Comparison of the external costs of electricity production in reference to the Renewable Energy Sources Act (EEG)

By Olav Hohmeyer


This is an English abstract of the original German document by Dr. Olav Hohmeyer.


In this paper Dr. Hohmeyer explores whether the model of external costs can serve as a justification for the premium payments under Germany’s Renewable Energy Sources Act (EEG). Germany’s EEG is in part predicated on offsetting the environmental and social costs of conventional sources of electricity generation.

Analyses of the net external costs (greenhouse gas emissions and health damage) show that for all renewable energy technologies except for photovoltaics, the payment from the EEG is below the actual net external and internal costs (social costs) avoided. Due to the wide range of externality estimates possible, Dr. Hohmeyer uses a median external cost.

Example wind energy
median rate paid for wind energy at least windy spots for 20 Years
0.087 €/kWh (EEG 2004)
actual net avoided external costs: 0.145 €/kWh

Thus, if the true overall social cost avoided by the use of, for example wind energy, were incorporated into the EEG, payments would be higher than at present.

The payment for photovoltaics, Dr. Hohmeyer argues, can be justified by looking at them as a critical backup technology, that is not subject to the price volatility of fossil fuels.

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