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Germany’s Energy Transition

Renewables will change the power systems

… in Germany, but also around the world

Renewables will change the power systems Renewables will change the power systems
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If you are involved in the energy business in one way or the other you will probably already have heard quite something about Germany’s energy transition. Indeed, there are a lot of myths around the Energiewende. Some call this energy transition a devastating move, making electricity expensive and insecure and thus destroying Germany’s industrial base. Others praise it as a model for the rest of the world towards a clean and cheap energy future.

It is our job at the Berlin-based think tank Agora Energiewende to analyse the state of play of the German energy system and to discuss future pathways and solutions. So, with this commentary I would like to give you in a nutshell our current insights into the Energiewende, with a focus on the electricity sector.

What does the German Energiewende in the power sector really mean?

The key feature of the Energiewende is to decarbonize the power sector without relying on nuclear energy. To achieve this, the share of power from renewables shall be increased from currently 25% to 40-45% by 2025, to 55-60% by 2035 and to at least 80% by 2050. In parallel, nuclear energy is to be phased out by the year 2022. These targets are part of German legislation and there is a broad consensus within the society on them.

The workhorses of the Energiewende are wind turbines and solar PV installations. Both technologies have proven to be cost effective renewable sources with ample supply. Power from new coastal wind turbines comes in at around 6€ct per kilowatthour (kWh) and from large newly-built solar power plants at 8 to 9€ct per kWh. This is the same range with what new gas or coal power plants need, assuming a realistic CO2 shadow price. Furthermore, it is way below the generation cost of new nuclear: The UK government has recently agreed a 35-year guaranteed price of 11€ct per kilowatt hour for its new Hinkley Point C nuclear power plant.

Wind and solar are of course intermittent energy sources. To provide security of supply one needs a backup technology and it is often said that expensive electrical storage – pumped hydro, batteries or power-to-gas – thus need to be implemented at large scale. However, this is not the case. Instead, up to a level of at least 60% of wind and solar, there are other, cheaper options to maintain the high level of security of supply that Germany enjoys, as a recent study for Agora Energiewende showed. More grids allow for more flexibility, conventional back-up capacities that are already in place can be kept online at low cost, or, as with new gas turbines, are fairly inexpensive to build. Furthermore, demand side management in industry allows for lots of flexibility options which are yet untapped due to regulatory hurdles.

Thus, the key feature of the new power system is flexibility –  fluctuating, whether dependent production of wind and solar meets flexible fossil fuel power plants, flexible demand, smart grids and existing storage capacities. Of course, such an optimized power system based on high shares of renewable energy comes at a price – but not a high one: The International Energy Agency recently concluded in its report “The power of transformation” that a wind- and pv-based power system is only 10 to 15 percent more expensive than a conventional power system.

Are the Germans with their Energiewende front-runners or outliers?

While Germany’s push for renewables has long being regarded as something special, the situation has just changed drastically. In 2013, the world’s newly installed renewable power generation summed up to more than all conventional power sources (coal, gas, nuclear, oil) taken together. In Asia, China is taking the lead. Last year, new renewable energy capacity there overtook thermal installations and even more aggressive targets for 2014 are in place. In the U.S., renewables accounted for more than 60% of new electrical capacity between mid-2013 and mid-2014, with solar and wind each accounting for more than a quarter of the total. The same picture applies for Europe. No wonder billionaire investor Warren Buffet announced in June that his Berkshire Hathaway company is to double its $15bn wind and solar commitment.

To conclude: Renewables were expensive, but they aren’t any more. Now they’ve become cheap, profitable and are taking off right around the world. Thus, Germans are currently front-runners, but the gap might soon close as other regions take up the pace – and there are lots of regions around the globe that enjoy more sun than Germany….

From 2001 to 2012, Dr. Patrick Graichen worked at the Federal Ministry of Environment: first in the area of international climate policy, then from 2004 to 2006 as Personal Assistant to the Secretary of State in the ministry, and from 2007 as Head of the Unit for Energy and Climate Change Policy. The Federal Environment Ministry has granted Mr Graichen leave for his work as Deputy Director at Agora Energiewende. At Agora he began working as Deputy Director. In January 2014 he succeeded Rainer Baake as Director of Agora Energiewende.

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