RENEWABLE ENERGY: EMPLOYMENT EFFECTS

Impact of the Expansion of Renewable Energy on the German Labour Market

Summary

Contact:Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)Public Relations Division11055 BerlinGermanyFax: +49 03 18 305 - 2044Website: www.bmu.de/englishEmail: service@bmu.bund.de

This publication is part of the public relations work of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. It is distributed free of charge and is not intended for sale. Printed on 100% recycled paper.

Published by: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)Public Relations Division • 11055 Berlin • GermanyEmail: service@bmu.bund.deWebsite: www.bmu.de/english • www.erneuerbare-energien.de

Editors: Dr. Wolfhart Dürrschmidt, Dr. Michael van MarkBMU, Division KI I1 “General and Fundamental Aspects of Renewable Energies”

Content: Dr. Frithjof Staiß (Project Manager), Dipl.-Ing. Marlene KratzatZentrum für Sonnenenergie- und Wasserstoff-Forschung Baden-Württemberg (ZSW), Stuttgart

Dr. Joachim Nitsch, Dr. Ulrike LehrDeutsches Zentrum für Luft- und Raumfahrt (DLR) Institut für Technische Thermodynamik, Abt. Systemanalyse und Technikbewertung, Stuttgart

Dr. Dietmar EdlerDeutsches Institut für Wirtschaftsforschung (DIW), Berlin

Dr. Christian LutzGesellschaft für wirtschaftliche Strukturforschung (GWS), Osnabrück

Survey: Bundesverband erneuerbare Energien e.V., PaderbornInstitut für Sozialforschung und Kommunikation, Bielefeld

Project duration: December 2004 to June 2006

Full version: This publication documents the summary of the research project “Wirkungen des Ausbaus der erneuerbarenEnergien auf den deutschen Arbeitsmarkt unter besonderer Berücksichtigung des Außenhandels”. The full version is available for downloading (in German) at the www.erneuerbare-energien.de website.

Contact: Dr. Frithjof Staiß, staiss@zsw-bw.de, Tel. +49-711/7870-210Dipl.-Ing. Marlene Kratzat, Marlene.Kratzat@zsw-bw.de, Tel. +49-711/7870-244

Design: 3f design, Darmstadt

Printing: Frotscher Druck, Darmstadt

English: Dr.-Ing. Theresa Magorian Friedlmeier

Photos: © Unternehmensgruppe Dezentral Energie (Title, Page 9)© Wissenschaftsladen Bonn, Wanderausstellung Galerie Zukunftsberufe, Fotostudio Wieland Bonn

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Date: June 2006

First Print: 1,000 copies

IMPRINT A little more than 70% of this value is attributed to theimpact of the EEG, the remaining 30% is equally dis-tributed between the heat market (market stimulationprogramme) and the fuel sector (tax exemption).

It is recommended to continue the in-depth obser-vation of regional employment impacts, especiallyin the New German States. It is already now becom-ing apparent that the businesses involved in the pro-duction of systems for renewable energy use locatedin the New German States procure nearly 80% of theirpreliminary products from the other regions in Ger-many. A partial cause of this situation is that factorieslocated in the New German States have close businessconnections with western “parent companies”, likehappens for example in the wind sector. Anothercause, however, is that apparently companies in thewestern regions can look back on long-establishedsupply contacts, or that clusters have formed in localregions. A more extensive database would be neces-sary to clarify whether or not special promotion ofnetworks can contribute to the long-term creation ofmore value added in the eastern region. This aspecttherefore leads to questions of structural policy, whichis connected with the analysis of location factors forcompanies, and thus must also be seen in connec-tion with avoiding possible production outsourcingto foreign countries. Both aspects are parts of thequestion of how so-called lead markets can bedeveloped and secured in the sector of renewableenergy.

The development dynamics in renewable energy sug-gest that this process should be observed, especiallyregarding the impact on employment, and that surveysshould be performed regularly. The positive experiencewith the recent industry survey indicates that compa-nies are willing to support the monitoring measuresnecessary for the state and the economy to act concert-edly to correct erroneous trends and to selectively sup-port positive trends.

A growing number of studies confirm that a signifi-cant contribution from renewable energy sources willbe essential for solving or alleviating the energy supplyproblems pertaining to environment and climate pro-tection, reducing import dependencies, avoiding con-flicts over fossil resources, etc. Their significance is thusbeyond dispute. However, concerns regarding the nec-essary financial expenditures during the expansionphase, and the resulting burdens for some economicsectors, are expressed. These concerns are becomingless and less sustainable because they usually originatefrom a short-sighted national perspective, the interestsof individual economic sectors, or an assumption ofpermanently low energy prices. Recent developmentsin the global energy markets have demonstrated moreclearly than ever that long-term international solutionsare essential.

The present investigation demonstrates that the struc-tural changes in the energy supply associated with theexpansion of renewable energy can lead to remarkablemacroeconomic advantages in Germany in the mediumand longer term. The use of renewable energy has aprice-stabilising effect in the long run because itdepends primarily on technology developments and noton resources which are becoming exceedingly scarcer.Their expansion is therefore also an important compo-nent of a strategy for the future which depends moreon education, research, and technology development.At the same time, renewable energy can contribute tothe achievement of structure and regional policy goals.Most notably, however, the study demonstrates that theemployment perspectives related to the expansion ofrenewable energy are favourable, especially for foreigntrade. Although the success will not occur on its own,and many questions must still be answered, the condi-tions for German companies to profit from growth inthe international renewable energy market, and thus tosecure and create employment to a considerable extentmust be considered as very favourable.

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DEAR READER,

One of the pivotal challenges of the 21st century willbe to change the energy supply structure. We need thischange to protect our environment and the climate.We need it to reduce our dependence on energy importsand to stabilise energy prices. And we need it as anopportunity and engine for innovation and economicgrowth.

The key task is to sustainably transform our energy sys-tem. As I see it, the concrete tasks are to: reduce energyconsumption, increase energy efficiency, and use morerenewable energy sources. Clear goals have alreadybeen set: for example, in 2020 at least 10% of the totalenergy demand in Germany and at least 20% of ourelectricity should already be generated from the renew-able resources wind, water, biomass, solar energy, andgeothermal energy. Current studies indicate that it isquite possible to meet these goals. For example, theycalculate a share of about 25% for renewable energy in the electricity sector. The long-term goal set by theGerman Federal Government in its sustainability strate-gy to supply half of our total energy demand usingrenewable energy sources by the middle of this centuryis similarly possible to achieve.

In this context, the economic significance of renewableenergy has increased over the last few years: in 2005this sector already earned more than 16 billion Eurosjust from the construction and operation of systems.About 170,000 jobs are attributed to renewable energyin the meantime. Nevertheless, despite these successstories, the long-term impact of the expansion of renew-able energy on growth and employment is still beingdisputed since the continued start-up financing mustalso be calculated to determine the net effect.

The study presented here: “Impact of the Expansion ofRenewable Energy on the German Labour Market withSpecial Consideration of Foreign Trade” examined this

question in detail based on an extensive questionnaireinvolving more than 1,000 companies and extensivetheoretical models. The study demonstrates that theincreased use of renewable energy and job creation canpermanently go hand in hand. Accordingly, employ-ment in the renewable energy field could double by2020 even when applying rather conservative assump-tions. Furthermore, the net impact – after subtractingall possible negative employment effects – is also aclear and sustainable positive employment stimulus.

A decisive prerequisite for this favourable balance isthat Germany continues to play an important role inthe growth of the international renewable energy mar-ket. The study clearly shows that this will not happenby itself, but that the German economy is very well situ-ated to keep this position. Germany is now the techno-logical leader in most renewable energy sectors, espe-cially thanks to the continuing favourable national con-ditions. The German Federal Government will continueto support this process, for example by increasing effortsin research and development, by fortifying the exportinitiatives in renewable energy, and last but not leastalso by our lasting commitment to renewable energyon an international level.

Sigmar GabrielFederal Minister for the Environment, Nature Conservation and Nuclear Safety

1

CONTENT

3 | Goals and Framework of the Study

5 | The Most Important Results at a Glance

10 | National and International Scenarios for Expanding Renewable Energy

13 | The Industry Survey – Obtaining First-Hand Information

15 | Analysing Renewable Energy with the Input-Output Calculation

16 | Gross Employment Effect of Using Renewable Energy in 2004

18 | Regional Employment Effects

19 | Gross Employment Effects of the Expansion of Renewable Energy Through 2030

20 | Net Employment Effects of the Expansion of Renewable Energy Through 2030

23 | Summary and Outlook

2

e¥e$¥ £ £$$

EE

Non-EE

AREA

Expansion ofrenewable energy

Price relations

Foreign trade

Employment effect in Germany

Demand throughinvestments (+) andsystem operation (+)

”Substitution effects” (-)”Budget effects” (-/+)

Exports/Imports (+/-)

SUM

Positive effects (+):GROSS EFFECT

Negative effects (-)

NET EFFECT

TENDENCY

+

+

+

-

-

+

-

=

GOALS AND FRAMEWORK OF THE STUDY

From the energy and environmental policy point ofview, the existing and future expansion of renewableenergy is largely undisputed on both national andinternational levels. However, since financial supportwill still be required for some time, the goals can con-flict with other political fields. In view of the highunemployment level in Germany, the employmenteffects related to renewable energy play a particularlyimportant role.

