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Challenges

What really is at stake in Germany

Looking beyond the current fussy public discourse helps identifying the key challenges

What really is at stake in Germany What really is at stake in Germany
Collage: Energlobe

Since the Fukushima disaster in March 2011, a new buzz word made it into international policy: Energiewende – Germany’s outrages aspiration to phase out nuclear power and fossil fuels and strive for almost 100 per cent renewable electricity. Other countries are taking a very close look at what Germany is doing –watching it with an attitude somewhere between astonishment, disaffirmation and respect. To be fair, Germany is not the first and not the only country embarking on a renewable development pathway. Denmark and Portugal, for instance, have passed the 40 % renewable electricity threshold already, while Germany stands at 23%. However, Germany is an industrial giant; the fourth largest economy of the world. If any country can proof that decarbonizing highly industrialised economies on the basis of renewable energy is possible, than it is Germany.

The aim of phasing out nuclear power and developing renewables was first ratified by the German government in 2000. It was a highly contentious decision at the time. Since Fukushima, however, a broad consensus has emerged in the German Bundestag. All of the major parties – whether in the current administration or part of the opposition – have committed themselves to the Energiewende.

Two years have now passed since the Bundestag almost unanimously passed the Energiewende decisions, and the resolute mood in Germany witnessed in the weeks and months after the Fukushima disaster have given way to a measure of disenchantment. In particular, the costs of the Energiewende have been the subject of heated debate. Of course, these costs are an important issue, yet it was apparent from the beginning that the efforts required would be multifarious and large, and that the transition to renewables would not come cheap.

The effort to construct an electricity supply system based on renewables in a relatively densely populated country with a central European climate is no easy one, as there are clear restrictions on the sources of energy that can be developed. The potential for geothermic energy is rather small in Germany, as – perhaps fortunately – the country is quite boring from a seismic perspective. Hydroelectric power could be a candidate, yet there is a lack of locations available for the construction of hydroelectric power plants. The outlook for biomass is not much better. Biomass has already encountered major acceptance problems in Germany. Thus, only wind and solar are sufficiently abundant to meet Germany’s power needs. Accordingly, we can say with assurance that in Germany, the shift to renewable energies will succeed based on wind and solar, or it will not happen at all.

Both of these sources of energy have characteristics that are forcing Germany to reinvent its power infrastructure. First, energy generation is weather dependent, and it cannot be easily modulated to respond to changes in demand or wholesale prices. A second and associated characteristic of this weather dependence is that production yields can fluctuate rapidly. Third, wind and solar plants are capital intensive, yet have extremely low operating costs. As a result, after the initial investment in a plant, electrical power is virtually free over the next two to three decades.

Less than ten years from now, power production from renewables will exceed demand at various times during a given week – particularly during periods of peak demand in the middle of the day (because of photovoltaic). Yet there will be other times, especially during the winter, when renewables generate very small quantities of electricity. Thus, the Energiewende is first and foremost a problem of synchronization. How can we bring fluctuating production from wind and solar together with demand from consumers?

And – to make the task even more complicated – Germany’s Energiewende takes place in the European context. In fact, Germany is the most important producer, the biggest consumer and the key energy transition country in Europe with interconnection lines to all neighbouring countries. Furthermore, within the European internal energy market, Germany’s market is coupled with its Western neighbours already, and will be coupled to North, East and South in the foreseeable future. Thus, whatever Germany is doing will influence the systems of the surrounding countries. And whatever happens in France, Poland and elsewhere will have an impact on Germany.

Part of our mission at Agora is to develop insights that allow such questions to be answered. Yet equally as important is our quest to educate policymakers and business leaders about their role in the Energiewende. To this end, Agora tries to stay out of day-to-day political debates. Instead, our aim is to pave the way for the adoption of solutions. In this regard, we are not just focused on good solutions from a technical perspective, but also on solutions that are economically affordable. In our view, the following rule of thumb should apply in the efforts of policymakers to encourage the transition to renewables: foster as much competition as possible, and regulate only to the extent necessary. Indeed, it is the responsibility of policymakers to productively harness the competitive forces of the marketplace, thus enabling the best solutions to emerge.

In our “12 Insights on Germany’s Energiewende” we outlined a working program for achieving the transition to renewables over the next several years. This nearly 40-page publication, which was presented at the end of 2012, met with broad approval from political parties, associations, and the energy industry. We consider these 12 insights to be a solid foundation for achieving consensus regarding the proper trajectory of the Energiewende.

Starting from the basic recognition that a focus must be placed on developing wind and solar, the 12 Insights lay out in detail the changes needed to Germany’s energy system. With a system largely based on wind and solar, there is no longer room for “baseload power plants” that run on fossil fuels. However, power plants will still be needed to compensate for fluctuating generation from wind and solar, in order to ensure that power supply can meet demand.

To compensate for fluctuating generation from renewables, it will help to make the production and consumption relationship more flexible. For example, heat and power cogeneration plants and biogas facilities could be managed to produce power according to demand instead of the way they are set up now – i.e. continuously producing the same amount of power. Similarly, industrial and commercial customers could power on and power off their heaviest power-consuming machinery – such as refrigerators and compressor units – according to conditions in electrical grid. Implementing such flexible arrangements would require both legislative action and the creation of financial incentives.

