The third in a series* of on-site reports on little-known energy and climate initiatives in Northern Europe.

HAMBURG, GERMANY — Just 13 years after Germany passed a law to encourage renewable energy generation, the way ordinary Germans get their energy has been transformed. The cost of solar installations has fallen so much that in some German cities (PDF), the cost of solar electricity is competitive with conventional electricity. Meanwhile, the country’s largest utilities are finding their business models eroding.

“The traditional German energy market is dead,” says Gunther Störmer, chief strategy officer for SunEnergy Europe, a solar company headquartered here.

In 2000, the German parliament passed the Renewable Energy Act, known by the German initials EEG. The law, which the country’s largest utilities had opposed, encourages people to generate renewable energy by giving individuals the right to feed electricity to the grid. Until recently, the law had guaranteed large financial incentives — funded by rate-payers — to new renewable producers.

A SunEnergy Europe installation at Hamburg’s Hagenbeck zoo generates an estimated 126 MWh of electricity per year. Photo: Sara Peach

The result is easily visible: In the German countryside and cities, solar panels plaster roofs everywhere. Near Hamburg, virtual forests of wind turbines tower over fields.

The numbers reveal a similar picture. In 1998, Germany produced about 5 percent of its electricity from renewable sources, largely hydropower. By 2012, 22 percent of its electricity was derived from renewables — with more than half produced by wind and solar — and Störmer says he expects that figure to reach 25 percent this year.

By comparison, the United States obtains 12 percent of its electricity from renewables.

In the past, German utilities earned a substantial portion of their profits by selling electricity during the daytime, Störmer says. But now, many independent producers are installing photovoltaic panels, producing electricity during the day. That’s cutting into utility earnings.

In the graph below, for example, the yellow areas show solar power peaking during the daytime hours. The green areas represent wind, and the gray areas show conventionally produced electricity. (For much more data, see this PDF.)

View larger image
Source: Fraunhofer Institute

As Reuters reported in March, German utilities have been slow to invest in renewables themselves. The largest four utilities own just 7 percent of the country’s renewable capacity. Ordinary people, farmers, and regional utilities own more than half of the capacity.

Of course, German winters, many solar panels are covered in snow. But that’s also the season when the wind blows more strongly, and Störmer says he is optimistic that with a proper storage system and a smarter grid, Germany could eventually replace all of its fossil fuel electricity with a combination of solar and wind energy.

One challenge for renewable developers is that Germany has recently cut the financial incentives paid to renewable producers. SunEnergy Europe, which once had 65 employees, now has only 35.

Because of the cut to incentives, more Germans are installing renewable systems that provide electricity to their own buildings, rather than feeding electricity to the grid. But whether people are sending renewable electricity to the grid or consuming it themselves, that’s still reducing earnings for utilities, according to Störmer.

“It’s a reduction of demand,” he says. “And for them, it’s a catastrophe.”

Could something similar happen in the U.S.? Grist’s David Roberts, for one, thinks it might. He reported in April that some U.S. utilities are nervous about just that possibility. A July 27 article in The New York Times addressed the same subject, describing some utility executives as “alarmed by what they say has become an existential threat to their business.”

*Read part one and part two.

Sara Peach

Sara Peach is the Senior Editor of Yale Climate Connections. She is an environmental journalist whose work has appeared in National Geographic, Scientific American, Environmental Health News, Grist, and...