The Energiewende in a nutshell: 10 Q&A on the German energy transition provides a handy snapshot of where the Germans have got to in their pioneering efforts to dispense with both fossil and nuclear power and switch to renewables. The overview, summarised below, has been produced by Agora Energiewende, which describes itself as a “think-&-do-tank”, and is a joint initiative of the Mercator Foundation and the European Climate Foundation.
Question 1: What is the German Energiewende?
The Energiewende – transition to renewables while dispensing with fossil and nuclear power – can be considered to have started decades ago, having its roots in public opposition to nuclear power, in the sustainable development movement, and in public support for action on climate change. A broad consensus has emerged on the need for this transformation, says Agora.
Agora summarises key Energiewende targets in the table, right.
Question 2: How is Germany progressing with its Energiewende?
Renewable energy has become a key pillar of the power system (see Figure 1). In 2016, renewables accounted for about 30% of Germany’s power production.
After years of falling costs, wind energy and solar PV have become the backbone of the German power system transformation.
Historically, power generation in Germany has been based on hard coal, lignite and nuclear. The German electricity mix has undergone significant diversification over the last twenty years. This evolution is characterised by:
- A substantial increase in renewable generation (from 3.6% of power production in 1990 to 29.5% in 2016, corresponding to 32.3% of national power consumption).
- A progressive phase-out of nuclear power (13.1% of domestic power production in 2016, down from 27.7%in 1990).
- But continuing large-scale generation using lignite (23.1% in 2016) and hard coal (17% in 2016), with lignite power production remaining almost constant over the last twenty years and hard coal slowly declining. In 2016, declining power production from nuclear, hard coal and lignite (about 20 TWh down compared with 2015 levels) was offset by an increase in production from renewables (+4 TWh) and natural gas (+16 TWh).
Since 2014, renewables have produced more electricity than lignite.
Wind energy and solar PV are still the two renewable energy technologies with the largest growth potential in Germany, far ahead of other renewables such as biomass, hydro, marine energy or geothermal, Agora believes.
The further growth potential of biomass is limited because of costs, land-used constraints and sustainability concerns, says Agora.
Wind and PV have undergone considerable development primarily thanks to the feed-in tariff system introduced by the German Renewable Energy Act (EEG).
In recent years the costs of these technologies have dropped dramatically due to technological progress and economies of scale. Cost declines have been particularly dramatic for solar PV, which experienced an 80% decline between 2005 and 2015. Agora says wind and PV are now competitive with conventional energy sources for new investment: in 2016 generation costs in Germany stood at 5–9 cts€/kWh for wind and 6–9 cts€/kWh for PV. Moreover, future cost declines are expected, according to Agora Energiewende.
In 2016, the cumulative installed capacity of those two technologies exceeded 89 GW (onshore wind, 44.8 GW; offshore wind, 4.1 GW; PV, 40.4 GW).
Question 3: Does Germany import nuclear and coal generated electricity from neighbouring countries to compensate for the nuclear phase-out?
No, says Agora. Germany has been a net exporter of power to its neighbours since 2003, reaching a new export record in 2015. Germany has been a net exporter of electricity since 2003. This trend has accelerated since 2011, despite the closure of eight nuclear power plants in the wake of the Fukushima disaster.
Germany is a strong exporter because it has the second-lowest wholesale power prices in Europe after Scandinavia. These low prices are attributable to the rapid expansion of renewable energy, a competitive generation mix, stagnant power demand, and the current high competitiveness of coal power in the context of very low carbon certificate prices in Europe, says Agora.
Question 4: Have electricity prices for German households risen due to the development of renewables?
Partly yes, says Agora Energiwende. As an early mover, Germany began developing renewables when they were relatively expensive, creating costs that will be borne by German consumers during years to come. However, this early commitment to renewables has contributed to their declining cost worldwide. Following years of increases, electricity prices for German households have been relatively stable since 2013, as new renewable plants are now comparable in cost to new conventional power plants. Furthermore, total electricity bills in Germany are comparable to those in other industrialised countries, as German households are relatively more efficient and consume less electricity (see table, left).
