Germany bets on public-private partnership to fund energy transition

In 2010 Germany enjoyed a thriving economy, with a 3.5% annual growth rate. However, at the same time its relatively bad carbon footprint made the leading European economic power the sixth largest CO2-emitting country in the world, with nearly 937 million tons of greenhouse gas emissions. In order to successfully carry out its energy transition, Germany set itself ambitious goals. Thanks to the “energy concept” (Energiekonzept) votedFukushima disaster, Berlin wants to cut greenhouse gas emissions by 40% by 2020 and by 80 to 95% by 2050, compared with 1990 levels.

A mostly fossil fuel-based energy mix

In 2011 55% of electricity came from fossil fuels, 25% from nuclear energy and 17% from renewable energy sources. Following the “energy concept”, whose goals were reinforced by the nuclear phase-out decision, 35% of electricity is expected to be generated from renewable sources in 2020, 50% in 2030 and up to 80% in 2050. This ambition relies on a twofold policy promoting both renewable energies and energy efficiency.

However, public funding alone cannot cover all necessary investments. In 2010, “only” 1.1 billion of the total 37 billion euros – that is 1.5% of German GDP – which were invested in different sectors related to energy transition came from public funds (federal state and Länder).

Private sector plays crucial role in Germany’s energy transition

22 billion of the overall 37 billion euros come from corporate investments and 14 billion come from private investors or individuals. Therefore, almost 95% of the money comes from the private sector, partially helped by federal or regional investment bank loans.

The funding system (see diagram below) works through a series of intermediaries. The KfW (Kreditanstalt für Wiederaufbau), the German public investment bank in charge of most energy efficiency or renewable energy projects, is the major driver of the funding scheme. In 2010, the KfW funded 40% of overall solar panel installations and 70% of wind power investments.

Origin of German financing of energy transition (2010, in billion €):

Private households contribute 14 billion euros to investments in renewable energy sources and energy efficiency. For instance, 9.9 billion euros were invested in the installation of home renewable energy production systems (solar panels, geothermal power) and 4.1 billion in energy efficiency technology (home automation, thermal insulation, hybrid or electric vehicles).

Successful twenty-year-old public-private partnership

The private sector thus plays a major role, for instance through KfW loan schemes with the government in an intermediary position enabling it to remotely monitor its goals. Most of these funds, i.e. 15.6 billion euros, are spent on building and renovation. Two thirds of annual investments, i.e. 10 billion euros, are spent on renewable energies and the remainder, that is about 5.5 billion euros, on energy efficiency measures.

This economic model seems to work. Between 1991 and 2010, energy efficiency in Germany increased by a yearly average of 1.2%, according to the ADEME’s[1] Odyssee energy efficiency index supported by the European Commission. The most dramatic increase occurred in private households, whose ODEX index decreased by 23% between 1991 and 2010, especially thanks to modernized electrical and heating systems and the emergence of home electricity production.

See also:

[1] French Agency for the Environment and Energy Management

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