Measuring Up: Renewable Energy in the U.S. and Around the World

August 2014

By SILKE SCHMIDT

“[The U.S.] is a country that is driven by the ambition to be No. 1 – that’s just in their nature, in their DNA,” said the German-born coach of the U.S. national soccer team, Jürgen Klinsmann, in a recent interview with TIME magazine. So if we are a nation that thrives on competition, how do we measure up in an area that has not received as much national attention as baseball, football or world-class research universities: renewable energy.

The transition away from fossil fuels toward renewable energy is intimately connected to combating global climate change. Not surprisingly, a worldwide status report in this area greatly depends on the nature of the measuring stick that is used to compare different countries.

Fuel and Energy in the United States. Credit: http://footprintusa.blogspot.com/search/label/visualizations
Fuel and Energy in the United States. Credit: http://footprintusa.blogspot.com/search/label/visualizations

The U.S. has made significant commitments to the renewable energy market and even leads the world by some measures; however, it is largely surpassed by European countries, such as Germany and Sweden, when this progress is evaluated relative to population size or economic output. A dearth of regulatory policies at the national level is at least partially to blame for this.

First, the good news: according to President Obama’s 2014 State of the Union address, “the United States has reduced our total carbon pollution more than any other nation on Earth [over the past eight years].” This is due largely to the boom of natural gas extraction by fracking (read more here about fracking in Wisconsin), since energy generation from natural gas produces much less CO2 than coal and oil. In terms of total renewable power capacity (excluding hydropower) as of the end of 2013, the U.S. ranks second in the world after China, followed by Germany on rank three (see “Top Five Countries” table (p. 16) in this report from REN21.

But second, let’s put the good news in perspective by looking at per capita statistics. For total 2013 per capita renewable power capacity (excluding hydropower), the small country of Denmark earned rank 1, followed by Germany and Portugal. Germany is No. 1 for per capita solar photovoltaic (PV) capacity, while Denmark leads the pack on per capita wind power capacity, followed by Sweden.

Another way to put things in perspective is to develop a ranking index that compares a combination of two factors: percent of total power from renewables, and energy efficiency, measured as the ratio of energy consumption and gross domestic product (GDP). According to this recently developed Energy Transformation Index (ETI), Sweden is No. 1, Germany No. 4 (tied with Japan and the United Kingdom), the U.S. No. 11 and China No. 12 (as of November 2013). When considering only the change since 1990, Germany and the U.K. share rank 1.

So Germany and Sweden, both ranking highly on measures that provide a better sense of perspective, make for some interesting comparisons with the U.S. One of the biggest differences between these three countries is that the U.S. currently lacks national renewable energy targets, as well as national regulatory policies designed to achieve such targets. Let’s take a closer look…

The German Model: Energiewende

History

Germany began its national commitment to renewable energy in 1990 with a law that required large utility companies to purchase electricity from renewable sources at guaranteed minimum rates. This law was replaced in 2000 by the first version of the Renewable Energy Law, which has been revised several times since then. In the aftermath of the March 2011 nuclear accident in Fukushima, Japan, the German government decided to phase out all nuclear power plants by 2022.

Results

Germany’s solar resource is comparable to cold and cloudy Alaska; yet the country has grown an impressive renewable energy market. Credit: nrel.gov (downloaded from http://solar2u.com/solar-energy-map-usa-germany-spain.html)

Germany’s heavily industrial economy is the 4th largest in the world, with correspondingly high electricity demands. Thus, its transition to renewable energy, the so-called “Energiewende,” illustrates that a major shift away from fossil fuels can be accomplished by a large global economy. This is particularly notable because Germany’s natural resources are far from abundant; its sunshine hours are very similar to cold and cloudy Alaska. Yet in 2013, Germany was able to generate 25% of its electricity from renewable sources, and has committed to a national target of 80% by 2050. For a short period of time on May 11, 2014, Germany was even able to supply 74% of its entire energy need from renewable sources.

Regulatory policies

According to REN21, national regulatory policies in Germany and Sweden differ in three major aspects: first, Germany uses feed-in tariffs, while Sweden does not; second, Sweden has electric utility quota obligations while Germany does not; third, Sweden also uses the trading of renewable energy certificates to encourage investment in renewable technology.

A feed-in tariff is a minimum per-unit electricity price that is guaranteed by the government over a fixed-term period during which this electricity is sold and fed into the grid. In Germany, this type of subsidy has led to a tremendous boom in rooftop solar panel installations; however, it has been heavily criticized by many economists, who believe that all electricity prices should be determined by the free market.

A general problem with government-provided subsidies for specific renewable energy systems is that they diminish free-market competition between different technologies. Such competition tends to provide the fastest road to separate the wheat from the chaff; in this case, to identify the most efficient renewable technology. Critics of the German Energiewende often point out the high cost of government-subsidized offshore wind farms, which may not have survived on the free market.

The German government’s 2011 decision to completely abandon nuclear power has added another level of complexity to the developing renewable energy market. During sustained sunny periods, abundant solar power decreases the market price for electricity. This leaves only short periods of little or no sunshine during which grid stability needs to be maintained by other sources; in other words, a short window of opportunity for power providers to make a profit from higher electricity prices.