However, German consumers do pay one of the highest electricity rates in Europe, currently about 0.30 €/ kWh. Retail electricity is only more expensive in Denmark.
Meanwhile, energy intensive industries in Germany pay among the lowest electricity prices in Europe, benefiting from exemptions and falling wholesale electricity prices.
Retail power prices have increased by about 50 per cent since 2007 (in nominal terms), due to a continuous increase in almost all price components, including the levy for renewable energy, grid tariffs, and various levies and taxes. The “EEG surcharge,” a fee that is added to power bills to finance renewable energy has risen continuously over the years and is currently set at € 6.88 cents per kWh (for a total of 24 billion euros in 2017). The EEG surcharge covers the difference between the cost of generating one kWh of renewable electricity (ie, the feed-in tariff paid to the producers) and the revenues from selling this kWh on the wholesale market. The surcharge increased at a particularly fast rate between 2009 and 2013, due to a sharp increase in the deployment of solar PV when the costs of this technology were still very high. These “historic costs” will continue to be paid by German consumers in years to come as German law guarantees payment to solar PV producers for a twenty year period. On the other hand, renewable energy expansion has contributed to lower wholesale market prices, partially offsetting the high EEG surcharge. As an early mover, Germany invested heavily in renewables when they were still quite expensive. While this has created burdens for German consumers, it has contributed to falling technology prices worldwide, says Agora.
Household electricity prices have been relatively stable since 2013, see Figure 2. Electricity prices are expected to increase only slightly in the years to come, as the major cost drivers belong to the past, notes Agora Energiewende.
The cost of solar PV has decreased significantly in recent years and will no longer be an important cost driver. Furthermore, the latest reform of the Renewable Energy Act (EEG 2017) has introduced a more competitive support system (based on auctions, see pp 20-22) in order to bring costs down even further. The EEG surcharge is expected to increase only moderately in the years to come.
It is expected to reach a maximum of € 8 cents per kWh in 2020 and then decrease as consumers are no longer required to pay for the oldest (and most expensive) renewable capacity, installed in the 2000s. The main reason for the continued increase until around 2020 is the development of offshore wind, a relatively expensive emerging technology. The EEG surcharge should decline to € 4.5 cents per kWh in 2035, when 60%of power will come from renewables.
Question 5: Have German CO2 emissions increased because electricity production from coal has risen?
Not really, says Agora Energiewende. In 2016, after declining for three consecutive years, coal-fired power generation and CO2 emissions in the power sector were below their 2010 levels. However, German greenhouse gas emissions have slightly increased over the past three years because of insufficient emission reductions in the heating, transportation and industrial sectors. Nevertheless, the strong competiveness of coal power has had a negative impact on Germany’s overall CO2 emissions. In order to meet its climate targets, Germany needs to gradually phase-out coal power, says Agora.
The most recent investment decisions for new coal power plants in Germany were made around ten or more years ago. One of those projects (the much delayed Datteln 4) is still under construction (see p 25), but otherwise there are currently no plans to build new coal power plants in Germany.
The CO2 emissions of the power sector increased in 2012 and 2013, despite the development of renewables and increased energy efficiency (the “Energiewende paradox”). These high emissions are explained by the competitiveness of coal power plants, which are still responsible for 40% of total electricity generation in Germany. As a consequence of low coal and CO2 prices, coal power production levels in Germany have been high, crowding-out less polluting natural-gas power plants, both in Germany and in neighbouring countries. This has led to high CO2 emissions as well as historically high exports (with benefits for neighbouring countries, which profit from lower electricity prices). Since 2014, however, coal-fired power production and the CO2 emissions of the power sector have been slightly declining: renewables and reduced power demand are now crowding out hard-coal power plants, leading to an overall decrease in domestic CO2 emissions. Furthermore, in 2016, the decline of fossil fuel prices favoured gas power plants over old coal power plants, leading to a further decrease in CO2 emissions.
