Monday, August 20, 2007

Sunny times ahead for the Black Forest

Biking through the Black Forest in early August I saw impressive evidence of how sensible fiscal policies can promote development of new technologies and world leading industries.

The area around Freiburg, in south west Germany, has become a world leader in the production and installation of solar based energy technologies, including photovoltaic cells and solar thermal panels. The number of installations is astonishing. We saw them covering the roofs of old farm barns as well as brand new housing estates. The entire front elevation of Freiburg’s central station, all nineteen storeys of it, is clad with 240 solar panels, creating a powerful visual aesthetic as well as making a strong statement of commitment. Even the local brewer, Ganter Brewery, has committed to solar as an energy source.

People in the region boast about how it leads the world, and how this lead has provided Freiburg with a competitive edge in what is likely to become a major global industry. This has not come about by accident. In 2000 the German government committed to phasing out its existing nuclear generating capacity by 2020. This commitment was accompanied by another: to increase the total electricity output generated from renewable sources to 20 per cent within the same period. Freiburg has led the way, not only becoming a pole for research, development and manufacture, but also for promoting demand for domestic and commercial application. The City hosts the Fraunhofer Institute -- Europe’s largest research centre for solar energy -- and Solar Fabrik, Europe’s largest manufacturer of solar panels, located itself in Freiburg in 1997.

Fiscal policy has played a key part in the evolution of Freiburg’s lead in solar technology. In addition to its support for the R&D efforts of the Fraunhofer Institute, the City Council also funds the Forum SolarRegion Freiburg, which promotes the industry throughout the region and operates an information bureau in the City centre. Crucially, at the macro level, the uptake of solar energy systems receives additional support through regional and national programmes aimed at kickstarting this infant industry. The regional power supplier, Badenova, offers subsidies to local consumers wanting to install solar power cells at their homes or businesses. It also recycles revenues it receives from sales of renewable energy into building its renewable investment generating capacity, leading to a steadily rising supply of green energy.

At the national level, the federal government’s 2001 Renewable Energy Law required energy suppliers to reimburse stored solar energy producers at a highly subsidised rate. This has encouraged householders to install solar energy systems and feed their surplus output back to the grid, stimulating demand for new systems and helping the new industry through its research and start up phases. This feed-in system provides investors, no matter how small their installations, with a fixed price set for a fixed period, guaranteeing a return on their investment. The result: householders have quickly overcome the widespread scepticism that inevitably accompanies radical new technologies, and now boast about how quickly they have turned a profit from their investment.

The government has also invested around $1.5 billion into photovoltaic research and product development since the late 1990s.

Proponents of renewable energies argue, rightly, that new technologies need state support through the research and development phases. The market conditions are stacked in favour of non-renewables, which don’t bear the external costs of the pollution they create, and start-up costs are enormous. Talking with the industry insiders in Freiburg makes it clear that the mix of regional and national support programmes has helped to establish the region as a European pole for both research and manufacture. The sight of so many installations in the Black Forest region provides a vivid demonstration of how focused and intelligently considered fiscal programmes can promote useful long term development. It stands in strong contrast to the use of unfocused tax incentives in the form of tax cuts, tax holidays and generalised exemptions, which achieve little in the way of job creation and new product development.

Its still early days for solar energy. Even in Freiburg, solar energy contributes less than one per cent of the total energy consumption, but the costs are falling and efficiency is rising. As demand for renewables increased throughout Europe, the Black Forest region is set to remain an R&D and manufacturing pole, and having established an industry lead in this respect, its future looks bright, which is certainly something the locals can be proud of.

John Christensen

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