The impact of the expansion of renewable energy onthe German labour market has been a controversialsubject in the past. The dispute did not concern somuch the magnitude of the effect, but rather the cen-tral question of the direction – whether using renew-able energy leads to increased employment or ratherjob losses when considering the overall economic situa-tion. The debate is complicated on the one hand by thecomplexity of the issues, and on the other hand by aninsufficient data basis in some fields. Finally, assump-tions about future developments play a significant roleand allow room for interpretation in different direc-tions depending on the time horizon. Figure 1 showsexemplarily the correlation between various macroeco-nomic impacts caused by expanding renewable energyuse.

In order to characterise the employment effects, twoterms are used which must be carefully distinguishedfrom one another. Firstly, investments in systems andtheir operation results in direct employment by manu-facturers, operators, and service companies. These com-panies in turn require goods from other economic sec-tors and thus indirectly provide employment with sub-contractors and suppliers. Thus, for example in 2004,“only” one third of the German employment attributedto wind energy is related to the production of windpower stations – the other two thirds are related to thesuppliers. The spectrum here ranges from steel produc-tion to the manufacture of important components likegearing or generators.

The so-called gross employment results from the sum of the direct and indirect employment. While this fig-ure is always positive, a satisfactory macroeconomicanalysis must also consider possible negative employ-ment effects. The so-called net employment effect re-presents the balance of all effects and can therefore be positive or negative. Whereas the gross employmentcan be determined within one scenario, the net employ-ment must be determined as the difference betweentwo realistic future scenarios. If positive, it representsthe true additional employment due to the increase ofrenewable energy.

3

Figure 1:Schematic representation of the correlation between the gross and net employment effect of renewable energy use

The products of renewable energy – electricity, heat,and fuels – generally replace fossil energy. Althoughabout three quarters of the non-renewable energy inGermany is imported, developing biomass, hydropower,wind energy, solar energy, and geothermal energy alsoleads to negative impacts on the domestic investmentand thus employment in the fossil energy sector. How-ever, the burden on public and private budgets is sig-nificantly stronger than this substitution effect. Since,except for a few exceptions, renewable energy is not yet price-competitive with conventional energy, the difference must be shouldered by the energy consumers.This money is then not available to consume othergoods. This so-called budget effect results in negativeemployment impacts in other fields and must also beconsidered in a net balance.

Finally, the influence of foreign trade on employmentcan not be determined in advance. It ultimately dependson whether more goods are exported or imported. Thisparticular aspect will continue to gain importance inthe future.

The present study was carried out from late 2004 untilJune 2006 and assesses all points mentioned above. Inparticular, a wide survey of businesses in the summer of2005 provided a large information base which enabledus to answer the most important questions of this study:

– How can we reliably represent the investments inrenewable energy and the operation of the systemswithin the complex matrix of the various economicsectors and foreign trade?

– What is the value of the employment effect in thebase year 2004?

– Which regional effects can be derived?

– How might the renewable energy market develop inthe middle and long term, domestically andabroad?

– How will the differential costs between renewableand non-renewable energy sources develop?

– How high is the export potential for products andservices “Made in Germany”?

– How do domestic businesses in this sector judgetheir competitive position and Germany as a busi-ness location?

– What employment effects are to be expected by theyear 2030?

– Which policy recommendations can be derivedfrom these results?

4

THE MOST IMPORTANT RESULTS AT A GLANCE

The goal of the present study is to answer the questionsposed above and, in the process, to improve the data-base and further develop methodological approaches.At the same time, a transparent portrayal of the resultsshould ensure their comprehensibility since the consid-erable breadth of the questions required several assump-tions to be made – e.g. related to developments in theinternational markets or the future development ofrenewable energy. Plausible considerations are used toreliably estimate orders of magnitude from which sus-tainable recommendations can be derived for strategicdecisions. This study thus provides a constructive contri-bution to further discussions about the effects of usingrenewable energy on employment, as will continue bothin political and in scientific forums.

A flash summary of the most important results is pre-sented in the following, whereby the content is neces-sarily abbreviated and we refer to the further details inthis summary report as well as the derivations, classifi-cations, and interpretations presented in the completereport:

1. The renewable energy sector can be integrated into theeconomic input-output table for analysis. It is recom-mended to map it using the vectors “production of systems for using renewable energy” and “operation ofsystems for using renewable energy”. This process sim-plifies the study of the input links and thus also thedetermination of the direct and indirect employmenteffects.

2. Net employment effects can only be entered into thebalance sheet with sufficient accuracy in a complexmacroeconomic model. The difference between twoconsistent future development models (scenarios) mustbe considered for this purpose. The scenario “Energie-report IV” provides a suitable moderate reference devel-opment for the expansion of renewable energy. It iscompared here with a dynamic expansion which com-plies with the expansion and climate protection goalsset today. It would have been disproportionately moredifficult to find plausible assumptions to support con-siderations of a hypothetical past development in whichrenewable energy had no relevant growth due to a lackof promotion instruments.

5

METHODICAL RESULTS:

3. In the base year 2004 the gross employment totalled157,000 positions; 64,000 of which are in the wind sec-tor, 57,000 in the bio-energy sector, and another 36,000in the sectors of solar energy, hydropower, and geother-mal energy. About half of all employees are involved inthe production and operation of systems and the otherhalf are employed by suppliers or upstream economicsectors like engine construction and electrical devicemanufacturers, but also including the steel and glassindustry as well as company-specific services and theinsurance industry1.

4. The renewable energy industry is presently dominatedby medium-sized enterprises. Especially in economicallyunderdeveloped regions there are employment prospectswhich however depend on successfully boosting the re-gional value added for these sectors. The share of re-gional value added is particularly high in NorthernGermany (ca 50%); it is presently lowest in EasternGermany (ca 20%).

5. More than 1,100 enterprises were surveyed for thestudy in order to obtain an important database fordetailed analyses and to address higher-level questions.They indicate Germany as the most attractive businesslocation for most enterprises – followed by other coun-tries in the European Union.By 2010, the enterprises intend to increase theirnumber of employees by 50% compared to 2004.

6. The share of the German primary energy consumptionsupplied by renewable energy can increase from 4.6%in 2005 to 13.9% by 2020 if the total final energy con-sumption is simultaneously reduced by 10% throughenergy-saving and efficiency measures. Their share inthe electricity market increases from 10.2% (2005) to25.6%; the installed capacity increases from 25,840 MWto 56,300 MW.

7. Over the time period from 2005 to 2020, cumulativeinvestments of e2000130 billion (all data given in pricesfrom 2000) in systems for using renewable energy(electricity, heat) are associated with this develop-ment. Investments in production systems – not explicitlycalculated here – should also be added in. The annualdomestic turnover in the sector, including system oper-ation, will increase to nearly e200015 billion/a by 2020(2005: e200010 billion/a).

8. Renewable energy contributes decisively to achiev-ing climate protection goals. With further expansion,an annual reduction of CO2 emissions by 160 million t/a(2005: 84 million t/a) can be achieved by 2020. This factis of crucial importance to meet goals which go beyondthe Kyoto protocol currently in effect.

9. The additional costs (so-called differential costs)caused by the increased use of renewable energy inGermany will continue to increase for about ten yearsaccording to a conservative estimate of the futureenergy prices. According to an energy price scenariowhich assumes an oil price of US $2000 60 per barrel anda CO2 certificate price of e2000 15/t in 2020, the differ-ential costs will reach a maximum of e2000 5 billion/ain 2015 (2005: e2000 3 billion). The increase is signifi-cantly less than proportional to the expansion of thefinal energy contribution from renewable energy. Thetotal renewable energy mix can become price-com-petitive (differential costs less than or equal to zero) byabout 2020. If the general energy price level increasesfaster, then this point will be correspondingly earlierand all in all the differential costs will turn out to bemuch lower.

6

DEVELOPMENT OF GROSS EMPLOYMENTuntil 2020/2030

THE STARTING POINT:Survey results for 2004

1 Based on these results, a gross employment effect of ca 170,000positions can be estimated for 2005.

10.Successful foreign trade plays a central role for fur-ther positive employment stimuli. A dynamic devel-opment on a global scale which proceeds analogous tothe development in Germany will increase the energyproduction from renewable sources from 60,000 PJ in2004 to 145,000 PJ in 2020. However, due to the simul-taneous increase in the energy consumption, the shareof the global energy consumption will “only” increasefrom 13.5% to 22%.

