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Renewable Energy in Europe Losing Its Shine

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For British entrepreneur Timothy Porter and millions of other Europeans who get generous financial incentives for solar panels, the sun has been very lucrative.

Not only does the government pay Porter for the solar energy he produces, at far higher than the market rate for electricity, but he can also use what he generates for himself.

"It's fantastic," he said, admiring the solar panel he installed on the roof of his home in the English West Midlands two years ago.

Such subsidies are widespread in Europe, where policymakers say that energy from wind and the sun will stave off global temperature increases they blame on the use of fossil fuels such as oil and coal. But Europe's debt crisis has many countries worrying more about their bottom lines than climate.

Across the English Channel, German consumers are waking up to the costs of going green: As of Jan. 1, they are paying 11% more for electricity than they did last year thanks to government plans to replace nuclear plants with wind and solar power that require significant and constant public money to be made cost-effective.

There were a few reasons the subsidies were put in place years ago.

There was a general desire for energy independence from Russia, where natural gas had been used as a weapon to pressure nations on political matters and the cost was unpredictable. Renewable energy was also seen as a source for jobs and income.

There was also concern for the climate, say analysts: A 2011 Eurobarometer poll showed that Europeans believe climate change to be a graver problem than the financial crisis plaguing Europe.

Nowhere is this concern more acute than in Germany. The country has long had an ambitious clean energy plan that aims to have the entire country running on 80% renewable energies by the year 2050.

That plan was fast-tracked following the accident at Japan's Fukushima reactor in March 2011, and by Germans' overwhelming opposition to nuclear power stemming from the lingering memories of the nuclear disaster at Chernobyl in the former Soviet Union more than two decades ago. For years after, forest-loving Germans worried about picking wild mushrooms.

Chancellor Angela Merkel -- once a champion of nukes -- did an about-face. She announced that all of Germany's 17 nuclear plants would be shut down by the year 2022, 14 years ahead of schedule, and closed eight immediately.

Her decision might have little to do with the safety of Germany's nuclear reactors. Merkel's conservative Christian Democratic Union party faces federal elections in September: If she wants to remain chancellor she needs to siphon votes from rival parties the Greens and Social Democrats, both anti-nuke.

Dubbed the energy transition, the move has become a logistical and financial headache for Berlin. Nuclear power had represented one-fifth of the country's energy supply, and Environment Minister Peter Altmaier recently estimated cost for the shift to renewables could total up to $1.3 trillion by 2030.

The move left some of Germany's neighbors grumbling.

"Outside of Germany, we've noticed that there are two perspectives," said Gerd Rosenkranz, a spokesman for the non-profit German Environmental Aid. "One is, 'there go those crazy Germans again' and the other is 'there go those crazy Germans again-aabut it's possible that they'll succeed.' "

But at what price?

In Germany, the rapid switch to renewables has sent electricity prices soaring. In January, the extra charges paid by German consumers to suppliers of renewable energy alone rose 47%. That, analysts say, means annual electricity bills will rise by nearly $258 for households across Germany.

"Because of the additional supply of electricity offered from renewables, the price for electricity has fallen -- that's good for corporate or industry clients, but not so for private homes," said Claudia Kemfert, an energy analyst at the German Institute for Economic Research in Berlin. "That's a crooked picture that nobody really expected beforehand."

Analysts say that Germans are willing to pay for renewable energy out of concern for the environment and climate change.

"It's taken so seriously because we see that climate change is already happening, that (carbon dioxide) emissions are already causing some droughts, floods and melting of the ice sheets," said Brigitte Knopf, head of the Sustainable Solutions group at the Potsdam Institute for Climate Impact Research.

Skeptics of Germany's energy transition at home and abroad say that it is a waste of money, that data indicate that global warming may not be what had been predicted.

The cost of trying to change the climate has become too much to bear for other European nations mired in debt or hobbled by overspending.

As austerity measures take hold from Spain to the Netherlands, governments have been rushing to cut the subsidies for green energy they once eagerly waved through to help the infant sectors grow.

Those subsidies -- pioneered by Germany in 2000 to help meet Europewide climate goals enshrined in European Union law -- spurred an unsustainable, artificial boom in solar, wind and other renewables, which may have contributed to financial meltdown on the continent.

Similar policies have spread to 50 countries worldwide, including 16 of the 27 EU member states. As a result, the renewables sector boomed, in particular solar, even in countries such as Germany where a sunny day is far more rare than in Spain.

"It's government subsidized electricity prices that have given rise to the current problems in Europe, not renewable energy," said Sebastian Mariz, managing partner at EPPA consultancy firm in Madrid. "(Subsidies) are just one of the external costs which increase this electricity deficit."

That has left Europeans struggling to figure out what to do next. In Spain, a country on the brink of economic collapse, the situation is dire: Madrid owes $35 billion to Spanish utility companies -- debt accumulated over a decade of government-regulated electricity prices.

European governments have now realized this growth -- which saw consumers footing the bill for investors' soaring profit margins -- was out of control: The U.K. and Czech Republic have already cut their subsidies in half, while Italy imposed a cap on new renewable energy providers. Germany cut subsidies by up to 30%.

"Germany needed to act," said Matthias Lang, an attorney at Bird & Bird in Dusseldorf, a firm that specializes in energy. "The previous rate was simply not sustainable. There is a limit where even the most willing consumers will object."

Analysts say that whether it is renewables or fossil fuels, EU energy infrastructure overall is aging -- about half of the continent's existing power generating capacity from coal, nuclear and gas will have to be replaced in the next 10 years, despite austerity, and that is expensive -- for fossil fuel production or renewables.

"Investment will have to happen, there is little choice," said Frauke Thies, EU energy policy adviser at Greenpeace. "The question is where these investments happen and which technologies Europe invests in."

Analysts say the cost burden of moving to renewables is one Europeans will only shoulder in the immediate future. As the technology and infrastructure improve at a rapid pace, the expense will shrink dramatically.

"There are higher electricity prices and they will be higher for a certain time period because of the transition, but at some point this system will be the cheaper one because the nuclear reactors and conventional power plants are getting increasingly expensive," said Rosenkranz of German Environmental Aid.

"The problem is, with the financial crisis there is not much cash at the moment, and to get there you need to invest the cash now," said Stephane Bourgeois, head of Regulatory Affairs at the European Wind Energy Association.

Wind turbines in eastern Germany, by PATRICK PLEUL, AFP/Getty Images

German Chancellor Angela Merkel.

Friso Gentsch, AP

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