Renewables: An essential part of Germany’s future

Germany has become a world leader in renewables, exporting its technology around the world while creating jobs and cutting CO2 emissions. Eva Henkel of Invest in Germany explains why this investment is paying off.

By: Eva Henkel, Invest in Germany

The village of Dardesheim lies at the edge of the Hartz Mountains in the eastern German state of Saxony-Anhalt. Scattered among the red-tiled roofs in the 1000-strong community are solar panels. These panels show how the town is attempting to derive its own energy solely from renewable sources and supply excess energy to the region as a money-making strategy.

Thanks to villages like Dardesheim adopting solar power, 20 per cent of energy used in the eastern state of Saxony-Anhalt comes from renewable sources
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Although solar panels and other renewable technologies have long been the darlings of the green movement in Germany, the town envisages not only environmental benefits from resorting to renewable energy. For the town and for many investors, there is money to be made from renewable energy.

“For economic success, we have to travel new roads,” said mayor Rolf-Dietrich Kàƒ¼nne. Dardesheim is not easy to access, even by car, therefore making it difficult to attract investors. The town has now invested in a wind park as well as solar cells. It is also working with another town to build a biogas facility with the goal of providing 25 000 people with electricity from renewable energy.

With the cooperation of major utility companies in the area, Vattenfall and E.ON, the town is investing in a solution to the problem of matching demand with supply of renewable energy.

In other words, how does one use solar energy if it is cloudy? How can one tap into wind energy if flags are limp? The answer, says Heinrich Bartlett, manager of the wind park in Dardesheim, is a “giant hydropower battery”.

The idea is that unused wind electricity would be redirected to a nearby reservoir, where it would supply the electricity for pumps to push water from a dam into a basin 126 metres above it. In windless periods, the basin opens allowing for water-powered turbines to generate the needed electricity. Such an “energy circuit” is still in development, but with the support of major investors and the general positive state of renewable energy in Germany, its chances of success are high.

Already 20.5 per cent of the energy used in Saxony-Anhalt – more than twice Germany’s level as a country – comes from renewable sources, and this is more than twice Germany’s national average. Renewable energy brings in €100 000 ($150 000) in revenue into Dardesheim’s treasury, a significant sum for a small town.

It is no surprise that Dardesheim’s story is a German one. The country has been known for years as an environmentally conscientious nation. Nearly every foreign visitor to Germany notices the various containers on street corners that are separate bins for materials that can be recycled. The country has moved to turn this social awareness into a profit-making business model for many companies, both foreign and domestic.

Reaping what you sew

This effort is succeeding. Renewable energy and renewable resources now form one of the fastest growing industries in Germany. In 2006, the last year for which full statistics are available, the German renewable energy sector brought in an estimated €23 billion in sales. Its exports topped €8 billion, and the industry now employs 235 000 people.

Germany’s success in this industry can be traced to many factors. Renewable energy companies are drawn to Germany for similar reasons that attract firms from all industries: the highly-educated workforce, dense infrastructure and stable labour costs.

In addition to these positive aspects of the German investment landscape, renewable energy investors in Germany have the special advantage of the Renewable Energy Sources Act (or EEG in German). The law has allowed the renewable energy industry in Germany to grab world attention for its leadership.

The law works as follows: Owners of renewable energy systems, such as solar panels or windmills, receive a feed-in tariff, which can be up to twice the market price typically paid by private consumers, when energy from their systems is sold into the public grid.

For example, energy from solar systems installed in 2008 receives a feed-in tariff of 35.49 €cent/kWh from solar parks or up to 51.75 €cent/kWh from residential systems.

Wind energy, which is already nearly price competitive with gas and coal, receives a set price of 5.17-9.10 €cent/kWh. These rates, for PV, wind and all renewables, are guaranteed for 20 years, making ownership of renewable systems a profitable enterprise for communities, individuals, companies and charitable organizations, and therefore giving Germany a ready-made domestic market that renewable energy companies can tap into.

In 2008, solar energy will receive a feed-in tariff of 35.49€ cents/kWh from solar parks or up to 51.75€ cents/kWh from residential systems
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Germany excels in all sectors of the renewable energy and resources industry. It is the largest market for wind energy in the world, having produced an estimated 20.7 GW of energy from wind sources in 2006. The wind energy industry’s sales totalled €5.6 billion in 2006. Wind energy is also set to benefit from legislative changes. Transmission system operators are now required to link grids to offshore wind farms.

Furthermore, beginning in 2009, the EEG will likely be adjusted to offer higher tariffs to owners of wind energy systems. These numbers are expected to grow considerably in the coming years as investments in offshore installations in the North Sea are brought into service. These projects are thought to contribute 25 000 MW to Germany’s energy supply and take up the lion’s share of the €45 billion in investment expected to flow into the industry by the year 2030.

Geothermal is also a fast-growing part of the renewable energy industry in Germany. Installations for shallow geothermal energy more than doubled in 2006. Deep geothermal energy currently receives a feed-in tariff of 15 €cent/kWh. Through a reform of the EEG, the German government is hoping to increase the available compensation for geothermal energy and thus provide an impulse for further investment in this sector.

In addition to the positive legal framework in the German renewable energy industry, there are many other advantages that Germany offers to the renewable energy investor. Infrastructure is one of them.

Germany’s network of motorways, waterways and its 17 international airports mean that products “made in Germany” can easily reach customers anywhere in the world. It is no wonder that Germany has been the worldwide export champion for the last five years, including 2007 when, despite the strong euro, German exports increased by 8.5 per cent over the previous year to reach a total of over $1.4 trillion of exported products.

Providing for future generations

Research and development (R&D) is an important element to any industry, and this is no different in renewable energy. Germany excels in this area. In recent years, it has registered more patents than any European country at the European Patent Office, more than France and the United Kingdom combined.

Its universities are producing world-class scientists and enabling bright minds to flourish. This is especially true in science and engineering, two areas in which Germany has excelled for centuries. For example, two Nobel Prize winning scientists in 2007 came from Germany, Gerhard Ertl in Chemistry and Peter Gràƒ¼nberg in Physics. The country also offers an excellent network of research institutes and scientific centres that work with industry to come up with ground-breaking innovations to enhance new products.

Germany has also taken steps to ensure that the tax burden on companies investing in the country is minimal. Since 1 Janaury 2008, corporations investing in Germany pay an average corporate tax that is under 30 per cent, putting the country on par with other Western European nations.

Wage costs are also stable in Germany in a manner that is not the case in many Eastern European countries, where inflation and wage growth endanger the gains in cost reduction that many companies sought when they relocated production there. Additionally, many Eastern European countries are damaged by a shortage of skilled labour.

Look east

Many renewable companies have found eastern Germany to be an especially attractive location for investment. The federal government has also injected billions of euros since reunification to make the transportation infrastructure in the region world-class.

Some companies can also qualify for investment incentives of up to 50 per cent of investment costs if they establish facilities in eastern Germany. Local authorities are also accustomed to renewable energy investments; this fact accelerates the planning permission processes and enables companies to put their investment plants into action at the fastest possible speeds.

These are some of the many reasons why international renewable energy companies, including world-renowned names such as Vestas, General Electric, First Solar and Q-Cells, have made major investments in Germany.

Germany was one of the first countries to see both the environmental and economic potential from renewable energy, and it is the natural choice for companies looking to break into the European market for renewable energy.

Invest in Germany is the inward investment promotion agency of the Federal Republic of Germany. It provides investors with comprehensive support from site selection to the implementation of investment decisions.

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