11. The relevant technologies from the German point ofview – primarily electricity-generating systems, thethermal use of solar energy and geothermal energy, aswells as various technologies for the energetic use ofbiomass – have potentially higher growth rates. In theelectricity generation field alone, a rapid expansioncould increase the global installed capacity from900,000 MW in 2004 to 2,160,000 MW in 2020 and4,070,000 MW by 2030.

12.With this expansion, the global investment volumefor renewable energy systems will increase six foldfrom e 43 billion in 2004 to ca e2000 250 billion/a by2020 and will further increase to ca e2000 460 bil-lion/a by 2030. Even for a (moderate) reference devel-opment, the annual investment volume will increaseconsiderably to e2000115 billion/a in 2020. Renewableenergy thus most definitely represents a global growthmarket, resulting in considerable export potential forGerman enterprises.

13. Since the international expansion of renewable energywill be accompanied with increased local production inthe site countries, the share of German companies inthe world market, currently at 17% averaged over alltechnologies, will decrease. Nevertheless, in areas withsophisticated technologies (e.g. photovoltaic modules,gearing and generators for wind power and hydropow-er stations, measuring and control engineering for bio-mass plants, etc.) high shares of the world market of15-20% are by all means realistic also in 2020. How-ever, the absolute values which can be achieved aremore decisive. Investments in electricity-generatingsystems of German origin alone can increase fromca e 6 billion in 2004 to e2000 20 billion in 2020according to a “cautious” export scenario. If weinclude heat supply systems, then this value increasesto ca e2000 24 billion/a.

14. If we subtract the domestic investments from theseamounts, then the export volume for 2020 amounts to e200016 billion, with e200014.5 billion for electricityproducing systems and another e20001.5 billion for heatgenerating systems. The export ratio (proportion of for-eign turnover to total turnover) for German manufac-turers then averages to 69%, with values of 70% orhigher achievable in specific sectors (e.g. wind powerand photovoltaics).

15. Under these conditions the number of jobs in theGerman renewable energy sector could increase toover 300,000 (gross employment) by 2020. A signifi-cant increase in the work productivity is already con-sidered in this figure, i.e. the earned revenue per em-ployee is about 36% higher than it is today. Continuingthis development, more than 330,000 jobs by 2030 arerealistically conceivable.

7

16. The net employment effect is calculated from the differ-ence between two dissimilar but consistent expansionscenarios. Compared to a reference development, adynamic expansion of renewable energy can lead toa continuously increasing positive net employmenteffect in the range of over 70,000 jobs by 2020 andincreasing to over 80,000 jobs by 2030. Since theexpansion scenario fulfils climate protection goals,these results demonstrate that an effective climate pro-tection policy can simultaneously be an advantageousmacroeconomic employment strategy if the growthdynamics induced by the pioneering national policiescan be transferred to export markets successfully and ingood time.

17. Admittedly, the effect depends strongly on the generalenergy price development and the foreign demand forrenewable energy. Sensitivity calculations were performedto explore the extent of these dependencies. If the futureenergy price level lies above the relatively moderateenergy price scenario assumed here (compare withPoint 9), then the net employment will increase tonearly 120,000 jobs by 2030. If the export developmentis more favourable (export scenario “optimistic behav-iour”) then the values could even increase to between150,000 and 180,000 jobs by 2030. Negative net employ-ment effects can only be calculated for the improbablecase that the exports of renewable energy technologypractically break down and the energy prices dropdown to the levels of 2000 to 2002 (i.e. a real oil priceof US $200032 per barrel in 2020).

18. The current status of renewable energy expansion causesa positive net effect of about 35,000 to 40,000 employeesas compared to a fictive state without renewable energyuse. This value is only a relatively rough approximationfor methodological purposes.

19.The successful development of renewable energy andtherefore also the employment effects will still dependappreciably on the political conditions for about 20 years.In order to continue with the positive results, just likein other economical sectors, it is important to maintainGermany’s attractiveness as a business location, tosecure a top technological position internationally, andto support the exportation of products and services. Atthe same time, the enterprises themselves must furtherstrengthen production sites in Germany.

20. Since the developments are very dynamic, it is ex-tremely important to continuously monitor the fur-ther expansion of renewable energy and its impacton the labour market so that erroneous trends can becorrected in time and positive trends can be activelysupported (see below).

Due to the complexity of the subject, especially thefuture-oriented results depend on a series of assump-tions. In order to better classify them, the most impor-tant factors are summarised in Table 1. They are des-cribed in more detail in the following. Further detailscan be found in the complete report.

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NET EMPLOYMENT

REFERENCE SCENARIOGermany: Energiereport IVWorld: IEA

2010 2020 2030

14 122 12 981 12 080

5.7 8.3 10.7

3.958 3.868 5.2663.045 2.949 3.729

3.267 3.282 4.736

80 55 50

79.83 60.88 54.25

76.27 55.81 47.14

811 768 695

95 115 130

28 32 37

3.0 3.5 4.1

5.513 3.744 2.914

52 60 65

7.50 15.00 22.50

3.4 4.5 5.6

3.123 -0.912 -3.596

4.9 6.0 7.1

1.575 -3.233 -6.875

64.700 115.800 174.400

6.772 7.688 8.6203.505 4.406 3.884

7.617 9.045 11.0204.350 5.762 6.284

161 314 169 903 179 683170 777 181 821 197 421

EXPANSION SCENARIOGermany: NatPlus-2005World: EREC-DCP

2010 2020 2030

13 369 11 767 10 325

6.9 12.7 21.5

7.170 9.573 10.3863.324 4.573 6.735

5.753 7.400 7.991

90 65 50

79.83 60.88 54.25

76.27 55.81 47.14

739 641 497

110 160 220

28 32 37

3.0 3.5 4.1

6.970 8.018 8.345

52 60 65

7.50 15.00 22.50

3.4 4.5 5.6

4.300 2.250 -1.963

4.9 6.0 7.1

2.597 -1.183 -8.159

120.100 251.700 461.700

14.348 23.639 28.7898.595 16.239 20.798

16.175 29.726 41.31010.422 22.326 33.319

244 102 306 691 332 848262 893 353 541 415 010

46 040 56 610 62 04055 230 73 600 84 410

46 330 61 140 94 54055 520 78 270 118 910

55 250 89 910 113 70065 870 112 800 147 500

55 510 94 410 146 23066 120 117 440 182 060

BASE JEAR

Unit 2004

PJ/a 14 438

% 3.6

billion e2000 7.1932.293

billion e2000/a 5.379

% 100

% 100

% 100

million t/a 840

million t/a 71

$ 2000/b 35

ct 2000/kWh 2.8

billion e2000 3.222

$ 2000/b 35

e2000/t 0

ct 2000/kWh 3.0

billion e2000 2.714

ct 2000/kWh 4.5

billion e2000 1.749

billion e2000/a 43.200

billion e2000/a 7.3701.991

billion e2000/a 7.3701.991

157 074

GERMANY

Primary energy consumption (PEC)

Share of RES in PEC

Investments in new systems (excl. local heat grids)Revenue from system operation

Revenue for German companies in Germany

Average energy costs for the RES mixbased on 2004 = 1001

Average labour productivity(2004=100) ExS ”cautious”

Average labour productivity(2004=100) ExS ”cautious optimistic”

CO2 emissions

CO2 emissions avoided by using RES

Energy price for oil in EPS ”Energiereport IV”

Value for RES electricityin the EPS ”Energiereport IV”

Differential costs for EPS ”Energiereport IV”

Energy price for oilin EPS ”DLR 2005 + CO2” and ”Surcharge2”

CO2 surchargesin EPS ”DLR 2005 + CO2” and ”Surcharge2”

Value for RES electricityin EPS ”DLR 2005 + CO2”

Differential costs for the EPS ”DLR 2005 + CO2”

Value for RES electricityin EPS ”Surcharge2”

Differential costs for the EPS ”Surcharge2”

WORLD

Investments in new systems

Total revenue for German companies ExS ”cautious”thereof exports

Total revenue for German companies ExS ”cautious optimistic”thereof exports

EMPLOYMENT EFFECTS

Gross employment3

ExS ”cautious”ExS ”cautious optimistic”

Net employment4 ExS ”cautious” and EPS ”DLR 2005 + CO2”Employees5

Net employment4 ExS ”cautious” and EPS ”Surcharge2”Employees5

Net employment4 ExS ”cautious optimistic” andEPS ”DLR 2005 + CO2”Employees5

Net employment4 ExS ”cautious optimistic” andEPS ”Surcharge2”Employees5

RES = Renewable Energy SourcesPEC = Primary Energy ConsumptionExS = Export ScenarioEPS = Energy Price Scenario

1 Differences between the average energy costs in the expansion scenarios are due to the mobilisation of different technologies2 This energy price scenario (EPS) is based on the ”DLR 2005 + CO2” scenario with all prices increased by ct 1.5 /kWh3 Employees and the self-employed which contribute to social insurance4 Employees which contribute to social insurance5 Includes employees which contribute to social insurance as well as the self-employed and public servants

9

Table 1:Significant assumptions and quantified results from the study for the base year 2004 and for the years 2010, 2020, and 2030.

