Economy
Five renewable energy lessons from Germany’s Energiewende
The goal of Germany’s Energiewende, or energy transformation, is for Europe’s most advanced industrial economy to be powered almost exclusively by renewables within four decades. Although often characterised as a ‘great experiment’ or ‘gamble’, the reality is that few countries are as likely to succeed in such an endeavour as Germany, given its wealth, engineering prowess and single-minded determination.
If all goes to plan, primary energy use in Germany will halve by 2050; renewables will provide over 80% of electricity; and carbon emissions will be down by 80-95%. This is a unique undertaking, not least because other countries with similar decarbonisation targets (like the UK) are pursuing nuclear power and carbon capture alongside renewables. Not Germany, however, where the Fukushima incident in 2011 catalysed the political decision to close all nuclear plants by 2022.
To date, progress on the ground has been almost as impressive as the overall ambition – Germany now gets 25% of its electricity from renewables. This is broadly where the UK plans to be by 2020.
So what lessons from Germany can inform the low-carbon transition in the UK and other countries?
We can manage a 25% share of renewables within our existing power system
Power systems were historically developed according to the principle that supply must always meet demand. Whilst this is relatively easy with conventional fossil fuel plants that can be switched on and off quickly, we cannot control when the sun shines or wind blows. Thus, dealing with intermittency is perhaps the fundamental challenge for a renewable-based energy system.
Nonetheless, the German experience shows that large modern energy systems can accommodate a 25% share of renewables. This is not to deny problems exist in Germany, but merely that grids are already designed to deal with fluctuations in supply and demand, and can cope with a bit more. This finding is backed-up by recent research by the UK Energy Research Centre which assessed the impacts of intermittent generation on the British electricity network (The Intermittency Report).
Managing larger amounts of renewables requires flexibility and more grid interconnections
As renewable penetration rises towards 50% and beyond however, more significant change will be needed. The Agora research institute – led by Rainer Baake, the ‘architect’ of the Energiewende – has recently articulated a hierarchy of actions to enable this shift.
First, more interconnection between countries is needed. In the future there will be more times when Germany produces more solar and wind energy than it needs. Interconnectors will allow this excess to be exported to meet demand in Scandinavia, for example, which in return can use its existing pumped storage hydro plants to export power back to Germany when required.
Next comes flexibility, which in the next decade or so will come from existing technologies and approaches. This includes retaining fossil fuel plants capable of firing up quickly, incentivising certain industries to shift usage to times when energy is abundant, and using Germany’s numerous combined heat and power plants to feed power into the grid at peak times.
Storage, with the exception of hydro power, is only likely to become more widespread in the long term. For now the relevant technologies are in their infancy. But they will be needed in the future as renewables reach a 70% share. Thus, Germany is investing in techniques such as ‘power-to-gas’, where excess renewable energy is used to make methane from water and carbon dioxide to be stored for future use.
A new kind of energy market is needed
The energy markets we have today in Europe were developed in the 1990s to suit a system already dominated by fossil fuels. In these markets, the wholesale price of electricity varies in relation to the costs of the final ‘top-up’ generator needed to meet demand at any given time. As a result, flexible but high-marginal cost fossil fuel ‘peaking’ plants are virtually assured of receiving the price they need to pay back their investment.
However this market design simply cannot work for a system with large amounts of renewables.
The basic problem may seem at first like a benefit: when the sun shines and wind blows, renewables lower the wholesale market price of electricity because higher marginal-cost fossil fuel generators are displaced. The more renewables there are, the greater this effect becomes. But this in turn leads to a number of unintended consequences.
First, lower market prices undermine the business case for the flexible fossil fuel generators that Germany will continue to need for many years to come, to provide power when renewables can’t. Right now, many of these plants can no longer earn a sufficient price to repay their costs, threatening further investment.
Second, although in Germany a lower wholesale price doesn’t currently affect the profitability of renewable generators (as they receive a guaranteed price for their electricity and can therefore pay back their high capital costs regardless), it does mean that the surcharge on German consumer bills must rise to cover the difference.
All in all, a new market design is needed. Solutions abound, but how they will work is currently the subject of intense debate in Germany.
People power and jobs are essential to maintaining public support
Superficially at least, the Energiewende is costing money. Subsidies to wind and solar power in Germany are met through a surcharge on consumer bills, and this has increased over time so that it now constitutes around a fifth of the price regular consumers pay for their electricity.
Yet despite this, Germans remain committed to their energy transition. And whilst some changes are expected after the federal elections this September, not one of the main parties is calling the Energiewende itself into question.
One reason for this is the extent to which ordinary Germans are benefitting from the expansion in renewables. For example, almost half the country’s renewable power capacity is owned by private citizens, meaning that for many Germans the supplement they pay out through their bills is later paid back through investment returns. Profits stay in local and often poor rural areas (see BBC’s recent Costing the Earth programme for more on this).
Another reason, according to Andraes Kraemer, a leading Energiewende thinker, is that the move to renewables is widely acknowledged as a major driver of economic development. Over 400,000 German jobs are now supported by the sector, Kraemer says, and once tax receipts and social security savings are counted, renewable subsidies are actually “fiscally positive” overall.
There will be difficult choices as to where the burden of costs fall
But even if the Energiewende is “fiscally positive” overall, the cost side of the equation must be met by someone, and where this burden falls is increasingly contested.
Currently, many energy intensive industries in Germany are exempt from the renewable supplement on bills, with normal domestic and business consumers paying more than they otherwise would. For this reason, many are now calling for industry to pay a greater share.
However increasing production costs for industry could be a risky strategy for a country whose economy is oriented towards manufacturing and exports. The advent of large scale shale gas production and falling energy prices in the US has intensified this debate, with the Federation of German Industries recently voicing concerns that German firms are already suffering from high energy prices and could be out-competed in the future if current trends continue.
Whichever way you look at it, the issue of cost is establishing itself as a central element to the energy debate in Germany. Addressing it fairly may be no easy task, but will be essential in maintaining widespread public and political support for the Energiewende.
Sam Friggens is a writer for renewable energy funding platform Abundance Generation. You can follow him on Twitter: @Sam_Friggens. This article was written with advice and assistance from Christoph Senz from ProCom GmbH, and originally appeared on EnergyPost.eu.
Further reading:
UK should follow Germany’s renewable energy lead
Germany sets solar benchmark over sunny weekend
Stuttering investment is putting EU renewables targets at risk