German government backtracks on the Energy Transition

July 12, 2012 | 00:00

German government backtracks on the Energy Transition

The "Energiewende" is still on the political agenda in Berlin, but there is also a firm amount of backtracking going on in the German capital. The Merkel government now stresses that fossil fuels will remain the foundation of German energy supply for many years to come. It has also announced it will produce a new national energy plan in 2013, "with support from all institutions". In the meantime, the energy transformation is entering a chaotic phase.

German Chancellor Merkel made the energy transition her personal project (c) Energy Online

At the annual meeting of the German Association for Energy and Water Industries (BDEW) at the end of June in Berlin, a common refrain was heard in almost every speech: "We need conventional energy."

And this call for fossil fuels didn't just come from the energy industry representatives at the convention. Germany's new Environmental Minister, Peter Altmaier (CDU), who replaced his fellow-CDU member Norbert Röttgen in May, stated that Germany's energy policy will not work without conventional energy sources for many years. His cabinet colleague, Economics Minister Philipp Rösler (FDP), saw things the same and underscored the importance of fossil energy for the future. The scenes were reminiscent of past emotional pledges to support nuclear power.

The BDEW sees the newfound political support for "conventional energy sources" as a sign that its lobby work has been successful. "A consensus has gradually come about. Everyone has learned something", Hildegard Müller, head of BDEW, stated in her opening remarks.

The CDU, the party in charge of the German government, is thus once again getting cozy with its main clientele - big industry. Industry was visibly relieved to receive this support, with Tuomo Hatakka, head of the traditionally nuclear-friendly power provider Vattenfall, openly stating, "We cannot do without coal. You can call it a bridge technology, but then it is a hell of a long bridge."

Has the industry learned nothing then? Is Germany about to once again phase out its nuclear phase-out? Well, not quite. The firms have at least learned to tone things down in public. As Müller put it, all BDEW members unequivocally support renewables.

Nonetheless, there was an astonishing amount of talk about conventional energy at the BDEW Congress. Environment Minister Altmaier even said he was against “discrimination against fossil energy” and declared that there is no such thing as good and bad energy sources when it comes to securing German power supply. Naturally, the companies applauded the statement, although they have a lot of other problems to deal with. “Here we are witnessing the making of grand policy. But it has very little to do with our everyday business”, a representative of RheinEnergie AG commented informally during the event.

Eco-pioneer

So where, then, is the German energy transition headed? Is it still true, as a strategy paper on the country's new energy policy put it, that "Germany has made a fundamental societal decision to get its energy from renewables in the future"?

Officially, nothing has changed in the government's energy policy. The country is still committed to its ambitious climate targets. By 2050, greenhouse gas emissions are to be reduced by at least 80 percent below the level of 1990. By that time, the country would also be getting more than 80 percent of its electricity from renewables. These targets are specified in Germany's Energy Concept 2010. It is a revolutionary step. And one with which Germany maintains its role as an eco-pioneer and international model for environmental and climate protection. If the plan becomes reality, in just a few decades, one of the world's largest industrialized nations will be getting most of its energy from wind, sun and water.

But the reality at the moment looks quite different. A number of newspapers and politicians are saying that the country's energy policy is chaotic. Companies paint apocalyptic pictures of regular power outages and unaffordable electricity prices. On the other hand, environmental protectionists and a

A number of newspapers and politicians are saying that the country's energy policy is chaotic. Companies paint apocalyptic pictures of regular power outages and unaffordable electricity prices
number of research institutes (such as Greenpeace and DIW, Germany's largest economic research institute) are publishing studies showing that it is possible to switch the entire economy over to renewables over the long term, with just a slight increase in power prices. In year 1 of the Energiewende, only one thing is clear: it has become the focal point of debate for all energy stakeholders in Germany. At the same consumers are hardly involved, if they understand what the debate is all about in the first place.

