German Renewable Energy Act
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The German Renewable Energy Act (German: Erneuerbare-Energien-Gesetz, EEG) was designed to encourage cost reductions based on improved energy efficiency from economies of scale over time. The Act came into force in the year 2000 and was the initial spark of a tremendous boost of renewable energies in Germany.
In the first half of 2014, 28.5% of Germany's electricity was produced from renewable sources (up from 23.4% in 2013). In 2012, 10.2% of heat and 5.7% of fuel used in Germany was generated from renewable sources Due to the use of renewable energies, 145 million metric tons of CO2 emissions were avoided during 2012. The renewable energy industry employed 377,000 people in 2012, up from 30,000 people in 1998. Of these jobs, 268,000 exist as a direct result of the German Renewable Energy Act. Germany is third after China and the U.S., the world’s top renewable energy economies, as measured by investment in the renewable energy sector. Due to its success, the German Renewable Energy Act can serve as an archetype of similar legislation in other countries.
Founding of the German Renewable Energy Act
The 2000 German Renewable Energy Act succeeded the 1991 "Electricity Feed-In Act" or Stromeinspeisungsgesetz. The founders of the Act were Klaus Töpfer, German Federal Minister of the Environment, retired, Member of the Christian Democratic Union (Germany), Dietmar Schütz, President of the Federal Association of Renewable Energies, Member of Parliament, Social Democratic Party (Germany), Hans-Josef Fell, Member of Parliament, Alliance '90/The Greens, Hermann Scheer (Member of Parliament Social Democratic Party (Germany), Sigmar Gabriel, German Federal Minister of the Environment, Member of the Social Democratic Party (Germany), Josef Göppel, Member of Parliament, Christian Social Union of Bavaria, Jürgen Trittin, Member of Parliament, Alliance '90/The Greens. The EEG has frequently been revised to refine its regulatory framework and to adjust its financial support system to control costs and capacity. The latest revision (the EEG 2014) entered into force 1 August 2014.
The three main principles
The three main principles of the EEG are:
a) Investment protection through guaranteed feed-in tariffs and connection requirement: Originally, every kilowatt-hour generated from renewable energy facilities received a fixed feed-in tariff. The system has recently been modified to now also include a market premium system. Network operators are required to preferentially feed-in this electricity into the grid over electricity from conventional sources (nuclear power, coal and gas). Renewable energy plant operators in principle receive a 20-year, technology-specific, guaranteed payment for their electricity generation. Small and medium enterprises have been given new access to the electricity market, along with private land owners. The Federal Ministry for Environment, Nature Conservation and Nuclear Safety argued that anyone producing renewable energy could sell his ‘product’ for a 20-year fixed price.
b) No charge to Germany’s public purse: The promotion of renewable electricity continues to be necessary up until now. The EEG rates of remuneration show what electricity from wind, hydro, solar, bio- and geothermal energy actually cost. Compared to fossil fuels, there are lower or no external costs, such as damage to the environment, the climate or human health. The remuneration rates have until recently been considered not to be subsidies as such, since they are not paid for by taxes and are paid for by every consumer as an EEG surcharge (EEG-Umlage) that is included in the electricity bill. The polluter pays principle a.k.a "whoever consumes more, pays more" is in effect passed on to consumers. In 2013, the total EEG surcharge amounted to EUR 20.4 billion. In 2014, the EEG surcharge was set at 6.24 ct/kWh. Certain reductions of the EEG surcharge apply for energiy intensive industries (so-called special equalisation scheme).
c) Innovation by decreasing feed-in-tariffs: Feed-in tariffs in Germany decrease in regular intervals to exert cost pressure on energy generators and technology manufacturers. The decrease (called "degression") applies to new plants. Thus, it is hoped, technologies are becoming more efficient and less costly.
The EEG distinguishes between the different renewable energy sources for remuneration; each source receives a different guaranteed price according to its generation cost and capacity (see feed-in tariffs). Per EEG mandate, the German Federal Network Agency (Bundesnetzagentur) publishes the currently installed PV capacity with adjusted feed-in tariff monthly as a downloadable spread sheet. According to the January 2014 spreadsheet solar power fetched a price of 9.47 to 13.68 €-Cents per kilowatt-hour, depending on installed size. Hydropower ranged from a default of 3.4 to 12.7 €-Cents per kilowatt-hour, depending on size and if online since 2008 or if modernized. The feed-in tariffs were again adjusted as part of the EEG 2014 revision.
The grid feed-in tariffs provide incentives to every company involved in renewable energy generation business, especially the small and medium-sized energy firms, to invest in developing and generating renewable energy systems, decrease initial market entry barrier for these businesses, and reduce the costs of renewable energy systems for production and consumption over a period of time.
The impact of the Renewable Energy Act on the German Market
The Renewable Energy Act has been the central political element of one of the greatest paradigm shifts since the start of the industrial revolution: the shift from fossil and atomic energy supplies to renewable energy sources (Green Energy Act Alliance, 2011). The German energy market has started to turn away from fossil fuels and centralized electricity structures towards a decentralized approach of energy production. With investor friendly remuneration rates, electricity production is no longer in the hands of a few big energy companies. The Renewables 2013 – Global status report by the Renewable Energy Policy Network for the 21st century (REN21) shows Germany's favorable position in the global Renewable Energy markets.
Effectiveness of the German Renewable Energy Act
Various studies found that because the fixedfeed-in tariff provides financial certainty, it is more cost effective and less bureaucratic than other support schemes, such as investment or production tax credits, quota-based renewable portfolio standards (RPS), and auction mechanisms. 
The economic outcome of the EEG for Germany has been considerable. Building a safe and clean power supply incurs costs, but the net benefit of the EEG exceeds the costs of initial investment by 3.2 billion Euros When the external costs avoided were compared to the compensation grid operators were paid for electricity from renewable energies in an early study, the reduced environmental impacts and related economic benefits far outweighed additional costs to compensate producers of electricity from renewable sources. (Krewitt and Nitsch,2001)
The feed-in tariff generates more competition, more jobs and more rapid deployment for manufacturing, and does not pick technological winners, such as more mature wind power technology versus solar photovoltaics technology
The positive impact on the environment globally is less clear. Hans-Werner Sinn, German economist and chairman of the Ifo Institut für Wirtschaftsforschung has argued that Germany's renewable energy subsidies reduce world market prices for fossil energy. Thus, countries like China or the US have an incentive to consume more, and the net effect on climate is zero.
The goal of renewable energy by 2025 is 40 to 45% and by 2035 it is 55 to 60%. Many challenges lie ahead. One of them is integrating the electricity generated by decentralized renewable energy power plants into the existing electricity grid structure. Existing grids were built in accordance to the centralized energy system of the four main energy companies in Germany (namely: E.ON, Vattenfall, RWE and EnBW). The more decentralized clean energy is produced (about 28% in the first half of 2014), the more urgent it is to adapt the grid infrastructure. Another challenge of paramount importance is the storage of electricity to be able to feed it in as needed.
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