Photo Gallery: The True Cost of Green Energy

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The Expensive Dream of Clean Energy Will High Costs Kill Merkel's Green Revolution?

Chancellor Angela Merkel's vision of completing Germany's conversion to renewable energy by 2050 is bold and ambitious. But she has remained silent about the risks and the tremendous costs the green revolution will entail -- for Germany and all of Europe. By SPIEGEL Staff

Germany's dream of an energy revolution has already come true in the small town of Morbach, nestling between wooded hills in the southwestern Hunsrück region. Morbach boasts 14 wind turbines, 4,000 square meters of solar panels and a biogas plant, all located on the site of a former military base straddling a hill above the town. Together, they produce three times more electricity than the 11,000-strong community needs.

Politicians and corporate executives from all over the world have visited the site. "They all want to see how it's done," says Morbach Mayor Gregor Eibes, a member of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) party. Morbach has already achieved what Merkel is now planning for the whole of Germany.

She wants to lift Germany to Morbach's levels in just four decades, after which Europe's largest economy will meet most of its energy requirements from the sun and the wind, biomass and water. Drawing on the inexhaustible supply of energy on land and at sea would help combat global warming. And it would mean an end the dependence on Arab oil and to fears of nuclear accidents and of the mood swings of Russia's gas suppliers.

The government laid out this bold, green vision in its draft energy plan  earlier this month. It wants to increase the share of renewable energy from 16 percent today to 80 percent by 2050.

Silence on True Cost of Energy Plan

It will mark the end of an energy system that has been based almost exclusively on fossil fuels -- coal, oil and gas -- for the last two centuries. The steam engine, the light bulb and the automobile have immeasurably improved the lives of billions of people. But the collateral damage has been high. The polar icecaps are melting and the share of greenhouse gases in the air is increasing because humans each year burn energy supplies that took millions of years to create. Renewable energy offers the only way to lead the world into a green future. That is why Merkel keeps on emphasizing the scale of the revolution Germany faces. But she is keeping quiet about the huge cost this will entail.

For a start, new power lines need to be built to transport the growing amounts of wind power from the north and solar power from the south. The power industry estimates that constructing these power motorways -- the lines, switching stations and transformers -- will cost some €40 billion ($53 billion) in the coming 10 years.

The wholesale refurbishment of this energy infrastructure is just one example of the massive cost of the green revolution: new grids and power storage sites, solar plants, wind turbines, biomass power plants will be needed, not to mention vastly expensive  efficiency improvements in buildings and homes. Hardly anyone has fathomed the dimensions of the task.

"At the moment the customers don't yet see the wave rolling towards them," Hartmut Geldmacher, a management board member of power company E.on Energie, recently told a conference. "We face higher electricity prices."

Manuel Frondel, an economist at the RWI economic institute, said: "It will get so expensive that we will have a vigorous public debate about the price of power."

Real estate owners are particularly worried about the enormous costs. Last week the real estate sector, brokers and property owners' associations warned that many people may be unable to finance the necessary heating insulation and other efficiency improvements the government is seeking.

It is slowly dawning on people what tremendous changes the reconstruction of Germany's power sector will cause: for the 200,000 people who work for the four big power firms, for the 850,000 employees in the agricultural and forestry sectors who increasingly see themselves as energy farmers, and above all for the millions of consumers, many of whom have until now paid little attention to electricity bills.

The Era of Cheap Power is Over

Throughout human history energy has been a scarce and expensive resource, but consumers never paid the true price. The bills didn't include the environmental cost of burning coal, oil and gas and splitting the atom. This cheap era ended when it became evident that the planet can't go on like this indefinitely, and that the world has to wean itself off fossil and nuclear fuels.

The center-left government under Chancellor Gerhard Schröder took an important first step a decade ago by passing the Renewable Energy Act that required power grid operators to give priority to feeding in green power. The results are visible across the country today. Germany has more than 21,300 wind turbines and almost 13 million square meters of roofs and fields are covered in solar panels. The 16 percent share of renewable energy sounds like a fantastic achievement, but it also highlights how much more needs to be done. And the rest of the way will be far more difficult and expensive.

