Early history of wind power in Germany and the UK
In a previous entry I show that the growth of wind power in the UK and Germany has been very similar except for the lag of approximately 6-7 years, which emerged before 2001. Why did this lag occur? Scholarship from the mid-2000s throws some light on this issue offering several fascinating and largely forgotten insights and at the same time illuminating mistakes that can be avoided in studies of energy transitions.
The mid-2000s saw an explosion of cross-national studies of renewable electricity uptake. One reason was the notable growth in wind power in Germany, Denmark, Spain, the Netherlands and some other European countries and the US states. In parallel, the EU issued its first Renewable Energy Directive (2001) amidst growing hopes that renewables would help to resolve energy security, environmental and even economic problems. In this context, social scientists set out to advise policy makers on the best ways to rapidly expand the use of wind power.
A central assumption of these studies was that nations were interested in wind power to decrease dependence on imported fossil fuels, reduce environemntal pollution, and create jobs and export industries. Given this natural motivation, the scholars explained the fact that some countries had succeeded while others failed to expand wind power by their choice of policies. The 'right' policies led to success and 'wrong' ones - to failure.
Germany and the UK were often compared to prove this point. In the early 1990s, both countries were committed to develop wind power (though the UK through setting specific targets and Germany primarily through policy rhetoric). Yet in 2003, Germany produced 15 times more wind power than the UK (10 times more relative to the size of its electricity supply). Moreover, Germany produced wind power at a lower cost and had some 20 times more jobs in the renewables sector than the UK.
Many scholars argued that this difference was primarily due to the choice of policy instruments. To promote wind power, Germany used FIT (feed-in-tariff), a scheme under which wind power is purchased at a guaranteed price. The UK used a different tool, called RPOs (renewable portfolio obligations), under which electricity producers were required to either generate a certain share of their electricity from renewable sources or purchase Renewable Obligation Certificates (also known as 'green certificates') from producers who had larger shares of renewables. Many scholars argued that FIT provided more certainty to investors than RPOs, leading to larger expansion of wind power in Germany. Scholars, policy experts and even the German government urged other countries to introduce FITs.
Now we know that this argument was only partially true. The Figure below shows the ratio of wind production in Germany (in relative terms) compared to that in the UK over 25 years between 1989 and 2016 . It is easy to see that this ratio steadily increased from about 3 in 1994 to about 10 in 2003 and then steadily dropped to about 1.2 in 2016. It is remarkable that it was precisely around the time when Germany introduced its really strong FIT (EEG 2000) and the UK introduced its RPO (2002) that the UK started to catch up with Germany. If policy choice had any impact, it was the opposite to what scholars argued: RPOs speeded up, not slowed down wind deployment. Moreover, experience of many other countries (as diverse as Sweden and the US) has by now convincingly shown that 'green certificates' can be as effective as FITs. The scholars in the 2000s were correct in that investors' confidence was important, but made a mistake assuming that such confidence could only be assured by FITs.
The figure shows the ratio of wind power shares in electricity production in Germany and the UK in 1989-2016 (i.e. how much more wind energy was produced in Germany if measured in percentages of electricity production). Data from IEA Energy balances. Data processing by V.Vinichenko.
The gap between the UK and German wind development in the 1990s is still there to explain. Between 1993-2003, wind share in the UK increased only 6 times, while in Germany it increased 28 times. During that time the UK used something called NFFOs (non-fossil fuel obligations), a tendering mechanism by which developers of non-fossil fuels bid for a price of electricity they were prepared to produce at. Essentially, this was an auction-based FIT, an advanced mechanism (also used in Germany after 2014), which combined certainty of FIT with efficiency of competitive auctioning. One could argue that NFFOs were premature to stimulate wind development in the 1990s when the costs of wind electricity production were highly uncertain. Many succesful bidders did not implement their projects because the costs proved too high in comparison with what they anticipated in their bids. Actually, if all successful NFFOs bidders would implement their projects, the ratio between the UK and Germany wind deployment would have barely changed in the 1990s. In other words, it was the real-life costs which slowed down investors in the UK rather than the 'wrong' policies.
A related reason could be that in Germany mechanisms other than FIT lowered the costs and increased investors' confidence in the 1990s. The 1990 FIT (StrG) linked the compensation of independent electricity producers to retail price of electricity, hardly assuring investors of stability. It was designed to support small hydro-power rather than wind and was widely called 'lukewarm'. However, Germany had a number of other mechanisms to support wind power, especially domestic manufacturing, ranging from low-interest loans to investment grants. One of the main reasons for all these measures was an attempt to ensure competitive export positions of German wind turbine manufacturers. These efforts were by and large successful: German producers outcompeted the Danes on the domestic market and eventually achieved the dominance of the world market as well. State support to turbine manufacturers certainly reduced the costs of turbines and increased project developers' confidence. The UK in contrast, had no domestic wind industry and its turbines were supplied by Danish and increasingly German manufacturers. This also explains why Germany had so many more jobs in renewable energy industry.
In the next entry I plan to address the lessons of this history for the studies of energy transitions.
References
Butler, L., & Neuhoff, K. (2008). Comparison of feed-in tariff, quota and auction mechanisms to support wind power development. Renewable Energy, 33(8), 1854–1867. https://doi.org/10.1016/j.renene.2007.10.008
Klaassen, G., Miketa, A., Larsen, K., & Sundqvist, T. (2005). The impact of R&D on innovation for wind energy in Denmark, Germany and the United Kingdom. Ecological Economics, 54(2–3), 227–240. https://doi.org/10.1016/j.ecolecon.2005.01.008
Lipp, J. (2007). Lessons for effective renewable electricity policy from Denmark, Germany and the United Kingdom. Energy Policy, 35(11), 5481–5495. https://doi.org/10.1016/j.enpol.2007.05.015