The emissions of the power sector are expected to decline further in a business- as-usual scenario, by about 40 Mt of CO2 by 2020. However, this declining trend in the power sector is not sufficient to meet the 2020 reduction targets, leaving further reduction efforts necessary. A set of complementary policy measures have been adopted in order to close this gap, including the retirement of old lignite power plants (2.7 GW, about 13% of old lignite capacity in Germany). Once off the market, these plants will remain for four years in reserve and will only be activated if there is a danger of a severe power shortfall. After four more years, the plants will be shut down permanently.
Question 6: How has the German Energiewende impacted the domestic economy?
The development of renewables and promotion of energy efficiency have stimulated significant investment, encouraging employment and growth. However the Energiewende is crowding out investment and employment in conventional energy sectors. Furthermore, energy intensive companies are shielded from rising power costs, in order to preserve their competitiveness and prevent industrial flight. Thanks to energy efficiency, Germany has successfully decoupled economic growth from energy consumption, says Agora Energiewende (see Figure 3).
Question 7: Is security of supply in Germany threatened by reliance on renewables?
No, says Agora, arguing that, although renewables are currently responsible for 32.3% of electricity consumption, the German power system is currently one of the most reliable in the world, with a very low level of unplanned capacity shortages (12.7 minutes in 2015). By way of comparison, US capacity shortages were approximately 10 times higher, says Agora. Some regional constraints on the grid – especially on the north/south axis – nevertheless make various active grid management measures necessary to ensure system stability, including the “redispatch” of conventional generation and, as a measure of last resort, curtailment of variable renewables. Furthermore, increasing the level of interconnection between Germany and its European neighbours has improved security of supply, while facilitating the incorporation of fluctuating renewables. Moreover, several reserves (capacity, grid and standby reserves) have been introduced to ensure supply security in “emergency situations”.
They are meant to address the political fears that an energy-only market might be unable to guarantee security of supply needs. In addition to allaying fears, the grid reserve has the purpose of alleviating north–south grid congestion in Germany.
As intermittent renewables currently represent 18% of power consumption in Germany, conventional power plants have to respond flexibly to rapid changes in power supply and demand. At present, the German power system offers abundant technical potential for flexibility (much higher than the actual demand for flexibility). Conventional power plants are already being operated in a flexible manner to manage variable feed-in. Several other flexibility options exist to incorporate variable energy sources into the power system. These include, for example, demand-side management, the expansion of grid infrastructure (including smart grid solutions) and, in the long-term, expanded storage capacities. This paradigm shift will become increasingly important as Germany moves towards more than 50% renewables by 2030.
Against this backdrop, incentives to promote market efficiency are being redesigned within the scope of new electricity market legislation. Market prices need to reflect the benefits of flexibility, while priority must be given to the gradual phase-out of inflexible baseload supply.
The German power system has already experienced several extreme situations in connection with the variable feed-in of renewables, Agora notes. On the 8 May 2016, renewables covered up to 86.3% of German electricity demand.
Yet variable output must not be confused with uncertain output, cautions Agora, as the forecasting of wind (see Figure 4) and PV generation has made significant progress.
A good example of an extreme situation is the solar eclipse of 20 March 2015. Due to the eclipse, electricity production from solar PV dropped by 5 GW within 65 minutes, and ramped up again by 13 GW within 75 minutes. To manage the impact of the solar eclipse, transmission system operators across Europe co-ordinated system operations ahead of and during the event. Furthermore, flexibility was traded on short-term markets. As a result, electricity supply remained stable during the hours of the eclipse. While such steep fluctuations in feed-in are unusual today, they will occur more frequently in the future when the renewables percentage is higher.
Question 8: Are German citizens and the business community supportive of the Energiewende?
