The Renewable Energy Act, or Erneuerbare-Energien-Gesetz (EEG) in German, has five main components. First, it guarantees producers of renewable energy access to the grid. That means that anyone who installs a windmill in their backyard will be able to sell all the electricity they produce. Second, producers are guaranteed a fixed price for their electricity for 20 years. So anyone who wants to build a solar farm on a decommissioned East German military base can figure out just how much money they can make with it. This, in turn, makes financing these projects attractive to banks, because they know exactly what they’re backing.
Third, the tariff is technology-specific. Because wind energy is less expensive to produce than photovoltaic, someone who installs solar panels gets a higher rate than someone who installs a windmill. This encourages investment in various types of technology, rather than a rush on whatever is cheapest, right now. The goal is to provide a hot-house for developing technologies. “There are different competing fields,” said Jörg Mayer from the Renewable Energy Agency in Berlin.
But in order to account for the fact that technology gets cheaper and better each year, the starting tariffs decrease from year to year. Someone who installs a solar panel in 2004 would lock in at €0.574 cents per kilowatt hour. Someone who installed solar panels in 2009, however, would receive just €0.4301 cents per kilowatt hour.
The EEG is funded by an across the board “renewable energy surcharge” paid by all consumers. Because German electricity is fairly expensive, this represents a minor charge – just over one percent of a customer’s bill. “Consumers are willing to pay,” said Mayer.
Other sectors, like heating and mobility, use subsidies, regulation, and market incentives like tax breaks, which have also worked well, if not as effectively as the feed-in tariff system.