NATIONAL AND INTERNATIONAL SCENARIOS FOR EXPANDING RENEWABLE ENERGY

Germany is an international leader in the market intro-duction of renewable energy systems, especially for theuse of wind energy and photovoltaics. Due to their pio-neering role in these and other technologies it can beassumed that German manufacturers will profit substan-tially from the strong growth expected on the globalmarket. For this reason one emphasis of this study is onforeign trade.

Scenarios at the national and international level areanalysed to determine employment effects. The energyindustry reference forecast “The Development of theEnergy Markets up to the Year 2030” (Energiereport IV)was prepared for the German Federal Ministry of Eco-nomics in 2005 and is used here as the reference sce-nario for Germany. An alternative development path(NatPlus-2005), which assumes a more rapid expansionof renewable energy, represents an updated extrapola-tion of the corresponding scenarios from the “Ecologi-cally Optimised Expansion for the Use of Renewable

Energy in Germany” study prepared for the GermanFederal Environment Ministry in 2004. In the referencedevelopment, renewable energy attains an 8.3% shareof the primary energy consumption, which remainsnearly constant, by 2020. The German Federal Govern-ment’s expansion goal of at least 10% by 2020 is notachieved in this scenario. Stronger energy-saving andefficiency measures are included in the alternative sce-nario so that the primary energy consumption is reducedand a 12.7% share of renewable energy can be achieved.

The resulting investments in systems to generate elec-tricity and heat from renewable energy in Germanyincrease from e 7.7 billion/a in 2004 to e2000 10.7 bil-lion/a in 2020 in the “NatPlus-2005” scenario. In themore cautious reference development, however, the in-vestments drop to e2000 4.1 billion/a (Fig. 2). Additionalrevenues of e2000 2.9 billion (“Reference”) or e20004.6 bil-lion (“NatPlus-2005”) are earned through operation ofthe systems.

10

Billi

on E

2000

/aIn

vest

men

ts a

nd O

pera

ting

Cos

ts

NatPlus-2005: Share of RES in the PEC 2020: 13.9%

<< Operating Costsplus<< Investments

REF: Share of RES in the PEC 2020: 8.3%

<< Operating Costsplus<< Investments

20

15

10

5

0

2000 2005 2010 2015 2020 2025 20302004

RES = Renewable Energy SourcesPEC = Primary Energy Consumption

Figure 2:Breakdown of the investments and operating costs for the electricity and the heat sectors according to the NatPlus-2005 scenario and com-pared with the reference scenario (REF).

The development of differential costs for the expan-sion of renewable energy is highly dependent on theenergy price development. This fact is true for both thegeneral energy price level, which is set at a very lowprice in the Energiereport IV (price of crude oil in2020: US $2000 32/b compared to US $2000 60/b in the“NatPlus-2005” scenario), and the price of renewableenergy assessed for individual applications. For exam-ple, a very conservative value is assumed for the elec-tricity market in the Energiereport IV energy price scenario – increasing from ct2000 2.8/kWh in 2005 toct2000 3.5/kWh by 2020 (or to ct2000 3.9/kWh taking a CO2 credit of e2000 10/t into account). On the otherhand, a more realistic value from today’s point of view of ct2000 4.5/kWh is achieved in 2020 in the “Nat-Plus2005 + CO2” scenario, including a CO2 credit ofe2000 15/t CO2. In order to represent the uncertaintiesin the future development of electricity prices, a furthervariant includes an additional credit of ct2000 1.5/kWhover the entire time period and thus better characterisesthe current situation.

Figure 3 indicates a pronounced sensitivity of the differ-ential costs to the allowable costs assumed for renew-able energy according to the quantity scenario “Nat-Plus-2005” (electricity, heat, and fuel). The maxima liebetween e2000 2.7 and 9 billion and will be achievedaround 2015. They will only stay at a high level for alonger period of time in the very unrealistic case of theoverall energy prices sinking again in the medium term(Energiereport IV) and without considering climate pro-tection costs. The differential costs of the total renew-able energy mix will become negative around theyear 2020 when considering higher, more realisticenergy prices. Thus, after this point in time it will becheaper to supply energy from renewable sourcesthan from conventional sources and the financialadvances provided for the market penetration of renew-able energy will be permanently reclaimed.

11

Figure 3:Progress of the differential costs for the overall expansion of renewable energy (electricity, heat, fuel) in the NatPlus-2005 scenario for threeenergy price variants.

Mill

ion

E20

00/a

Cost

dif

fern

ece

for

RES

expa

nsio

n

"Realistic” DLR 2005 + CO2

10,000

5,000

0

-5,000

-10,000

-15,0002000 2010 2020 2030 2040 2050

"Low” Energiereport IV

additional electricity surcharge

Supplying energy from renewable sources becomes cheaper thanfrom conventional sources in the year that the curve falls belowthis line.

Energy price paths:

A strong expansion is expected for renewable energy inthe world market over the next years and decades. Eventhe conservative reference development published by theInternational Energy Agency (IEA) in 2004 indicates thatthe investments in renewable energy will nearly triplefrom the current e2000 40 billion to e2000 115 billion by2020. In Figure 4 a scenario based on a study by theEuropean Renewable Energy Council (EREC), which isconsistent with the “NatPlus-2005” scenario, even indi-cates a six-fold growth to a total of e2000 252 billion.Both cases provide considerable export potential forGerman companies due to their good competitive posi-tion. If this potential is tapped, then exports couldbecome considerably more important than the domes-tic market within the next few years. Thus Germanenterprises could expect revenues in the range of

e2000 24 to 30 billion/a in 2020 (excluding revenuesfrom the operation of domestic systems) if the exportpotential is tapped, especially in the sophisticated tech-nologies like photovoltaic modules, gearing and genera-tors for wind turbines and hydropower stations, measur-ing and control technology for biomass plants, etc. Fora domestic market of e2000 10 billion, and consideringsystem imports, domestic revenue of e2000 7.4 billionand an export rate of 70 to 75% is calculated. If, how-ever, the conservative reference developments shouldactually come about, then German enterprises involvedin renewable energy will only realise an overall turn-over of e2000 8 to 9 billion in 2020.

12

WORLD-WIDE INVESTMENTS

Solar thermal collectorsGeothermal heatHeat from modern biomass, biogasGeothermal electricitySolar thermal power stationsPhotovoltaicsElectricity from biomass, biogasWindWater

<< Share of the investments which are made in Germanyaccording to the EREC growth scenario

Billi

on E

2000

/a

400

300

200

100

02004 2010 2020 2030

16.6 % 6.o % 3.8 % 2.2 %

1 EREC – European Renewable Energy Council2 IEA – Internationale Energieagentur

Conservative growth assumption: IEA2

Global growth scenario: EREC1

Figure 4:Future investments in renewable energy in a global growth scenario (based on the European Renewable Energy Council (EREC) report) as compared to the reference scenario (based on the International Energy Agency (IEA) reference development study).

THE INDUSTRY SURVEY – OBTAINING FIRST-HAND INFORMATION

“First-hand information” is indispensable for balancingemployment numbers and for evaluating the competi-tive position of the sector and therefore also to realisti-cally estimate the potential for exports. For this purposethe most comprehensive survey to date of more than1,100 companies in this subject area was performedin the summer of 2005 in cooperation with the GermanRenewable Energy Federation (BEE) and the Institutfür Sozialforschung und Kommunikation. Addresseesincluded system manufacturers, suppliers, developersand planners, system operators, financers, insurers, andretailers. They represent 26,400 jobs, whereas 84% ofthe companies employ less than 250 people. The field isthus clearly dominated by medium-sized enterprises atthe present time.

The survey results allow conclusions to be made aboutthe links between the companies with other economicsectors which extend throughout the entire value chain.Additionally, information about foreign trade in systems,components, and preliminary products could be acquired.The information forms an important database for bal-ancing the direct and indirect employment effects causedby the use of renewable energy via the input-outputanalysis (see below).

Furthermore, numerous questions from other subjectareas were also answered, e.g. about the type and extentof the employment, the composition of the staff accord-ing to education, sex, and job location, but also aboutthe company’s demands on the job market and thepolitical conditions, their expectations for the futureand company strategies. One of the most significantresults is that the vast majority of the companies lookoptimistically to the future. Altogether, the surveyedcompanies expect to increase their number of employ-ees by 54% by 2010, the sectors of solid biomass andphotovoltaics even expect to double their employmentfigures (Figure 5).