Without nuclear power, the primary backup energy sources are coal, natural gas and hydropower. Gas and hydro are cleaner, but in Germany, coal is a much more abundant natural resource than gas, and coal-fired power plants are more flexible than their hydroelectric equivalents. Thus, unintended incentives for pollution are created because Germany’s oldest and dirtiest coal-fired power plants turn out to be the most profitable backup power system in periods of little wind and sunshine.

The Swedish Model

History

In 1970, oil accounted for more than 75% of Swedish energy supplies. The oil crisis of the early 1970s spurred the government’s search for alternative energy sources. Sweden was one of the first European countries to begin taxing carbon emissions in 1991. In 1997, the Swedish government outlined a long-term and sustainable national energy and climate policy and established the Swedish Energy Agency to monitor this effort. Interestingly, the government’s position on nuclear power has been rather inconsistent. In 2010, the Swedish parliament decided to allow the construction of new nuclear power plants, overturning an earlier law that aimed to phase out nuclear energy.

Results

In 2012, Sweden generated 58% of its electricity from renewables, with a national target of 63% by 2020. Hydropower accounts for the vast majority of this share, with wind being the fastest-growing new sector. Nuclear power is the second-largest electricity provider. Thanks to the growth of the hydro and nuclear power sector, Sweden is often praised as a country whose greenhouse gas emissions have decreased by 9% in two decades (1990-2009) while its GDP has grown by 51% during the same period. The share of oil in the country’s combined power and heat supply has decreased from 75% to 21.5% between 1970 and 2012, largely due to its declining use for residential heating.

Regulatory Policies

In contrast to Germany, Sweden does not have a feed-in tariff policy. Instead, it uses electric utility quota obligations and the trading of renewable energy certificates (RECs), a system often described as defining the objective, but not the method of implementation.

Energy companies and municipal utilities are subject to a government-mandated green energy quota that increases over time; however, they may choose the source of clean energy they wish to invest in. By leaving the method of implementation up to the free market economy, competition between different technologies is encouraged, which in turn lowers market prices. If an energy provider does not meet its quota, it has to buy RECs from other providers who have exceeded their quota; each certificate represents one megawatt-hour of clean electricity.

When a provider cannot prove that they have met their quota, with actually generated energy or the purchase of RECs, hefty penalties are collected by the government. When the overall amount of generated clean energy is low, the number of certificates on the market decreases, and their price increases; this provides an incentive to build new wind turbines, solar arrays, or backup energy systems.

In the Swedish quota model, the energy market is largely independent from political decisions about specific technology subsidies that may change every year. Many economists believe that the model’s greater long-term stability and low levels of bureaucracy make it particularly attractive for investors in renewable energy.

Back to the U.S.

Compared to 25% in Germany and 58% in Sweden, 13% of U.S. electricity was provided by renewables in 2013. This is a slight increase from 2012 despite a decrease in hydropower output and competition from cheap natural gas from shale. While the number of renewable electric power plants almost tripled between 2002 and 2012, the share of net electricity generation from coal declined nearly 19% over the period 2008 to 2013.

As in Germany and Sweden, a wide range of federal fiscal incentives and public financing mechanisms for renewable energy exists in the U.S. These incentives have supported multiple ambitious green energy projects, as discussed here and here. However, a notable difference from Germany and Sweden is the lack of national targets, and of national regulatory policies designed to achieve them.

From a historical perspective, it is not uncommon for the U.S. to let individual states “try out” a variety of policies before any federal laws are implemented. A potential benefit is that national policy instruments in support of renewable energy may then combine the best elements from  multiple states. And this may ultimately help the bottom line that many consumers care the most about: the cost of electricity.

Show Me the Money: The Cost of Electricity

The average cost of electricity in Germany in 2013 was 18.8 U.S. cents per kilowatt-hour, the second highest in the world and more than twice what U.S. customers pay at 9.3 U.S. cents per kilowatt-hour. Much of the significantly higher cost of electricity generated by renewables in Germany is recovered by a green energy tax that all consumers have to pay. This tax has been heavily criticized for having a much greater impact on the budget of low-income households and small businesses, while numerous tax exemptions exist for big companies. In Sweden, the average cost of electricity was one cent less than in the U.S. at 8.3 cents per kilowatt-hour.

These numbers are of obvious interest and importance; however, the relationship between regulatory policies and consumer cost of electricity is much too complex to find easy answers about the best way forward. In addition, these economic costs do not account for the environmental and health costs related to fossil fuel extraction and emissions.

Ultimately, each country’s success in growing its own renewable energy market will strongly depend on designing policies that match its naturally available resources. Since a large country like the U.S. has a great diversity of natural resources across the 50 states, sub-national regulations will always play an important role. But given the rapid pace of global climate change, the time is ripe to show the world that we, as a nation, are still “driven by the ambition to be No. 1,” as Jürgen Klinsmann said – not just in competitive team sports, but also in the field of renewable energy.

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