The strategists at RWE, Germany's biggest power company, estimate in an internal study that Europe will require a staggering €3 trillion ($4 trillion) of investment just to convert its power generation to green energy. That doesn't include the necessary spending on networks and storage. The price of electricity production would increase rapidly in the coming 25 years to up to 23.5 cents per kilowatt hour in a worst-case scenario, if Germany were to switch to complete self-sufficiency in energy production, from 6.5 cents now, RWE estimates.

This is doubtless an extreme scenario, and even RWE has significantly lower rates based on the assumption that the life span of nuclear power stations will be extended. Other experts have completely different estimates. It is impossible to arrive at precise forecasts for the cost of the green revolution over the next 40 years. Besides, most scenarios don't factor in the problems that could arise in terms of arduous approval procedures, legal disputes and public protests.

But six main factors can be identified that can help to determine whether a renewable energy system can work reliably and what cost levels can be expected.

Solar Power Subsidies

One major indicator of the price of the future can be found in fields east of the Bavarian town of Straubing. Land that used to produce potatoes and corn is now covered with solar modules that have turned it into a gleaming blue landscape the size of 180 football pitches. Not far from there the aristocratic Thurn und Taxis family wants to launch an even bigger solar project.

This young industry is enjoying an incredible boom, but one that has come at a high price. Solar panel operators receive a fixed tariff for every kilowatt hour of power they produce. That tariff is well above the standard market price for electricity and it averages 31 cents, guaranteed for more than 20 years. At the start, no one realized the implications of this subsidy, which wasn't seen as a significant outlay because of the weak capacity of solar modules and the relatively few hours of sunshine in Germany.

But the government's unprecedented generosity  regarding solar power has prompted thousands of private individuals and companies to invest in solar panels. According to the RWI institute, the total subsidy payout over the last 10 years has been €60 to €80 billion. The yield has been modest by comparison. Solar power covers just 1.1 percent of German electricity requirements. If the construction of solar panels continues unchecked -- and it appears that it will -- German subsidies will soon reach €100 billion, RWI economist Fronzel estimates. The head of the German Federal Cartel Office, Andreas Mundt, said last week that the subsidy was more suited to a planned economy than a market economy. The government is trying to slow down the expansion of solar power, which plays a more subordinated role in its new energy plan.

€75 Billion for High Sea Wind Farms

The expansion of wind power has been successful but is hitting its limits. The most favorable locations on land can't be increased and the so-called repowering, which refers to operators replacing old turbines with new and more powerful ones, is slowing down. They are running into problems getting planning permission for the new turbines which in many cases are twice as high as the old ones.

As a result, companies are diverting to offshore sites  where the wind is more constant but the costs of construction are far higher. The government's energy plan estimates that the expansion of offshore wind farms will cost €75 billion ($100 billion) by 2030, but adds that the investment risks are "hard to calculate." That means it could be far more expensive, especially as the wind turbines are vulnerable to technical problems , as experience with the first German offshore wind park, Alpha Ventus, has shown. It is located some 45 kilometers off the North Sea island of Borkum. Its 12 wind turbines jut out of the rough seas, each one as high as Cologne Cathedral and as heavy as 25 fully loaded trucks.

Engineers developed all the equipment from scratch here, including the supply ships and the cranes that heaved the gigantic rotor blades up 100 meters with centimeter precision. E.on and its partners spent a quarter of a billion euros on the project, which is capable of supplying 50,000 households with electricity. When it works.

Shortly after they went into operation, half the turbines were shut down again, for months, due to a fault in the gear mechanism. "We won't allow ourselves to be discouraged by such setbacks," says E.on's executive in charge of renewable energies, Frank Mastiaux. He insists that the future belongs to the offshore wind farms in northern Europe.

But his colleague Fritz Vahrenholt at RWE Innogy, which is investing billions in wind turbines, admits: "The gentle revolution on the sea won't exactly be cheap."

Autobahns of Electricity Across the Continent

Building wind farms alone isn't enough. Power lines are needed to transport wind power south from the North Sea. The expansion of the grid, the third cost factor, will play a key role in the future energy system. The European Commission expects that investments in the power network will exceed €500 billion ($668 billion). Some 6,000 kilometers of submarine power cables have to be laid in a project called Seatec which is estimated to cost €30 billion ($40 billion). An additional €50 billion needs to be invested south of Europe to hook Europe up to the Desertec  solar power project. The plan is for Europe to be covered by a smart grid capable of distributing electricity intelligently.

