in isolation hasn’t produced the diffusion of community renewable energy, they have went some way to creating the space to allow Germany to stand as a model for others in how to both promote community energy, alongside supporting the development of renewable energy (Nolden, 2013).
If you would like to read more about Germany’s unique approach to energy policy, you can read more about the German climate policy in particular and “Energiewende” here.