Germany’s Green Industrial Policy Stable Policies – Turbulent Markets: The costs and benefits of promoting solar PV and wind energy Wilfried Lütkenhorst Anna Pegels German Development Institute January 2014 www.iisd.org/gsi © 2014 The International Institute for Sustainable Development © 2014 The International Institute for Sustainable Development Published by the International Institute for Sustainable Development. About IISD The International Institute for Sustainable Development (IISD) contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change and energy, and management of natural and social capital, as well as the enabling role of communication technologies in these areas. 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International Institute for Sustainable Development Global Subsidies Initiative International Environment House 2, 9 chemin de Balexert, 1219 Châtelaine, Geneva, Switzerland Tel: +41 22 917-8373 | Fax: +41 22 917-8054 Germany’s Green Industrial Policy Stable Policies – Turbulent Markets: The costs and benefits of promoting solar PV and wind energy Written by Wilfried Lütkenhorst & Anna Pegels German Development Institute January 2014 © 2014 The International Institute for Sustainable Development RESEARCH REPORT JANUARY 2014 Germany’s Green Industrial Policy Stable Policies – Turbulent Markets: The costs and benefits of promoting solar PV and wind energy ii Acknowledgements The research project leading to the present report was funded by the International Institute for Sustainable Development (IISD). The authors are grateful to Tilman Altenburg and Aaron Cosbey for overall direction and guidance, as well as to Morgan Bazilian, Michele Clara, Lucy Kitson and Hubert Schmitz for their review of an earlier version of the report. Ruth Pollak has provided valuable research support in connection with competitiveness and innovation indicators. The responsibility for any remaining shortcomings of the report is obviously entirely ours. RESEARCH REPORT JANUARY 2014 Germany’s Green Industrial Policy Stable Policies – Turbulent Markets: The costs and benefits of promoting solar PV and wind energy iii Table of Contents Summary .........................................................................................................................................................................................1 Introduction ...................................................................................................................................................................................3 Chapter 1: Green Industrial Policy and the German Energy Transition ......................................................................5 1.1 From Industrial Policy to Green Industrial Policy .................................................................................................5 1.2 The Energy Transition (Energiewende) ....................................................................................................................6 1.3 Key Policy Objectives ...................................................................................................................................................8 Chapter 2: The Evolution and Status of the Solar PV and Wind Energy Industry ................................................ 11 2.1 The Solar PV Industry ................................................................................................................................................. 11 2.2 The Wind Energy Industry ...................................................................................................................................... 15 2.3 Summary ....................................................................................................................................................................... 21 Chapter 3: Policies in Support of Renewable Energy Promotion .............................................................................. 22 3.1 General Renewable Energy Polices....................................................................................................................... 22 3.2 Solar PV Policies ........................................................................................................................................................ 29 3.3 Wind Energy Policies ................................................................................................................................................ 31 Chapter 4: The Costs of Policies: The Feed-in Tariff and Beyond ............................................................................. 33 4.1 Introduction .................................................................................................................................................................. 33 4.2 Annual Fit-Related Differential Costs ................................................................................................................34 4.3 “Net Real Cost” of Solar PV and Wind Energy Promotion ...........................................................................37 4.4 Macroeconomic Costs and Systemic Effects .................................................................................................. 38 4.5 Subsidies for Renewable and Conventional Energy Sources: A Comparison ....................................... 39 4.6 Summary .....................................................................................................................................................................40 Chapter 5: The Impact of Policies ........................................................................................................................................41 5.1 Competitiveness ..........................................................................................................................................................41 5.2 Technological Innovation ........................................................................................................................................48 5.3 Employment Creation .............................................................................................................................................. 52 5.4 Global Market Competition ................................................................................................................................... 53 5.5 Environmental Benefits From Avoided Emissions .......................................................................................... 55 5.6 Energy Security .......................................................................................................................................................... 58 5.7 Contrasting Wind and Solar PV: Costs and Benefits in a Nutshell ...........................................................64 Chapter 6: Navigating the Policy Space: Moving From Details to the Big Picture ..............................................66 6.1 The Feed-in Tariff: Impact and Reform Debate ................................................................................................66 6.2 Green Industrial Policy in Germany: A Systemic Perspective ....................................................................69 References ................................................................................................................................................................................... 73 © 2014 The International Institute for Sustainable Development RESEARCH REPORT JANUARY 2014 Germany’s Green Industrial Policy Stable Policies – Turbulent Markets: The costs and benefits of promoting solar PV and wind energy iv List of Tables Table 1: Quantified energy policy targets, 2020–2050 (Percentages) ...................................................................9 Table 2: Key indicators of the PV solar industry in Germany (2012) .......................................................................12 Table 3: Solar PV Indust ry Value Chain: Number of