Europe is no paradise for energy consumers

Mark Milke, BOE Report, April 4, 2018

A few years back I had a pleasant chat with a reporter who recently moved to Calgary from Europe where he covered energy issues. In our discussion about renewables, he gave the oft-heard opinion that Europe was, of course, “ahead” of Canada. His eyes widened with admiration for how Europeans were greening their power grid.

He soon hopped from his media job to a communications position with the Alberta government to promote green energy. The career change made sense. If one drops objectivity in favour of advocacy, it is best to jump to that career or to a government receptive to one’s enthusiasms.

That chat often reminds me of the mistake some casual observers make about a hoped-for technology, one heavily subsidized by citizens through their taxes or power bills: That the existence of a massively taxpayer-subsidized sector is somehow proof the underlying technology is viable and perhaps one day profitable. (In the short-term at least, it is proof of the opposite: If an industry or business was viable it wouldn’t need subsidies.)

In the case of Europe and its electricity sector, heavily tilted to renewables as policy, consumer and taxpayer subsidies come at a heavy price. Consider Germany: The New York Times reported last autumn that Germany spent 189-billion Euros on green subsidies since 2000 (that’s about C$300-billion) but with greenhouse gas emissions stubbornly stuck at 2009 levels – neither rising or falling despite spending hundreds of billions of Euros.

You’d think with such massive subsidies, electricity would be cheap for consumers. But subsidizing wind and solar capital projects to replace hydrocarbon fuel sources is not the only cost. There is, of course, an ongoing higher base price of green energy and also the question of efficiency. There are significant problems with storing electricity generated from wind and solar which means produced power must often be sold at a loss. (Ontarians are familiar with this.)

Thus in 2016, in an article from MIT Technology Review, author Richard Martin argued that Germany “is giving the rest of the world a lesson in just how much can go wrong when you try to reduce carbon emissions solely by installing lots of wind and solar.” Problems include producing too much power, paying customers to use more and not less electricity, and selling surplus power at a massive loss. Ironically, this over-production also boosts carbon emissions.

The Euro-area average for household electricity prices per kilowatt hour in the first half of 2017 was 22 Euro cents, or about 31 to 33 Canadian cents (depending on the day and exchange rate. In Germany, with along with Denmark has the highest proportion of renewables in Europe, prices for household electricity in the first six months of 2017 averaged 30.5 Euros per kWh, or between 42 and 46 Canadian cents.

In contrast, in the past year, residential power prices in high-price Ontario ranged from 6.5 cents to 13.2 cents depending on the time of day. In Alberta, electricity rates have ranged between three cents and 6.4 cents depending on the month and also the type of plan chosen (regulated, fixed or variable). It should be noted that in both Alberta and Ontario’s case, many green-power subsidies are not baked into such power prices but show up elsewhere, i.e., through government payments to producers (Alberta) and/or debt financing (Ontario).

Are renewables responsible for higher European power prices? To answer that, a useful public service was performed in 2015 by Willis Eschenbach who overlaid installed renewable capacity by country with electricity prices. Unsurprisingly, he found that countries with the highest levels of installed renewables also have the highest electricity costs. Per capita installed renewable capacity by itself explains 84% of the variation in electricity costs,” wrote Eschenbach.

Germans know this and one German lawmaker, Sandra Weeser, when arguing with Green party advocates who asserted wind power was cheap, asked the obvious rhetorical question: “If that is really true, then why do they need subsidies? Why are we paying 25-billion euros annually for their feed-in?”

Indeed, and one hears the same claims on this side of the Atlantic, that wind, solar and other renewables are now “competitive.” It isn’t true. If it were, Europe, Alberta and Ontario would not be subsidizing green energy through higher power bills (Europe) provincial taxes (Alberta), or borrowing (Ontario).

To be clear, my position on subsidies, derived from the best literature on corporate welfare, is that no sector should receive taxpayer funding or other disguised subsidies.

No matter what eager journalists or politicians claim, and no matter how the latter try and hide power costs via back-door taxpayer subsidies, or by paying part of today’s power costs through government borrowing, or tacking on costs directly on the bill, unprofitable energy comes at a significant cost to consumers.


Mark Milke is an author, policy analyst, writer for Canadians for Affordable Energy and author of the 2017 report on green and traditional business subsidies, Corporate Welfare Cash: 21st Century Justifications and Billion-Dollar Bills to Come.  Photo credit: Pixabay. 

Mark Milke