Just 20 years ago, nearly all of Germany’s electricity was generated by coal, oil and nuclear power. Today, renewables such as wind and solar provide more than 20 per cent of the nation’s power. Clean energy production has become a major source of jobs and investment. It has been a real success story for the economy and the environment.
Ontario is now embarking on a similar path. It is building a global reputation as an emerging clean energy leader in North America. To drive this change, Ontario is using a feed-in-tariff program (providing price incentives for green energy) that is very similar to the one we have used in Germany. This program has been the key to our success, and should produce similar results in Ontario.
Germany’s feed-in tariff (FiT) was introduced in 1991 by a conservative federal government. (So it is surprising to hear some Canadian politicians describe this as a “left-wing” or “liberal” idea.) That conservative government understood that coal and nuclear power posed serious health and environmental threats, and that clean energy was likely to drive the economy of the future. The FiT included two parts: an obligation for electric utilities to purchase renewable electricity from independent producers, and a tariff that set a premium price to be paid to producers of this electricity.
Early experience led to refinements in Germany’s pioneering feed-in tariff — many of which I brought in as environment minister (from 1998 to 2005). These included a 20-year price guarantee, which was critical to attract investment in this start-up technology, with uncertain future prices. Also, purchase prices came to be based on production cost — which meant different prices for wind, solar, biomass and geothermal power. These prices were designed to decline annually (for new facilities), based on expected cost reductions for clean energy production — an approach known as “tariff degression.”
In addition to boosting renewables to 20.8 per cent of Germany’s power supply by mid-2011, the FiT is credited with helping to create an estimated 370,000 new jobs. According to one study, employment in Germany’s green energy sector is projected to surpass employment in its automotive sector by 2020. The FiT has helped make Germany a leader in the fast-growing global market for clean energy technology — which saw a record $243 billion in new investment in 2010, of which German firms secured $41 billion (second only to China).
The feed-in tariff has proven to be among the most effective policy tools for accelerating the deployment of renewable energy, and has now been adopted by more than 46 jurisdictions worldwide — including Ontario.
Ontario’s feed-in tariff, adopted as part of the 2009 Green Energy and Green Economy Act, is North America’s first comprehensive pricing program for boosting renewable energy. Ontario’s approach seems well-designed, and is modelled on the lessons learned from Germany.
It starts by paying a premium price to producers of clean energy, including farmers and homeowners. This guaranteed price is necessary to kick-start investment in this new technology, as we learned in Germany; but as efficiencies of scale reduce production costs (as with most new technologies) this price premium can decline, and clean energy can eventually compete on equal footing in the market. Accordingly, Ontario’s program will reduce the price for renewable power over time, as it becomes more cost-competitive.
Since the Green Energy Act came in, renewable power production has increased rapidly; it now provides 5 per cent of Ontario’s electricity capacity, and is projected to reach 13 per cent by 2018. That’s enough to power 1.9 million homes. Moreover, Ontario’s feed-in tariff has already attracted more than $26 billion in private sector investment, and generated an estimated 20,000 new jobs. Those figures are consistent with the kinds of results we have seen in Germany.
Just as Germany’s feed-in tariff will enable our nation to break its ties with nuclear power by 2022, so Ontario’s FiT is making possible the province’s plan to phase out coal-burning power plants by 2014. Turning off Ontario’s coal-fired power plants is the largest greenhouse gas reduction initiative in North America: one that will also save thousands of lives and billions in health-care costs.
The world is shifting to a clean energy future. The places that move first in this direction will reap the economic rewards, as we have seen in Germany. Ontario is on the right path. Now it must stay the course.
Jürgen Trittin was Germany’s minister for the environment from 1998 to 2005.