German citizens strongly support the Energiewende. However, only about 50% of Germans think the Energiewende is properly managed. Currently, about 1.5 million PV systems and 26 000 wind turbines are installed in Germany. In contrast to conventional thermal generation, this renewable capacity is deployed in a highly decentralised patchwork of small- scale facilities. This diversification of the power mix has affected the ownership structure of power plants in Germany. A large share of these renewables were financed and are currently owned by non-utility players, including households, farmers, and energy co-operatives. In 2012 (latest data available), such citizen-owned projects accounted for 47% of all installed renewable capacity in Germany, while utilities only had a market share of around 13% (see Figure 5). This unique ownership structure is one reason for the broad support enjoyed by the Energiewende.
Question 9: What is the current status of the north–south transmission grid expansion?
Upgrading the electricity grid is crucial for the future of Germany’s power system. But the build rate to date has been very modest. To ensure the reliable operation of the grid in southern Germany, reserve power plants (known as grid reserve capacity) are brought on line when congestion prevents sufficient electricity flow from northern to southern Germany. However, new regulations aim to accelerate and better co-ordinate grid expansion.
The rapid development of renewables, especially wind energy in northern Germany close to the coast, as well as the progressive phase out of nuclear power, has left Germany with a mismatch between the location of power generation and the location of its consumption. To address this problem, Germany’s north–south transmission lines need to be expanded.
The federal grid expansion plan (NEP) sets forth the expansion and reinforcement measures required over the next ten years. The latest plan foresees around 8000 km of new transmission lines (comprising 43 individual projects). As of 2016, only 700 km had been built.
The low-voltage distribution grid must also be expanded and reinforced, says Agora Energiewende as a large share of onshore wind and photovoltaics are directly connected to the low-voltage grid. Local resistance to expansion measures has led to numerous construction delays. Building consensus at the local level through enhanced dialogue with a variety of stakeholders will be essential for improving public acceptance for grid expansion projects, Agora Energewende notes.
The grid reserve provision was enacted into law in 2012. As already noted, it aims to provides extra power when congestion prevents the flow of enough electricity from north to south. In this way, it ensures reliable grid operation in southern regions. The grid reserve consists of power plants in southern Germany and in neighbouring countries that would otherwise be non- operational or shut down.
For winter 2016/17, the Federal Network Agency set aside 5.4 GW for the reserve. By winter 2018/19 this figure is expected to fall to around 1.9 GW thanks to newly constructed power lines, including in particular the Thuringia Electricity Bridge.
Energy regulation reforms adopted in 2016 (EEG 2017 and the new Electricity Market Act) have introduced various instruments to accelerate grid development and better co-ordinate grid planning and renewables expansion. The new regulations seek to address the ongoing delays to grid development. The new legislation provides three answers to the challenges facing the grid:
- Expansion of underground powerlines. The current NEP stipulates the installation of underground power lines in order to increase popular acceptance of expansion measures. High-voltage DC transmission lines must now be run underground instead of via transmission towers. In addition, AC grid expansion projects now have the option of underground installation in certain areas. However, the use of underground power lines can lead to considerable additional costs compared to transmission towers.
- Peak shaving: an instrument for grid planning. The Electricity Market Act has introduced a new instrument for grid planning, namely “peak shaving”. Previously, grid expansion followed the premise that the grid should absorb every kWh produced. This meant that the infrequently occurring feed-in peaks from wind turbines or PV were responsible for dimensioning the grid expansion. This approach, referred to as “until the last kilowatt hour”, is neither fair for residents affected by new power lines nor economically efficient, Agora observes. The new approach now in place allows transmission system operators to curtail up to 3% of annual renewable output in their grid requirement calculations, which reduces the cost of grid development by about 20%. This grid expansion principle makes more economic sense for the overall power system, says Agora.