13

Figure 5:Survey results on the expected job development.

%

120

100

80

60

40

20

04% 31% 130% 41% 38% 109% 55% 30% 54%

Wind

Hydro

power

Solid

biom

ass

Liquid

biom

ass

Bioga

sPh

otov

oltaic

s

Solar

ther

mal en

ergy

Geot

herm

al en

ergy

RES t

otal

Expected job development in 2010 as compared to 2004

These expectations can be justified on the one hand bypositive German market trends and on the other handby the increasing foreign business. The companies con-sistently rate their international competitive positionas good to very good. One indication for this rating isthe export ratio in the trade sector, defined here as theratio between the export of systems and preliminaryproducts (e.g. components) and the company turnoverincluding services, since the entire value-added chaincan thereby be taken into account. According to thesurvey, the export rate was 28% in 2004. Various otherpublications exclude the service sector when calculatingthe export ratio. The corresponding export ratio for2004 then amounted to 35% for the entire sector, withsignificant differences between the individual lines ofbusiness: it was nearly 50% for wind power, and evennearly 80% for hydropower – for considerably lowerabsolute values. In contrast, exports are still of littlesignificance in the sector of biomass use with less than10%, and in photovoltaics with 20%.

Approximately two thirds of the export revenues in2004 were earned in the European Union membercountries (EU-25), another 15% in Asia, and 10% inNorth and Central America. The European market will presumably continue to play an important role forexports from Germany in the future. In this respectmeasures for continued expansion of renewable energyin Europe are most important in the medium term forthe foreign business development of this sector.

The survey results indicate that Germany is a veryattractive location for the businesses, despite the highlabour costs. A number of political and structural con-ditions make Germany attractive. Among them are notjust the domestic sales market, which is supported bypolitical instruments like the Renewable Energy SourcesAct or the Federal Market Stimulation Programme, butalso the availability of qualified personnel, a good infra-structure, and excellent technology development whichis linked to the strong research activities in the sectorof renewable energy (Figure 6).

14

Attractive Locationsfor the Entire Renewable Energy Industry

Germany 69%

rest EU-25 16%China 5%

rest Asia 2%India 2%

America 2% other Europe 4%

Figure 6:Survey results about location attractiveness.

ANALYSING RENEWABLE ENERGY WITH THE INPUT-OUTPUT CALCULATION

Input-output tables provide a detailed insight into theflow of goods and interdependencies of industries with-in the German economy and with foreign countries. Theofficial tables of the Federal Statistical Office are organ-ised into 71 production sectors and are a versatile data-base for economic analyses, in particular also for dis-aggregated models. Expanding the existing schemato include production sectors for renewable energyenables conclusions to be made, not just about thedirect, but also the indirect employment effects ofthe expansion of renewable energy in the otherindustrial sectors based on the additional empiricalinformation.

The empirical information base in the area of systemmanufacturing was considerably improved with the datafrom the comprehensive industry survey. Together withdata from other sources, these results can be used torepresent renewable energy in the context of an input-output analysis (Figure 7).

The economic effects activated by the use of renewableenergy, especially the impact on employment, are basedon both the investments in new systems and expendi-tures for the operation of existing systems.

The investments lead to the so-called manufacturereffects. They result from the annual investments inGermany, insofar as domestically produced products arepurchased, and from the systems which are produced inGermany and exported to other countries. In contrast,the effects caused by operating the systems (electricityand/or heat generation) are independent of where thesystems were produced.

The different natures of these two effects indicate thatthey should be represented separately in the input-out-put calculation. For this reason, and also consideringother requirements for modelling the net employmenteffects, the two production sectors are considered sep-arately:

– manufacturing of systems for the use of renew-able energy, including the manufacturing of com-ponents, and system-related services like developingand planning, and

– the operation of systems for the use of renew-able energy including maintenance and repairs.

15

Market relationships

Germancomponentmanufacturers

Foreigncomponentmanufacturers

Foreignmarket

Germanmarket

Components

Project planning

Project planning

SystemsProject planning

Installation

The arrows indicate the survey results (see long version for the exact numbers)

Cost structure

Advanced payments

Advanced deliveries

x1n+1

x2n+1

xin+1

xnn+1

.

.

xn+11 xn+12 xn+1j. xn+1n. xn+1n+1

Supply structureSum of domestic advances

Imported advancesGross value added

Sum of primary inputs

Gross production value

xn+1

p1n+1

p2n+1

pn+1

xn+1

Deliveriesto final demand

xn+1 xn+1yn+1c yn+1g yn+1l yn+1v yn+1e yn+1

Grossproduction value

.

.

INPUT-OUTPUT-VECTOR

Foreignmanufacturers

Foreignservice providers

Germanmanufacturers(IO vectors)

Germanservice providers

Figure 7: Empirical data collection in the renewable energy industry.

GROSS EMPLOYMENT EFFECT OF USING RENEWABLE ENERGY IN 2004

The input-output analysis does not just determine thedirect employment in those companies which, e.g., pro-duce renewable energy systems, but also the indirect em-ployment in companies supplying preliminary products.For example, the share of the work volume of a steel-worker which goes toward producing steel for a windpower station is assigned to the sector of renewableenergy, although this connection with his/her work maynot be known to the worker. The indirectly employedare very relevant for the renewable energy sector, sincethey account for over half of the jobs. The gross employ-ment effect is calculated from the sum of the direct andthe indirect employees.

The gross employment effect in the field of renew-able energy can be estimated at 157,000 jobs for 2004.The gross production value per employee is therebye 167,000 for system manufacturing, and e 148,000 forsystem operation. Wind power remains the categorywith the largest employment (64,000 jobs), followed bybiomass (57,000 jobs) – including effects induced by thedemand for biogenous combustibles and biofuels – andthe solar industry (25,000 jobs). The employment stimu-lus of the latter two grew faster than for the windindustry in recent years.

Furthermore, Figure 8 indicates that the current growthphase for renewable energy is clearly dominated by themanufacturing effect as compared to the operationeffect. This will presumably continue in the future,although the operation effect will gain importance inthe German market as the number of systems in Ger-many increases. The manufacturing effect, however,increases through increasing exports resulting frominternational market growth.

16

Total 2004: ca. 157,000 jobs

Biomass 36%

Hydropower 6%Geothermal energy 1% Solar energy 16%

Wind 41%

Direct employment: 71,500

Indirect employment: 85,500

For information only: imported intermediate inputs e 1.1

Operation and Maintenance

100 % of which domestic* additional e 1.3 billion combustibles and fuel

72 % of which domestic and 28 % export

Manufacturing of Systems and Components

e 2.3 billion

e 7.2 billion

Thereof Domestic Intermediate Inputs

Equipment for generating, distributing, etc. electricity

Machines

Business-related services

Metal products

Communications, radios and TVs,electronic components

e 506 million

e 547 million

e 667 million

e 547 million

e 399 million

e 502 million

e 339 million

e 49 million

e 339 million

e 1 billion

e 0.9 billion

e 0.7 billion

e 0.6 billion

e 0.4 billion

Figure 8: Gross employment in the renewable energy industry in 2004

Very different economic sectors profit from the production and the operation of renewable energysystems. This effect is indicated in Figure 8 in that thegross production values (revenues) are also listedwhich cannot be associated with the production sectors“Manufacturing of Renewable Energy Systems” and“Operation of Renewable Energy Systems” and thereforerepresent intermediate inputs. Corresponding to theofficial structure of the economical statistics, the sectors“Equipment for Electricity Generation and Distribu-tion”, “Machines”, “Metal Products”, and the so-called “Business-Related Services” (e.g. developers)profit from the manufacturing of systems. Sectors likethe insurance industry profit from the operation of the systems.

Other employment elements related to the use of renew-able energy, like those involved with the distribution orsales of the green electricity, the employment in re-search institutes induced by the corresponding energyresearch programmes, or the people who are involvedwith the administration aspects of the expansion ofrenewable energy in administration departments orministries, are however not yet considered in the esti-mation presented here. The investment expenditures by renewable energy system manufacturers to expandor modernise their production capacity is also not yetconsidered. Therefore, the gross employment resultscalculated here are best considered as a lower limitof the true renewable energy employment effects.

17

24%

18%

27%

18%

28%

29%

25%

49%

20%

27%

19%

13%

32%

26%

17%

27%

22%

22%

21%

36%

30%

14%

41%

15%

% Employees in the surveyed companies

% Direct employment in operation and maintenance

% Subcontracting between regions

% Subcontracting within a region

REGIONAL EMPLOYMENT EFFECTS

The regional correlation of direct employment with theGerman federal states is difficult since the data basis is still very narrow. However, statements can be madeabout the intermediate input and supply flows betweenthe four regions of Northern Germany (Schleswig-Holstein, Lower Saxony, Hamburg, Bremen), SouthernGermany (Hesse, Baden-Württemberg, Bavaria), WesternGermany (North Rhine-Westphalia, Saarland, Rhineland-Palatinate), and Eastern Germany (Mecklenburg-WesternPomerania, Berlin, Brandenburg, Saxony-Anhalt, Saxony,Thuringia). Furthermore, the regional distribution ofinstalled systems provides information about the directemployment in the areas of operation and maintenance.

