In 2023, the share of “green” electricity generated with renewable electricity generation capacities in gross electricity consumption was more than 50 percent for the first time. The share of renewables increased by 5 percentage points compared to the previous year, from 46.6 to 51.6 percent. However, this strong increase is only partly due to renewables: the nuclear energy phase-out and the resulting decline in conventional electricity generation as well as the massive decline in electricity consumption as a result of the economic decline in Germany also contributed to the new record.
According to the study “Ecological restructuring of the economy and society: costs and benefits”, this apparent success story of renewables has a very poor cost-benefit ratio for the Berenberg Bank (Frondel, Quitzau 2023), because according to this study the benefits are modest, The costs, however, are immense: since the introduction of the Renewable Energy Sources Act (EEG) in 2000, the expansion of renewables has caused around 300 billion euros in additional costs, according to figures from the Federal Ministry of Economics (BMWK 2021). Payment obligations of a similar magnitude have already been determined for the next two decades, as the EEG subsidies for green electricity are granted for up to 21 years.
Regardless of the immense costs of around 600 billion euros to date, politicians are counting on much more of the same after Russia’s attack on Ukraine: by 2030, photovoltaic capacity is expected to increase from just under 70 gigawatts (GW) to 215 in 2022 GW will be more than tripled, and onshore wind power capacity is expected to almost double from around 60 GW to 115 GW – both in less than half the time that the previous capacity expansion took.
Above all, these two regenerative technologies, photovoltaics and wind power, are intended to achieve the target of a renewable share of the electricity mix in 2030, which has been significantly increased from 65 to 80 percent. In order to achieve this extremely ambitious goal, politicians are apparently accepting the further increase in the cost avalanche: The maximum rates in the Federal Network Agency’s auctions to obtain guaranteed remuneration for feeding green electricity into the public grid from newly installed systems were increased throughout in 2022 it for solar or wind farms.
Against this background, it was high time for an unbiased cost-benefit analysis, not least because additional costs in the hundreds of billions are not included in the 600 billion euros, such as the expected high burdens from the planned heating transition and the costs for the grid expansion, which would not be necessary to such an extent without renewable expansion. The four operators of the high-voltage transmission networks in Germany, 50Hertz, Amprion, Tennet and TransnetBW, assume in the new network development plan (NEP 2023) that 128.3 billion euros will be needed for the expansion of the high-voltage overhead lines alone, around 41.6 billion for the Lines on land and 86.7 billion for the offshore network to connect offshore wind farms. The basis for this estimate is the expectation that electricity consumption in Germany will double by 2045 and the installed capacity of renewable energies will increase to 700 GW, from the current 166 GW (BDEW 2023: 31).
Far higher costs are expected for the expansion of the low-voltage and distribution networks than for the high-voltage transmission networks. In addition, there is the construction of the hydrogen network infrastructure, which is also estimated at a three-digit billion sum, as well as the conversion of the natural gas pipelines to hydrogen pipelines. The dena lead study put the additional capital costs for a successful energy transition by 2050 at 1.1 to 1.9 trillion euros (dena 2012). Based on the above, these costs are likely to be at the upper end of this range, i.e. closer to two trillion rather than one trillion euros. This assessment is confirmed by a study by the German Academy of Engineering Sciences, the Leopoldina and the Union of Academies from 2017: Within the 33 years up to 2050, an average of around 60 billion euros per year should be raised for the energy transition (acatech 2017: 50) .
Compared to the immensely high costs, the benefits of expanding renewable energies are very modest. This applies in particular to the gross employment effects, which are primarily of a temporary, not permanent nature: after the installation of the renewable systems, comparatively few workers are required for the maintenance and operation of the systems. If it is taken into account that the financial burden of promoting renewables leads to lower employment elsewhere and that renewable electricity displaces conventional electricity generation and therefore fewer workers are needed there, it becomes obvious that the net employment effects are even more modest, if not negative (Frondel 2017).
What is also often forgotten when promoting alternative technologies is their opportunity costs: the lost benefits from other investments that cannot be financed due to renewables funding, but may be more profitable. A serious example of this is photovoltaics: Given the current funding expenditure of around 120 billion euros for all photovoltaic systems installed in Germany since 2000 (BMWK 2021) and approximately the same amount of other funding costs that still have to be paid for the installed systems, it is imperative that The question must be asked whether this huge sum could not have been invested better.