Germany has a special role because of its central location between the North Sea and the Alps. That will make it the most important transit country for electricity. But none of the new projects is running according to schedule. Of the 850 kilometers of new power lines the German Energy Agency (Dena) said was urgently needed in its first grid study five years ago, only 90 kilometers have been completed. And the required expansion is now deemed to be four times greater.

"We don't just need new autobahns, they also need to have eight lanes in both directions," says Gerald Kaendler, a strategist at network operator Amprion. He is referring to a technology using so-called high voltage direct current, a super line that allows electricity to be transported over thousands of kilometers with very little loss of power. The disadvantage is that the system is hugely expensive. The Swiss-Norwegian consortium NorGer plans to invest €1.4 billion ($1.87 billion) just to hook up Germany with Norway.

This is the plan: A sea cable 11 centimeters (4.3 inches) thick is laid along the North Sea bed with a special ship. The line stretches from the southern tip of Norway to the coast of northern Germany. Its purpose is to carry hydroelectric power to Germany and German wind power to Norway.

The planning procedures are still being carried out and NorGer expects the line to become operational in five years, provided that authorities give the green light and that local citizens don't file lawsuits. People often protest against new lines being dug.

Norway as Europe's Green Battery?

The fourth cost factor, the construction of power storage sites, is even harder to calculate. The storage plants are essential because renewable energies are unsteady. Sometimes there's a powerful wind, and sometimes it's so still that not a single rotor blade is turning. The same applies to sunshine. During storms, when wind power is pumping into the grid, power companies already have difficulties reducing the output of coal-fired and nuclear power stations to avoid overloading the system. Engineers complain that such problems are occurring more often.

Renewable energies can't provide a steady power supply unless storage plants balance out surpluses and shortages. Pumped-storage plants are regarded as the best solution because of their high effectiveness of up to 80 percent. It's a simple principle. When there's a surplus of electricity, water is pumped into reservoirs that are located many hundreds of meters higher. When electricity is needed, the water is allowed to flow back down through tubes, driving turbines in the process.

The German Energy Agency estimates that Germany currently has storage plants with a capacity of 6,400 megawatts and is capable of expanding that by 2,500 megawatts. But 10 times that amount will be needed, around 25,000 megawatts.

"It's still a mystery to me where all the storage plants for the green energy are supposed to come from in such a short time," says Vahrenholt of RWE. At present Germany has a concrete plan to build just one pumped-storage plant, in Atdorf in the southern Black Forest region. The €700 million ($935 million) construction project is due to be completed by 2019. But here, too, the investors face massive protests from the local population.

Apart from that, Germany has limited space for expanding its storage capacity, because of its topography and population density. As a result, high hopes are being pinned on northern Europe, and on Norway in particular. The country's water reservoirs are so huge that its main power company, Statkraft, could store its entire annual electricity output in them. But until now the Norwegians only operate a few of those reservoirs as pumped-storage plants, and worse, there are no power lines running to central Europe yet. So far, the NorGer link is the only project to link Norway to Germany. It has capacity for 1,400 megawatts, which amounts to the output of just one single nuclear plant. Billions upon billions will have to be invested to turn Norway into the green battery of Europe.

Biomass Boom Sending Prices Soaring

The increased use of biomass as a source of energy has led to big price hikes for agricultural produce. Because customers these days want wheat or corn both as food and as fuel, 2 million of the total 12 million hectares of agricultural land in Germany are already devoted to energy crops -- biogas from maize, fuel from rye and diesel from rapeseed. The government plans a gigantic 13- to 17-fold increase in the use of biomass by 2050. In order to reach this ambitious goal, ideally, only plant waste would be processed into fuel, but the technology to achieve this is still in its infancy.

Based on current technology farmers would need to convert many millions of hectares of land to energy production. The result would be monocultures of maize or rapeseed. More biomass would need to be imported from Asia or Latin America, where palm oil crops are often planted on cleared rainforest land and sold at dumping prices. That flies in the face of ecological sustainability.

A quarter of a ton of wheat is enough to feed a human for an entire year -- or to fuel a heavy sports utility vehicle for a few hundred kilometers. German experts say there's an urgent need for major productivity gains in farming to help counter a destructive and inflationary competition for agricultural resources. As grain prices increase, so does the cost of keeping livestock and, in turn, the price of beef and pork. Consumers scrutinizing their supermarket receipts are noticing it. Fans of bio energy would be well advised to become vegetarians.

