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Germany

Germany

Let there be light

An interesting parallel and an odd paradox can be seen in the wind markets of Britain and Germany. With major wind energy events in both countries in September-the annual industry conference in Britain and the huge Husum trade fair in northern Germany-our focus this month is on the latest political developments in these very different markets. The cover photo is a fine illustration of that difference. Here we have cutting edge technology from Germany (home to the world's most subsidised wind power) going up in Britain (without subsidy), to serve a new commercial market for "ecotricity." The awful irony is that while Britain is the first country to make commercial sale of wind power just possible, it has no high-tech wind technology of its own. At a critical juncture in the global development of the industry, the UK government failed to provide the kind of market stimulation that would also have stimulated a domestic industry. Germany did so, hence its technology lead.

To find a parallel, let alone a paradox, in such disparate markets is surprising. But both are apparent from the news and feature reports in this issue. The top news in Germany is of mounting pressure from outside and within the country for a reform of the law which fixes the price paid for wind power as a percentage of the price consumers pay for their electricity (pages 20-21). With no link to either the true cost of production or to consumer demand, the system is breaking down, a victim of its own success and of changing times: there can be no fixing of prices in liberalised electricity markets. In Britain, its competitive system of support for renewables, the Non Fossil Fuel Obligation, is a model of liberalisation in allowing market forces to decide price, but is so fraught with bureaucratic complexity and loopholes in need of mending, that it too is on its way out (page 21-22).

So here is the parallel: two systems of support clearly up for reform and two governments clearly floundering in their efforts to create market structures for the long term growth of renewables-a priority aim of both. Neither have yet hit upon, let alone agreed upon, a near viable solution. Neither seem to be seriously taking into account the wider vision: an internal European market for renewable energy. Both are listening hard to wind lobby groups, which, in Britain and in Germany so far, are doing more to hinder than to help by sending mixed messages and by failing to take vital issues into account. In Germany the wind associations are shouting for retention of the Renewable Energy Feed-In Tariff, while at the same time shouting for its reform (electricity prices in free fall are set to put the renewables tariff in a tail spin). What's more, a lobby which steadfastly ignores the rules of economic reality is not going to be taken seriously by an economy ministry holding the whip hand. And in Britain a so-called united group of renewables pundits is sending a series of messages to Whitehall which even a semaphore expert would have a hard time deciphering (page 43). The vital need for at least one more round of NFFO, if for no other reason than to kick-start the offshore market, seems to be have been forgotten.

The paradox is that Britain and Germany have arrived at the same state of confused policy paralyses from such different starting points. There are lessons to be learned here. First, once market forces come into play, the old order changes very rapidly. Second, regulating a free market for electricity is a highly complex process and there is no simple solution-the British government should stop looking for one. Third, command-and-control legislation, such as Germany's Electricity Feed-In Law, is no longer viable once regulation gives way to the real world economics of liberalisation. Fourth, Britain's wind lobby should take a lesson from Germany's and learn that it is foolhardy, in the midst of a government consultation, not to fight for retention of what you've got (NFFO) in the absence of anything better. Last but not least, a way out of the policy-making mess is knocking at the door. As our cover illustrates, "ecotricity" is a new and highly marketable product. We know it is highly marketable in Britain because there is nowhere near enough of it to go around (pages 34-35). In Germany it must be marketable, otherwise green power traders would not be popping up all over the place-and even being licensed to sell the stuff (page 27).

POLICY WONKS NEED MESSAGES in neon

A thriving green power market, as Denmark has conceded, is perhaps the only way to sustainable electricity production. Achieving that market is the job of governments. There are several vital pre-requisites: an obligation on consumers to buy electricity from renewable sources, with a system of financial penalties if they do not; fair access to the grid (and thus to customers) for all green power producers; a market structure which makes long term contracts the obvious choice; a geographical area for that market large enough to compensate for the varying nature of the wind; and a mechanism for visualising an invisible product (tradable credits) so that it can be freely traded in that area. Within that structure, price will sort itself out.

These are messages in need of neon lighting. They give economists and policy wonks something to get their teeth into. Free markets are not synonymous with a free for all. Just as governments can rule that cars run on unleaded petrol (incidentally creating a huge market for a new product overnight), so too can they rule that electricity be green. Until they do so, let's hang on to the existing systems for as long as we can.

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