A Solar Revolution May Be Coming to Your Town

By Mariah Blake, Washington Monthly. Posted April 11, 2009.

This combination of a fast-growing market and rapid innovation has turned the country into a green industry powerhouse. Germany is the leading destination for green capital, with $14 billion invested in 2007 alone. It is also a front-runner in green job creation. Some 300,000 people work in the nation’s renewable energy sector today. By 2020 green technology is expected pass the auto and electrical engineering industries to become the nation’s top employer, with more than 700,000 workers. One of the forces driving this growth is exports. In fact, many of the windmills and solar panels that are cropping up from New York to the Texas panhandle are made in Germany.

The economic benefits of this green tech boom have reached into the poorest corners of the country, including ragged patches of former East Germany. The region between Frankfurt-Oder and Dresden was once as grim as the drabbest outpost in the American Rust Belt. But in recent years, a vibrant green energy corridor, known as "solar valley," has sprung up amid the abandoned coal mines and shuttered factories. Thousands of workers from the defunct East German semiconductor industry (some of whom had languished for years on unemployment rolls) are now gainfully employed in solar panel factories.

Most importantly, although Germany’s economy has been devastated by the downturn, its green energy sector continues to thrive. In fact, Ernst & Young recently ranked the nation number one on its index of most attractive markets for renewable energy investment. "Just as cash is king," the report found, "feed-in tariffs are favored by investors," especially in uncertain financial times.

You might expect that a system like this -- one that allows countless independent producers to sell electricity at premium rates -- would come with a hefty price tag. But that is not the case. Studies have shown that even though German-style feed-in tariffs encourage the use of relatively expensive forms of renewable energy, such as solar power, they produce power more cheaply on a watt-for-watt basis than other renewable energy policies. This is because there is less investment risk, and less risk means investors can get lower-interest loans for generating equipment. This is one reason installing a solar panel in Freiburg costs less than it does in San Francisco. Renewable energy producers are also willing to accept lower profit margins because the returns are all but guaranteed. In contrast, under other systems utilities are forced to pay hefty risk premiums. This is particularly true of the quota systems (known as renewable portfolio standards) that are in use in about half of U.S. states and some European countries.

These findings are not lost on Germany’s neighbors. To date, at least eighteen of the European Union’s twenty-seven member states -- along with some twenty-five countries, cities, and provinces elsewhere in the world -- have adopted feed-in tariffs. Mario Ragwitz, who is spearheading a long-term EU study comparing renewable energy incentives, says three-quarters of the renewable electricity that the bloc produces each year is a direct result of this trend. "Almost everything Europe has when it comes to clean energy stems from the feed-in tariff policy," he says. "No other system compares."

In some nations where feed-in tariffs have reached critical mass, there is evidence that they have actually driven down the overall price of electricity. This may seem counterintuitive -- after all, renewable energy is more expensive on average than, say, coal power. But the price of electricity is often driven by natural gas, a costly and volatile fuel that is frequently used to meet peak power needs. If you have a large volume of renewable energy (particularly less-expensive wind power) you can cut your use of natural gas, bringing prices down across the board.

In the United States, tax credits and quotas are still the policies of choice. But this may be changing. While the stimulus package expands existing incentives, it also has some novel twists. Namely, in lieu of tax write-offs, companies that break ground on renewable energy projects (such as solar, wind, and geothermal plants) in the next two years can recover 30 percent of their project costs from the Treasury in the form of direct grants. This opens the renewable market to a wide range of players, rather than just big companies with outsized tax bills.

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Mariah Blake is an editor of the Washington Monthly. This story is part of a "Big Ideas" series published in partnership with the New America Foundation.

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