Figure 9 graphically summarises the employment byregion related to local system operation and the pro-duction of systems, as far as could be determined fromthe industry survey. The intermediate input flows areshown in the colour of the region receiving the inputfor production in that region. The sum of intermediateinputs from other regions and those remaining in theregion is 100%. The solid-coloured circles present theshare of direct employment from system operation inthe region. The numbers in dashed circles in the centreof Germany represent the distribution of the answersfrom the surveyed companies regarding direct and indi-rect employment in system production.

18Figure 9:Employment related to the local operation of systems and to system production.

GROSS EMPLOYMENT EFFECTS OF THE EXPANSION OF RENEWABLE ENERGY THROUGH 2030

The future development of gross employment in Germanycan be estimated based on the analysis of the presentemployment situation, the results of the industry sur-vey, and the national and international scenario draftsregarding the expansion of renewable energy. Since thedomestic investment is losing importance as comparedto exports, foreign countries will increasingly drive thegrowing employment in the area of system production.The employment figures in the operation and mainte-nance of systems, on the other hand, are practicallyexclusively dependent on the domestic developments.

A wide range of possible export success for German busi-nesses can be imagined, not just because of the relativelylong time period under consideration (until 2030), andis covered by four very different export scenarios. Theexport scenarios b) “cautious” and c) “cautious opti-mistic” represent the central range. The market develop-ment in Germany drafted in the “NatPlus-2005” scenarioand the corresponding international development is clar-ified in Figure 10. The world market share of systemsand components “Made in Germany” decline from 17%in 2004 to 9.4 or 11.8% in 2020 due to global marketgrowth. Nevertheless, even the rather conservative exportscenario b) in Figure 10 indicates an increase in systeminvestments to e2000 ca 24 billion/a (thereof exporte2000 16 billion/a) in 2020 for German companies do-mestically and abroad. At the same time, the gross em-ployment increases from 157,000 to 244,000 in 2010and up to 307,000 jobs. In export scenario c) the in-vestments even increase to e2000 30 billion/a (exporte2000 22 billion/a) by 2020, and the jobs increase up

to 354,000 (2010: 263,000). The gross employment in2030 can be estimated at 333,000 employees for exportscenario b) and 415,000 for export scenario c).

Although this range is considered most realistic by theauthors, other developments are also possible. In the caseof the pessimistic export scenario a), a world marketshare of only 6.9% in 2020 describes an export marketwhich is not much larger than the domestic revenuesin Germany. The establishment of the German renew-able energy industry in the world market would have to be considered unsuccessful in this case. The opti-mistic export scenario d), on the other hand, assumesthat German companies will be able to approximatelymaintain the current world market shares of 14.2%until 2020. With a sales volume of e2000 36 billion in2020 and e2000 54 billion in 2030, the employment figures then increase to about 0.5 million jobs by theend of the considered time period. This case rather represents an upper limit, which however is alreadydeemed possible for 2020 by the German RenewableEnergy Federation.

Conversely, if the future market growth for RES isassumed to be significantly stunted, as indicated by theREF scenario, then the increase in gross employmentwould stagnate. The corresponding values for 2020would then be 170,000 employees for export scenario b)and 182,000 for export scenario c). In this scenario, theexport growth – provided there is any growth at allunder these extremely unfavourable conditions – wouldbarely compensate for the shrinking domestic market.

19

Billi

on E

/a

50

40

30

20

10

0

2004 2010 2020 2030

Percentage of world market share d) ”optimistic”11.7%

c) ”cautious optimistic”

b) ”cautious”14.2%

15%

17%

12%

9.4%

6.2%

GROSS EMPLOYMENT/Export scenarios b) and c):

400 000

300 000

200 000

100 000

0

2004 2010 2020 2030

354 000

415 000

263 000

333 000

307 000

244 000

a) ”pessimistic”

157 000

GERMAN TURNOVER/Export scenarios a) to d):

c) ”cautious optimistic”

b) ”cautious”

Geothermal energyWaterBiomass (heat)Biomass (electricity)Solar collectorsSolar thermal power stationsPhotovoltaicsWind

Figure 10:Turnover of German businesses domestically and abroad, as well as the corresponding gross employment effects until 2030 for variousexport scenarios (bars represent the investments in export scenario b).

NET EMPLOYMENT EFFECTS OF THE EXPANSION OF RENEWABLE ENERGY THROUGH 2030

It is a methodological challenge to determine the netemployment related to the expansion of renewableenergy and the result is significantly influenced by the chosen assumptions. In particular, the energy pricescenarios and estimates of the investment and exportvolumes play an important role. The latter also activatevarious quantity effects in the upstream sectors (inter-mediate input demand), which can be met with bothdomestic production and imports. Changes in energyprices also affect the entire price structure of the econ-omy, influencing intermediate and final demand, pro-duction, and imports. Increased production can lead tomore value added, but also to more imports and moreuse of intermediate inputs. Developments in prices,wages, and productivity play an important role in thisdistribution, and the question of whether or not addi-tional value added also leads to more employment.Higher wages and more employment provide higherdisposable incomes which then influence the final con-sumption. For this reason, dynamic effects of a chang-ing economic structure and technical progress must beincluded in the analysis of net employment. The netemployment analysis is therefore determined by numer-ous influence factors and interdependencies (Figure 11).

In contrast to the analysis of gross employment, whichis limited to investment, operation, and foreign tradeeffects, the substitution and budget (disposable income)effects are also determined during the assessment of thenet employment effect. The budget effect results fromthe differential costs incurred when supplying energyfrom renewable sources instead of from non-renewable

resources. Both effects influence the entire economy andnot just the renewable energy industry and its supplierslike the gross employment described above. Therefore,changes in the economy caused by the increased expan-sion of renewable energy cannot be derived directly. Inorder to quantify these changes, the total effect of theexpansion of renewable energy must be compared witha reference case. The net analysis must therefore be basedon the comparison of two different developments. Inthis study, the differences between the “Reference” andthe “NatPlus-2005” scenarios are considered after thebase year 2004.

In particular, a sufficiently long time period must beconsidered, since the different (positive and negative)employment impacts affect the economy at differenttimes, and only long-term stable effects are economi-cally favourable. Short-term stimuli, like from stronginvestments, can be opposed by the longer-term budgeteffect. Therefore, employment figures for individualyears are not very significant.

20

Final demand- Consumption,- Exports,- Investments

Energyprices

Productionprices

Demand forintermediateinputs

Production Imports

Disposableincome

Wages

ProductivityValue addedandEmployment

Figure 11:Simplified representation of the impact relationships used to determine the net employment effects caused by the expansion of renewable energy.

The key to seriously determine employment effects isthus to consider the differences between two futuredevelopment scenarios over a longer period of time.The scenarios must be consistent with each other andthe pertinent technologies must experience very differ-ent developments. Here, starting in the base year 2004,the reference development describing a very slightexpansion of renewable energy in the long term (Energie-report IV) is compared with a dynamic, goal-orientedexpansion (NatPlus-2005) which simultaneously fulfilsthe targeted climate protection goals. The long timeperiod (until 2030) illustrates the very large differencesin the market introduction of renewable energy in itssecond half. Therefore, all relevant impacts of theexpansion of renewable energy on the labour marketcould be represented with sufficient differentiation.

The national level overlaps with export scenarios forrenewable energy. In general, the work productivityin processing industries will continue to increase inthe future and will enable significantly more produc-tion volume per employee in 2020, and even moreso in 2030, than is possible today. At the same time,however, the energy productivity of the Germaneconomy will also increase overall. If it increasesfaster than the energy prices, then energy prices willlose their influence on the economy as a whole.

The simulation and forecasting model PANTA RHEI is atool for determining the net employment effects and hasbeen used for various environmental-economical ques-tions over the past few years. Figure 12 illustrates themost important results of a comparison of the nationalscenarios mentioned above with this model – first to-gether with the rather conservative export scenario b)“cautious” export development and the electricity pricevariant “DLR 2005 + CO2” (solid red bar in Figure 12).

The net balance of scenario “NatPlus-2005” indicatesnearly 74,000 more wage earners2 in 2020 than thereference scenario, and continues to increase after-wards. Throughout the time period under considera-tion the gross production, the gross domestic productand its components are all higher than for the refer-ence scenario due to the increased production of sys-tems for using renewable energy. However, at this pointit also becomes clear that increased production doesnot necessarily increase the added value (gross domes-tic product) to the same extent. On the one hand, aportion of the additional production will be purchasedabroad, which appears as an increase in imports. Onthe other hand, the use of preliminary products willalso increase.

