Thank Germany for Falling Prices of Solar Panels and Wind Turbines

Wind generators near Alzey, Germany Getty Images

Germany, with the world’s fourth-largest economy, may serve as a global test bed for the feasibility of renewable energy on a large scale.

The New York Times reported that nearly 30 percent of Germany’s electric power comes from renewable energy sources, and the percentage is growing. This is not without a downside: Traditional electric utilities are struggling.

Additional large industrial countries also have been stepping away from high-polluting fossil fuels for power generation. Brazil, according to the International Energy Agency, gets more than 80 percent of its electric power from renewables, mostly sugarcane ethanol. And more than 60 percent of Canada’s electricity comes from hydropower. But these are special cases, owing to Canada’s abundant white-water resources and Brazil’s highly advanced sugarcane industry.

Germany is a special case as well, for different reasons. While it’s a global leader in hydro technology and the construction of hydroelectric power plants, Germany gets little of its own electric power from this source. It is nowhere to be found among the world’s sugarcane producers. And with Russia supplying a reported 38 percent of its natural gas imports, 35 percent of its imported oil, and a quarter of its imported coal, Germany made a wise decision to move in new directions—generating electricity from wind and sun, renewable energy sources that the U.S. has been much slower to adopt.

The situation in the United States is much different. Our largest supplier of energy imports is Canada. Saudi Arabia is No. 2, and Mexico is No. 3.

The U.S. has hardly been sitting still. Thanks to advances in hydraulic fracturing (“fracking”) technologies, the country has become the world’s top producer of natural gas, a clean and abundant fossil fuel. Germany, on the other hand, is threatening to ban fracking.

As the late Julian Simon wrote in 1996 in The Ultimate Resource, need and inventiveness, or innovation, typically go hand in hand. That’s why he argued against the doomsayers of the time, who were predicting resource, energy, and food shortages. That won’t happen, Simon said; we’ll just find new and better ways to get what we need.

Germany’s embrace of wind and solar power is a good example. All the world will benefit.

As the Times put it: “By creating huge demand for wind turbines and especially for solar panels, it has helped lure big Chinese manufacturers into the market, and that combination is driving down costs faster than almost anyone thought possible just a few years ago.”

The U.S., for now, is taking a different road, to the benefit of U.S. utilities, manufacturers, and workers.

Eventually, if politicians leave things up to the market to sort out, the U.S. and other countries will inevitably move in Germany’s direction, as renewable energy becomes more cost-competitive. That, German analyst Markus Steigenberger told the Times, will be Germany’s “gift to the world.”

Before it's here, it's on the Bloomberg Terminal.