- Limits on additional onshore wind turbines in grid expansion areas. Transmission systems in some regions of Germany are currently under significant strain. In these areas, grid congestion, throttling-down measures such as redispatching and feed- in management for renewables are increasingly common. A new review instrument has been introduced in the latest renewable energy act (EEG 2017) to limit the installation of additional onshore wind turbines in places where the transmission grids are nearly overloaded.
Question 10: Why did Germany reform its renewable energy legislation and introduce an auction system?
The latest German regulatory reforms, in 2016, aim to pave the way to higher shares of renewables, both at a steadier pace and at lower cost. The new system, based on auctioning, introduces more competition to the process of granting guaranteed remuneration to renewable energy producers. Because the German renewable energy sector is already relatively mature and competitive, this new system should deliver further cost decreases, says Agora, while enabling improved integration of renewables into the power system.
Since the 1990s, the expansion of renewables in Germany has been promoted via various regulatory tools, most notably the EEG (German Renewable Energy Act). It guarantees reliable investment conditions to producers of renewable electricity. The EEG has been continuously modified over the years. Each new set of rules has sought to stimulate innovation, to speed up technological development and cost degression, and to improve the integration of renewables into the grid and market. Thanks to this support scheme, the share of renewables has grown continuously, from 6.5% in 2000 to 32.3% in 2016, and renewables have become a mature market. With each new set of EEG rules, the mid and long-term targets have been raised.
In 2016, the German government amended the renewable energy act, as well as other key energy regulations. The core change to the Renewables Energy Act is that support for renewables will now be mostly determined by market mechanisms, by means of an auction system, rather than being fixed by the government through the feed-in tariff system. According to the German government, this new auction system will ensure that the expansion of renewables proceeds at a steady and controlled pace and at low cost. The new act, EEG 2017, entered into force in January 2017.
While the German government sees the new legislation as a fundamental and indispensable requirement for the successful continuation of the Energiewende, others fear a slowdown or even a failure of the country’s transformation efforts, Agora notes. While the new regulations will change little for consumers and the economy as a whole, they will have major implications for large parts of the energy industry.
EEG 2017 reaffirms the objectives of renewables development in Germany. Like the former Act (EEG 2014), it calls for a rise in the share of renewables in gross electricity consumption, from 32.3% in 2016, to 40–45% by 2025, to 55–60% by 2035, and to at least 80% by 2050. EEG 2017 also stipulates the annual new capacity to be added for individual technologies.
Starting in 2017, a competitive auction system is now the main instrument for financing large wind energy (see pp 20-2), photovoltics and biomass projects.
Funding for renewables is to be determined by competitive bidding for a market premium that will be guaranteed for a period of 20 years from the start of energy production. The details of this auction mechanism were developed after a pilot phase for solar PV in 2015 and 2016. The auction system covers onshore and offshore wind farms and solar power installations with an installed capacity of over 750 kW, as well as biomass plants with an installed capacity of over 150 kW. The feed-in tariff system has been preserved for small installations. Consequently, the private operators of small rooftop PV installations are practically unaffected by the new auction system. However, the German government assumes that more than 80% of future added capacity will be put out to tender.
Various instruments have been introduced to better co-ordinate planning for grid and renewables expansion. The new regulations will also affect the choice of location for new facilities. For many years now, large numbers of new wind turbines have been erected in northern Germany, despite a lack of grid expansion on the north–south axis. Starting in 2019, wind turbine expansion in Northern Germany is likely to slow considerably. Instead, more wind turbines will be added in central and southern areas.
EEG 2017 explicitly acknowledges the role of citizen-owned renewables. EEG 2017 aims to make it easier for small onshore wind projects owned by citizens to access the auction system. In the event they win the tender, they also receive the highest market premium that was bid in the auction.
This special rule is designed to compensate for the structural disadvantages that energy co-operatives have relative to institutional investors. Whether the new regulations suffice to keep these small players in the game (the new EEG is the first EEG to explicitly define them) will only be clear after the first auction rounds have been completed, Agora Energiewende concludes.