Since the expansion scenario also meets the climateprotection goals, these results demonstrate exemplarilythat effective climate policy can simultaneously be amacroeconomically favourable employment strate-gy, provided that the growth dynamics generated by anational pioneering policy is successfully and timelytransferred to export markets. In this way, initially neg-ative factors (like the additional costs of expansion overa particular time period) can be overcompensated. Inthe long term, the budget effect becomes negligible oreven positive and supports the development.

21

Figure 12:Net employment effects between the scenarios “NatPlus-2005” and “Reference” in combination with two export scenarios with different energy price variants.

2 Figure 12 also indicates the number of employees contributing to social insurance, as provided by the Bundesagentur für Arbeit labourstatistics. The employment figures are based on the micro-census results.

Energy price path

DLR 2005 + CO2

Surcharge

Export scenario

cautiouscautious optimistic

cautiouscautious optimistic

150 000

100 000

50 000

0

2010 2020 2030

NET EMPLOYMENT EFFECT

<< lighter portion: share of self-employed and civil servants

<< darker portion: share of employees contributing to social insurance

The positive macroeconomic impact of accelerating theexpansion of renewable energy according to the “Nat-Plus-2005” scenario is primarily sustained by the equip-ment investments and exports on the demand side. Astime passes, the export effect increases significantlyalong with the strong growth in the world market forthe pertinent technologies. The stimulus from domesticinvestments increases only slightly until 2020, but re-mains positive over the entire time period.

Figure 12 also shows a sensitivity calculation with regardto the price of electricity from renewable energy. Whilethe base variant “DLR 2005 + CO2” assumes a moderateincrease from ct2000 3/kWh in 2004 to ct2000 3.4/kWhin 2010, ct2000 4.5/kWh in 2020, and ct2000 5.6/kWh in2030 (for comparison: the average spot market price forbase load electricity on the Leipzig Electricity ExchangeEEX was already ct2000 4.6/kWh in 2005; it has howeverdropped slightly since then), the “Surcharge” pricevariant always assumes that the price of electricityfrom renewable energy will be ct2000 1.5/kWh higher.It is clearly evident that the resulting net employmentincreases, especially in 2030. This development is aresult of the renewable energy mix becoming cost-competitive, also reflected in the differential costs be-coming negative (compare with Figure 3). Since thebudget effect then becomes positive, the net employ-ment effect of the expansion of renewable energyin the “NatPlus-2005” scenario as compared to thereference development suddenly jumps to a total ofca 120,000 jobs in 2030.

Several other sensitivities can be considered in the sameway, as shown by the “cautious optimistic” export scena-rio c) included as an example in Figure 12. It is alsoimportant to note that negative net employment effectsare only calculated for the unlikely case that the exportsof renewable energy technology stagnate and the energyprices drop back to the levels from 2000 to 2002 (i.e. oilprices of US $2000 32/barrel in 2020).

22

SUMMARY AND OUTLOOK

The present study could clarify a series of questionsregarding the impact of the expansion of renewable ener-gy on employment. Based on the largest industry surveycarried out so far on this subject, the impact of renew-able energy use on employment could be analysed con-sistently and reliably. A steadfast result of this study isthat the previous development of renewable energyhas lead to significantly positive employment effectsso far, and that the so-called first-mover advantagesare in effect – expressed by an international, efficientindustry, strong in exports in key sectors of renew-able energy.

Significant employment increases are expected tocontinue in the future. However, especially the netemployment increase will not happen by itself. Thepositive stimuli from investments in systems for the useof renewable energy and the operation of the systemsare opposed by substitution effects and especially by thebudget effect caused by the additional cost of renew-able energy as compared to conventional energy gener-ation. This compensation will be in effect until renew-able energy becomes widely price-competitive, at whichtime however the advanced start-up financing of renew-able energy will pay off in the long term, also in termsof employment. Particular attention must therefore bepaid to the transition phase, which will likely stillcontinue for another 15 to 20 years depending onthe development of the cost relationship betweenthe renewable and the non-renewable energy mixes.A rather moderate price development for fossil energycarriers was assumed for the reference case. Sensitivitycalculations indicate the strong dependence of the resultson this cost relationship. Furthermore, the expansiondynamics for renewable energy must be sustained forboth those technologies which are close to the marketand those further from market, in order to continue tomobilise their cost-reduction potentials.

Based on the scenarios described here, it can be assumedfor Germany that the differential costs for the continuedexpansion of renewable energy in all areas (electricity,heat, fuel) will increase to the absolute (not specific)maximum sum of e2000 5 billion/a for about anoth-er 10 years. Afterwards, however, the costs will quicklydrop to zero despite further growth and become nega-tive between 2018 and 2028, depending on the energyprice scenario. The dampening of the employmentimpact until that time can be compensated or evenovercompensated for by an increased foreign demandfor products and services from Germany in this tech-nology area. In this case, it is also e.g. in the interest oflabour policy to promote the expansion of still relative-ly expensive technologies like photovoltaics. The devel-opment in the foreign markets also play an important

role for Germany, since the cost reductions achievableover time (learning curve) for renewable energy increas-ingly depend on the global market.

The results of the industry survey indicate that Germany is a particularly attractive location for themostly medium-sized enterprises in the renewableenergy sector, and that significant employment in-creases are to be expected in the next few years. Atthe same time, the businesses will increase their exportactivities. The favourable starting position should bedeployed and stabilised by politics. This goal can beachieved by designing reliable financing conditions forthe heat and fuel markets similar to those offered bythe Renewable Energy Act (EEG) for the electricity mar-ket and by the continued reduction of other obstacles.Since the German market is open for foreign suppliers,favourable conditions are a necessary but not yet suffi-cient prerequisite for a parallel growth of domesticemployment. Imports of systems and components forthe use of renewable energy can be best limited byensuring that the technological competitive positionremains in Germany. An essential prerequisite for thisdevelopment is in any case to maintain the presentlevel of private and public support for research anddevelopment. Especially technology areas which willbe important in the future international marketsmust be supported. Examples include the developmentof offshore wind energy potentials, solar thermal tech-nologies like solar process heat or solar thermal powerplants for countries with high solar irradiance, andcomplex and efficient techniques for biomass conver-sion like new methods for fuel synthesis. At the sametime, a clear commitment to locating in Germany shouldbe demanded of the businesses, since decisions aboutlocation changes or value added shares are ultimatelymade there.

It is just as important to improve the conditions forrenewable energy use on the international level. Ini-tiatives like the International Action Programme whichwas started in Bonn during the “renewables2004” con-ference for renewable energy and which comprisesnearly 200 substantial actions and the newly foundedinternational policy network “Renewable Energy Net-work – REN 21” move in this direction. Bilateral agree-ments or co-operations within the framework of devel-opment co-operations are also effective. The Export Ini-tiative based at the German Energy Agency can andshould continue to provide important assistance tomedium-sized enterprises to develop foreign markets.

The European dimension is particularly important inthe area of renewable energy. The industry survey per-formed for this study indicates that Europe is currently

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the most important sales market by far – a situation whichwill continue in the medium term. A whole series ofgoals for the expansion of renewable energy were formu-lated by the European Commission and the Parliamentin the past. An exemplary goal was already set in 1997to double the contribution of renewable energy to 12%by 2010. The European Parliament has been demandingfor some time to increase the share to at least 20% by2020 and recently concluded that 25% could also bepossible. The goals are backed up by a series of meas-ures. For example, the EU guideline from 2001 for thepromotion of renewable energy in the electricity mar-ket sets indicative goals for the member states. In thisguideline, the share of renewable energy in the electric-ity supply should increase from 14% in 1997 to 22% in2010 (EU-15: 22%, EU-25: 21%). Another example is theguideline from 2003 in which renewable fuels shouldachieve a share of 5.75% by 2010. This guideline isflanked by a series of measures like the Biomass ActionPlan from 2005 or the further promotion of researchand development.

Without a doubt, all of these measures have led to suc-cess. Nevertheless, it is foreseeable that most goals willnot be achieved on time at the European level. A partic-ularly inhibiting element is that the development pro-ceeds differently in each of the individual member statesand that the required expansion dynamics are currentlylimited to a few countries. The imminent German EUCouncil presidency during the first half of 2007 shouldtherefore be used to achieve mandatory long-termEuropean expansion goals, to stabilise the overallprocess, and to involve all countries in this process.