The current discussion about the savings of 60 billion euros in the climate and transformation fund forced by the Federal Constitutional Court ruling of November 15, 2023 also proves that the opportunity costs of renewable energy expansion are extremely relevant. For the year 2024 alone, around 10.6 billion euros are earmarked from this fund to cover the costs of the current expansion of renewables (BMWK 2023), so that electricity consumers do not have to bear these costs again via the EEG surcharge, as they did until mid-2022 was the case. This means that a little more than a fifth of the expenditure of around 49 billion euros planned for 2024 in the climate and transformation fund will go directly to renewables.
If the expansion of renewable electricity generation technologies were left to the market today, the financial resources saved in the climate and transformation fund could be used to accelerate research and development of all energy and storage technologies, including nuclear and hydrogen technologies, to an unprecedented extent in the future. It is therefore high time that strict attention is paid to cost discipline in the further expansion of renewable energy, with the Federal Network Agency now only issuing technology-neutral, rather than technology-specific, tenders for the expansion of renewable energy. This means that only the most cost-efficient renewable technologies are used, but there remains scope for further future investments that could stimulate the growth potential of the German economy more than the expansion of renewable energies. Therefore, after more than two decades, the EEG should be abolished as soon as possible and renewables should finally be left to the market – especially since this would be easily possible given the high level of electricity prices without slowing down the expansion of renewables.
The question of opportunity costs must also be asked in the planned heating transition, which could result in massive support for heat pumps. It is very likely that the financial resources of 16.7 billion euros earmarked for this in the Climate and Transformation Fund for 2024 – which makes up just over a third of the fund volume – could be invested much better in order to ensure future viability and growth potential to improve Germany. If one considers the example of photovoltaics and the previous domestic “solar boom”, in which German companies were not among the winners, one should assume that a potential heat pump boom in Germany sparked with high funding expenditure does not necessarily lead to the German manufacturers will be catapulted to the top of the world‘s highest-turnover companies in this industry.
And similar to the solar boom, a heat pump boom would hardly create any permanent jobs: As soon as all the pumps were installed, workers would only be needed for their maintenance and operation. However, this does not create any additional employment: the workers who previously maintained the fossil heating systems would be replaced by those who maintain the heat pumps. The net employment effect would be zero in the long term.
This is just one of the many reasons why the traffic light government should leave the heat transition to the second EU emissions trading scheme starting in 2027 for the transport and heat sectors and to municipal heat planning. Instead, it seems that the policy of excessive support for alternative technologies is now being repeated in the heating sector, wisely with even more subsidies.
Credentials:
acatech (2017) Sector coupling – options for the next phase of the energy transition. German Academy of Engineering Sciences, Leopoldina, Academy Union, November 14, 2017.
BDEW (2023) Energy supply in 2023. Annual report of the Federal Association of the Gas and Water Industry (BDEW), Berlin, December 18, 2023.
BMWK (2023) The Climate and Transformation Fund 2024: Creating relief, securing future investments, shaping transformation. Federal Ministry for Economic Affairs and Climate Protection. Report December 21, 2023.
BMWK (2021) EEG in numbers: remuneration, differential costs and EEG surcharge 2000 to 2022. Federal Ministry for Economic Affairs and Climate Protection. Stand: 15.10.2021.
dena (2012) dena pilot study Integrated Energy Transition. German Energy Agency, Berlin.
Frondel, M. (2017) Job illusion energy transition. order of the economy. Frankfurter Allgemeine Zeitung, July 14, 2017. See also: The fairy tale of the green job engine, Economic Freedom, April 25, 2018.
Frondel, M., Quitzau, J. (2023) Ecological restructuring of the economy and society: costs and benefits. Berenberg.
NEP (2023) Second draft of NEP 2037/2045 (2023) published. June 12, 2023. https://www.netzentwicklungsplan.de/nachrichten/zweiter-entwurf-des-nep-20372045-2023-veroeffentlicht.
RWI Essen and Ruhr University Bochum