While the success of the German Renewable Energy Sources Act in supporting the use of renewable energy sources for electricity generation is widely acknowledged, it is partly criticised for imposing unjustified extra costs on society. Based on the well established ExternE methodology for the quantification of environmental externalities the paper makes an attempt to estimate the external costs avoided in the German energy system due to the use of renewable energies for electricity generation, and to compare them against the compensation to be paid by grid operators for electricity from renewable energies according to the Renewable Energy Sources Act. In spite of existing uncertainties associated with the assessment of external costs, results clearly indicate that the reduced environmental impacts and related economic benefits do outweigh the additional costs for the compensation of electricity from renewable energies. (C) 2002 Elsevier Science Ltd. All rights reserved.