Although the results of the present study provide a reli-able basis for strategic decisions, further research isnecessary. In some areas, the complex relationships areonly beginning to be understood. Starting points for fur-ther investigation are to be found both in the method-ology and in the content. Although it is possible to bal-ance the gross employment effects of renewable energyuse by employing official input-output tables, they arestill inevitably caught in the present interdependenciesbetween the economic sectors. It is therefore reasonablefor long-term projections to assume that the interdepen-dencies are not static and instead fit them to trendswhich can already be recognised, and also to study pos-sible structural changes, e.g. related to changes in theacquisition of preliminary products from abroad.Approaches in the balancing of net employment effectsshould proceed in the same direction, by more closelylinking national model systems to international modelsystems, so that the export chances for German compa-nies can be better analysed. For this purpose, a betterdefined identification of components and systemswhich are particularly interesting for exporting isnecessary and will also indicate where furtherresearch and development measures are required.Cues can also be taken from analyses of world tradeshares for renewable energy, like those already per-

formed for environmental protection goods, but whichare only in their beginnings for renewable energy.

Besides improving the methodological basics, the studyoffers a series of starting points for improving the data-base and for in-depth analysis. Since there are someuncertainties in the data basis, especially in the sectorof bio-energy carriers, conservative assumptions weremade regarding their monetary value and thus alsoregarding their impact on employment. It would there-fore be good to work through the data again, since bio-energy carriers represent an important sector of renew-able energy in Germany, to also include the value addedstructures for bio-fuels. Furthermore, the employmentimpact of some areas was neglected, since it wasnot possible to calculate their penetration withinthe framework of this study. Such areas include em-ployees in research institutes and public administration,but also predominantly the employees involved inthe construction of new production plants for man-ufacturing systems for renewable energy use. Thiseffect is not insubstantial, especially during capacityexpansion phases like those presently underway bothnationally and internationally.

The question of the past and present impact of a polit-ical instrument (especially the EEG) on the net employ-ment is also posed in the interest of energy policy. Inorder to formally and correctly answer this question, it would be necessary to consider a fictive “referencedevelopment” starting, for example, in 1990 to modelthe developments without the EEG or other instru-ments promoting renewable energy for comparisonwith the factual development until 2004. This casewould also involve observing the differences betweentwo different development paths, whereby one path hasa purely hypothetical character and several assumptionsmust be made to develop it. How would other supportprogrammes, which promoted renewable energy earli-er, have developed? How could foreign developmentshave influenced exports? Which energy carriers or sav-ings would have closed the gaps? Starting which yearcould the support have been discontinued? Resolvingthese questions would be a necessary start for the properanalysis of the employment effect of renewable energy.

This complex method, which bears the risk of arbitraryassumptions that cannot be verified by the real devel-opment in the past, was not chosen for this study. Theimpact of the expansion of renewable energy so far wasinstead indirectly approximated from the differences inthe future development of investment volumes, differ-ential costs, and energy amounts between the two sce-narios and from the gross employment determined for2004. Uncertainties arise through work productivity,investable energy prices, and other export relationswhich deviate from the past values. Taking these influ-ences into consideration, a positive net employmentbetween 35,000 and 40,000 employees can be derived forthe base year 2004 with a gross employment of 157,000.

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Published by: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)Public Relations Division • 11055 Berlin • GermanyEmail: service@bmu.bund.deWebsite: www.bmu.de/english • www.erneuerbare-energien.de

Editors: Dr. Wolfhart Dürrschmidt, Dr. Michael van MarkBMU, Division KI I1 “General and Fundamental Aspects of Renewable Energies”

Content: Dr. Frithjof Staiß (Project Manager), Dipl.-Ing. Marlene KratzatZentrum für Sonnenenergie- und Wasserstoff-Forschung Baden-Württemberg (ZSW), Stuttgart

Dr. Joachim Nitsch, Dr. Ulrike LehrDeutsches Zentrum für Luft- und Raumfahrt (DLR) Institut für Technische Thermodynamik, Abt. Systemanalyse und Technikbewertung, Stuttgart

Dr. Dietmar EdlerDeutsches Institut für Wirtschaftsforschung (DIW), Berlin

Dr. Christian LutzGesellschaft für wirtschaftliche Strukturforschung (GWS), Osnabrück

Survey: Bundesverband erneuerbare Energien e.V., PaderbornInstitut für Sozialforschung und Kommunikation, Bielefeld

Project duration: December 2004 to June 2006

Full version: This publication documents the summary of the research project “Wirkungen des Ausbaus der erneuerbarenEnergien auf den deutschen Arbeitsmarkt unter besonderer Berücksichtigung des Außenhandels”. The full version is available for downloading (in German) at the www.erneuerbare-energien.de website.

Contact: Dr. Frithjof Staiß, staiss@zsw-bw.de, Tel. +49-711/7870-210Dipl.-Ing. Marlene Kratzat, Marlene.Kratzat@zsw-bw.de, Tel. +49-711/7870-244

Design: 3f design, Darmstadt

Printing: Frotscher Druck, Darmstadt

English: Dr.-Ing. Theresa Magorian Friedlmeier

Photos: © Unternehmensgruppe Dezentral Energie (Title, Page 9)© Wissenschaftsladen Bonn, Wanderausstellung Galerie Zukunftsberufe, Fotostudio Wieland Bonn

(Page: 2_1, 6_2, 6_3, 10_1, 13, 14_1, 14_2, 17_2)© Nordex AG (Page: 2_2, 7_2)© Digital Stock (Page: 5, 6_1)© Informationskampagne Unendlich viel Energie (Page: 7_1, 8_1, 8_2, 10_2, 21)© KGW Schweriner Maschinenbau GmbH (Page 7_3)© PhotoDisc (Page: 8_3, 11, 12, 17_1)© ENERCON GmbH (Page16)© Vestas Central Europe (Page18)

Date: June 2006

First Print: 1,000 copies

IMPRINT A little more than 70% of this value is attributed to theimpact of the EEG, the remaining 30% is equally dis-tributed between the heat market (market stimulationprogramme) and the fuel sector (tax exemption).

It is recommended to continue the in-depth obser-vation of regional employment impacts, especiallyin the New German States. It is already now becom-ing apparent that the businesses involved in the pro-duction of systems for renewable energy use locatedin the New German States procure nearly 80% of theirpreliminary products from the other regions in Ger-many. A partial cause of this situation is that factorieslocated in the New German States have close businessconnections with western “parent companies”, likehappens for example in the wind sector. Anothercause, however, is that apparently companies in thewestern regions can look back on long-establishedsupply contacts, or that clusters have formed in localregions. A more extensive database would be neces-sary to clarify whether or not special promotion ofnetworks can contribute to the long-term creation ofmore value added in the eastern region. This aspecttherefore leads to questions of structural policy, whichis connected with the analysis of location factors forcompanies, and thus must also be seen in connec-tion with avoiding possible production outsourcingto foreign countries. Both aspects are parts of thequestion of how so-called lead markets can bedeveloped and secured in the sector of renewableenergy.

The development dynamics in renewable energy sug-gest that this process should be observed, especiallyregarding the impact on employment, and that surveysshould be performed regularly. The positive experiencewith the recent industry survey indicates that compa-nies are willing to support the monitoring measuresnecessary for the state and the economy to act concert-edly to correct erroneous trends and to selectively sup-port positive trends.

A growing number of studies confirm that a signifi-cant contribution from renewable energy sources willbe essential for solving or alleviating the energy supplyproblems pertaining to environment and climate pro-tection, reducing import dependencies, avoiding con-flicts over fossil resources, etc. Their significance is thusbeyond dispute. However, concerns regarding the nec-essary financial expenditures during the expansionphase, and the resulting burdens for some economicsectors, are expressed. These concerns are becomingless and less sustainable because they usually originatefrom a short-sighted national perspective, the interestsof individual economic sectors, or an assumption ofpermanently low energy prices. Recent developmentsin the global energy markets have demonstrated moreclearly than ever that long-term international solutionsare essential.

The present investigation demonstrates that the struc-tural changes in the energy supply associated with theexpansion of renewable energy can lead to remarkablemacroeconomic advantages in Germany in the mediumand longer term. The use of renewable energy has aprice-stabilising effect in the long run because itdepends primarily on technology developments and noton resources which are becoming exceedingly scarcer.Their expansion is therefore also an important compo-nent of a strategy for the future which depends moreon education, research, and technology development.At the same time, renewable energy can contribute tothe achievement of structure and regional policy goals.Most notably, however, the study demonstrates that theemployment perspectives related to the expansion ofrenewable energy are favourable, especially for foreigntrade. Although the success will not occur on its own,and many questions must still be answered, the condi-tions for German companies to profit from growth inthe international renewable energy market, and thus tosecure and create employment to a considerable extentmust be considered as very favourable.

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RENEWABLE ENERGY: EMPLOYMENT EFFECTS

Impact of the Expansion of Renewable Energy on the German Labour Market

Summary

Contact:Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)Public Relations Division11055 BerlinGermanyFax: +49 03 18 305 - 2044Website: www.bmu.de/englishEmail: service@bmu.bund.de

This publication is part of the public relations work of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. It is distributed free of charge and is not intended for sale. Printed on 100% recycled paper.