The expansion of the electrical grid will be a key factor for the success of the Energiewende. The larger the area that is connected through high-voltage networks, the easier it is counterbalance fluctuating supply and demand – whether within Germany or across Europe. Large networks also make it possible to access more cost-effective options over great distances. Thus, when large amounts of power are being produced from wind and solar, electricity can be sold to neighboring countries. As early as 2020, it is anticipated that Germany will periodically experience 22-gigawatt power surpluses – a quarter of annual peak load. In an electricity system with a high ratio of wind and photovoltaic electricity, temporary surpluses are a normal occurrence. Yet a popular alternative to grid expansion – the construction of facilities to store surpluses of electrical power – would be many times more expensive. In fact, we will only need new storage technologies such as power-to-gas once renewables make up more than 70% of power generation. Until then, it makes more sense to fully utilize less expensive options.

Another economical solution would be to promote integration between heating sector and electrical grid. This is not a plea for the expanded use of night storage heaters. Instead, we advocate operating heat-and-power cogeneration plants according to electricity demand, and not according to the demand for heat. Heat can be stored easily and inexpensively – for example, using insulated water tanks. These plants could be used to absorb surplus energy from the power grid, and, in this way, conserve fuel at other locations.

In 2021 and 2022, the last and largest nuclear power plants in Germany are scheduled to shut down. Already today, the low wholesale prices for electricity on energy exchanges are discouraging investment in flexible backup capacities to supplement renewable energy. Worse yet, it is no longer economically profitable to operate many existing power plants. As a result, we can count on significant numbers of such plants being decommissioned.

We regard this prospect as highly dangerous. If we rely on the market to assure system reliability and fail to intervene, this could lead a situation in which sufficient controllable production capacities are not available at all times – that is, fossil-fuel power plants and storage facilities on the supply side, and, on the demand side, shiftable loads. A consequence will be the threat of blackouts during peak load periods. Ultimately, this could even jeopardize the phase-out of nuclear power.

One possible response would be to pass a regulation that forbids the decommissioning of a systemically relevant power plant. Naturally, operators would have to be compensated for such an encroachment on their property rights. An alternative would be a capacity market, developed by harnessing the creativity of the free-market. A government agency could define the necessary controllable capacity for preventing blackouts and solicit bids for the most cost-effective solutions. Yet the demand side would also have to be integrated. Indeed, if it is more cost efficient to shift the timing of demand than to maintain a power plant to cover a few hours of peak load, why not select such an approach?

The primary tool used in Germany to promote the development of renewables – the German Renewable Energies Act – will also need further refinement. Changes are needed in order to take into account the specific characteristics of wind turbines and photovoltaic power plants. Current law will make it impossible for these power plants to recoup their costs on the electricity power market of the future – even if their total costs per kilowatt-hour fall below those of coal and gas power plants. Why? Because wind power and photovoltaic plants have virtually zero short-term operating expenses or marginal costs. Thus, in a spot market based on marginal costs, these plants bring about a price collapse. This effect becomes more pronounced as more wind turbines and photovoltaic plants are constructed. When a lot of wind and sun is available, they are unable to earn any money, since the wholesale price drops nearly to zero. And when there is no wind blowing and the sun is not shining, they cannot sell any power.

This is not to argue that government-mandated feed-in tariffs should continue forever. It is an argument, however, against the mistaken belief that a decrease in the costs to construct wind turbines and photovoltaic plants is the only thing required to straighten out the market. In the same way that we must build an additional income stream for conventional power plants as a way of setting aside controllable capacities to assure continued security of supply, we also need to provide an additional revenue stream for renewable energy besides revenues from the electricity market. Otherwise the Energiewende will come to a standstill.

We would be a bad partner to the rest of Europe as well as stupid if we regarded the Energiewende as an opportunity to transfer responsibility for energy policy away from the EU and back to Germany. All of the measures cited above would be easier to implement and more cost-effective if they were conducted in the European context. Thus, in the mid-term we strive for European solutions. However, in the short term, we do not see the political momentum that takes us to the next level of European integration in the energy sector. In order to help creating this momentum, we will encourage policy makers to cooperate with those member states that pursue goals similar to Germany’s to develop and test new policies We will engage in constructive dialogue with countries following different decarbonisation pathways to find ways of alignment. And we will work with European institutions to prepare for fostering European integration in the energy sector.

Even if the task ahead is large, it is not without precedent. If we take a look back at the history of Germany’s power supply system, it is clear that changes have taken place in every era. It has always been a matter of adapting the system to changing conditions and needs. 

  • The first transregional high-voltage network in Germany was built in order to connect the power plants near the Rhenish-Westphalian coal fields to the hydroelectric plants in the Alps – a project that truly involved entering uncharted new territory.
  • Between 1977 and 1989, when a new nuclear power plant went online virtually every year, the electrical grid was expanded to an extent scarcely imaginable today: more than ten thousand kilometers of new high-voltage power lines were constructed in Germany during this period. By comparison, the infrastructure changes required by the Energiewende seem rather small.
  • The last major change in the system was the liberalization of the electricity market. A regulatory design for the market was conceived, market rules were established, and an electricity exchange came into being. There is nothing to stop us from changing the market again in the face of changing needs. In the past, these challenges were successfully surmounted – indeed, Germany’s electrical supply system is among the most secure and reliable in the world. With a measure of resolve, the Energiewende can succeed as well.

Rainer Baake is Director of Agora Energiewende in Berlin, Germany

»THE CRISIS IN THE CONCEPT OF THE

WORLD ORDER (IS) THE ULTIMATE

INTERNATIONAL PROBLEM OF OUR DAYS.«

Henry Kissinger,„World Order“, August 2014