The High Cost of Saving Money

The German government plans a radical increase in energy efficiency, especially in buildings and private homes. This is the sixth cost factor. By 2050, according to the government's energy plan, no building will be wasting energy any more and the nation's heating requirements will have fallen by 80 percent. Homeowners will save energy costs as a result, but they will first have to spend vast sums of money. Insulating a building costs between €35 ($47) and €350 ($470) per square meter.

Julia Klöckner, the CDU's main candidate in the regional election in the western state of Rhineland-Palatinate in 2011, has pointed out how explosive this issue could be. "For many people an enforced expensive refurbishment is tantamount to expropriation," she says. "The CDU as the party of property mustn't allow that to happen."

Stalling Tactics

If Germans really want to banish fossil and nuclear power they will have to face up to the cost of doing so. And they will have to break the resistance of the big power companies who have been secretly trying to stall the transition.

For years, the utilities comfortably raked in billions in profits with their classic business model. They built huge coal, nuclear or gas power stations near conurbations and supplied customers with easily affordable power. Electricity bosses such as RWE head Jürgen Grossmann keep repeating that renewable energies are the future. But behind the scenes they and their lobbyists are working to cement the status quo and are even attacking the government's move to give priority to green power.

The more renewable energy that is pumped into the grid, the more frequently the utilities have to power down their nuclear and coal power stations, which makes them more expensive to operate. As a result, the firms are considering charging customers a new fee for simply making power stations available even if they aren't needed.

Industrial companies, especially the energy guzzlers in the heavy industry sectors such as steel, cement and aluminium production, are also trying to slow down the transition. Industry consumes a quarter of Germany's electricity and gas requirements and has been lobbying against the upcoming electricity price increases and the recent scrapping of tax exemptions on energy taxes.

Germany's heavy industry is a powerful lobby because it employs some 875,000 workers. The CEO of chemicals group BASF, Jürgen Hambrecht, fears a "creeping deindustrialization in Germany." Firms are starting to threaten that they will build their next plant abroad where energy costs are lower and environmental regulations less strict.

Grassroots Revolution

It's doubtful whether firms will carry out such threats. And many companies have the potential to make huge energy savings. Besides, who is to say that it wouldn't make sense to sacrifice traditional heavy industry for the emergence of new, modern businesses?

Take the northern port of Emden, for example. The Nordseewerke shipyard  has converted from building frigates to constructing masts for wind turbines. Such a transition may be painful, but it could well end up boosting the economy. And every euro spent on solar, wind and biomass power is an investment that benefits not just major companies like Siemens, but small businesses as well.

Companies such as Juwi, founded by Matthias Willenbacher, which advises local authorities and firms on the mix of solar, wind, biomass and hydroelectric power that is suitable for them and then builds the required plants. Willenbacher, a physicist, employed a staff of 30 a decade ago. His workforce has since grown to almost 1,000. This year Juwi will generate sales of €900 million, a 50 percent increase on its turnover in 2009. Willenbacher represents a trend that is emerging across the German energy sector -- a return to regionalism.

Local authorities want to wean themselves off the large power suppliers and are investing in renewable energies and small heating plants that supply power and heating to nearby customers such as schools. The regional enterprises are quietly pushing ahead with the green revolution, from the bottom up. "It would be much more economic to cover the whole country with small, decentralized power stations," says Willenbacher.

The energy changeover mustn't confine itself to trans-continental power lines, storage plants in the mountains and wind farms along the coasts. The changeover must start at the bottom, in countless regional initiatives which can grow together step by step. The government hasn't taken enough account of this maxim in its energy plan.

It's clear that the costs of the green revolution will be tremendous. The government will have to make sure that they don't become uncontrollable. But foregoing the necessary investments could turn out to be far more expensive because that would increase Germany's dependence on raw materials imports and worsen climate change.

Whether Merkel's master plan will ever be realized in its current form is doubtful, not least because energy policy these days is mainly drafted at the European Union level, in Brussels. European Energy Commissioner Günther Oettinger plans to present a new plan in February to show how Europe's energy markets can grow together. It will contain proposals for the location of power lines and how to remove the major differences in national subsidies for green power.

It's already clear that the Berlin energy plan won't be the last one. A new one is bound to be drafted -- not necessarily by Merkel.