Grazing sheep

Merkel's Energiewende has to be understood in a historical perspective. Germany has been working for many years to increase the share of renewables in its power supply, with significant success. In particular over the past few years, the share of green power has really taken off, reaching around 20 percent now. But this growth has nothing to do with Merkel's policies. In fact, Germany's Energiewende already started in 1980. It got a real boost in 1998, the only time that the Social Democrats and Greens formed a coalition government. They used this opportunity, which lasted to 2005, to set a new course in energy policy. In 2000, the Red-Green coalition resolved to gradually phase out nuclear power.

When Merkel took office, however, she revoked the "nuclear deal" and extended the lifetimes of nuclear power plants. Then, after Fukushima, she did an about-face in the summer of 2011, announcing an end to all nuclear power by 2022 and launching a renewed energy transition. What was most significant about this, perhaps, is that now it was launched by a right-wing rather than a left-wing government.

German power producers tried hard to prevent this turn of events. The German nuclear lobby - especially the German Atomic Forum - spent millions on ad campaigns promoting nuclear power. Large posters showed sheep grazing peacefully with reactors in the background; nuclear-friendly politicians received well-paid advisory positions for their speeches; and money was transferred to private accounts. But in the end, it did not work. Though otherwise friendly to industry, Chancellor Merkel clipped the wings of Germany's large energy firms and - while the world looked on - made the energy transition her personal project.

Power rebels

It now turns out, though, that the enthusiasts for the Energiewende may have counted their chickens before they hatched. The German government seems to have rediscovered that Germany's four largest power firms - RWE, Eon, Vattenfall and EnBW - still dominate the power market, with a nearly 80 percent collective market share. They are therefore decisive players in the energy transition. All four firms continue to bank on fossil energy, even though they currently have no choice but to support the energy transition.

Indeed, policy reports about Germany's energy transition may sound impressive, but they have little to do with the everyday reality of German power supply. At present, nuclear power still makes up 18 percent of electricity supply, with renewables coming in at around 20 percent - and the remaining approximately 60 percent coming mainly from brown coal, anthracite, and natural gas. Indeed, the use of coal-fired power plants has been growing in Germany at the expense of more climate-friendly gas-fired capacity. In a recent report, Deutsche Bank predicts that 25% of German's gas-fired power plant capacity will be shut by 2015, and replaced by coal power.

Yet the Big Four are not as fully in control of the market anymore as they used to be. The liberalization means that a growing number of players have become active on the market. Smaller ones, such as green power provider LichtBlick AG of Hamburg or Energiewerke Schönau (aka the Power Rebels), continue to expand their customer base by offering green power - with the folks in Schönau even buying back their local grid and supplying the entire community with green energy. Some 3 million Germans have switched to a green power provider.

So the German energy market is changing, and renewables are increasingly shaking down the power market. Renewable power can also increasingly provide distributed electricity – from local wind turbines to solar roofs. The profits in this quickly

Germany's energy transition is not just a political transition, it also has a tremendous effect on the structure of the German energy sector
growing decentralized sector no longer end up in the pockets of big firms, who see their sales revenue drop considerably as a result. Last year, RWE posted a 17.5 percent drop in profits, Vattenfall 20 percent. Eon and EnBW suffered similar profit reductions. The advent of renewables and the nuclear phase-out are not the only reasons for this downturn, but there is no easy way for the Big Four to make up for the forgone profits from nuclear. It thus comes as no surprise that the large power producers remain lukewarm about the energy transition and are trying to at least keep the share of conventional energy at the current level as long as possible.

Germany's energy transition is therefore not just a political transition, it also has a tremendous effect on the structure of the German energy sector. In this complex environment, the German government needs to find common ground with such institutions as Germany's Federal Network Agency, which oversees German power lines, the major energy companies, which fear for their profits and market share, renewable energy suppliers and many other stakeholders - not to mention Brussels. As the borders between competition and regulation shift, every player tries to get its concerns heard.

Energy ministry

To make matters even more complex, the energy companies are also using the situation to restructure their business processes, shift business abroad, and announce job cuts. This at a time when tremendous investments are needed. The energy transition is going to cost Germany a lot of money. Some estimates go as high as 200 billion euros by 2050. The companies say that the government has to take the lead. But government officials are banking on market forces and free competition - which the firms say will only produce results if the price is right.

Sooner or later, a clear financing plan and a long-term energy concept will be needed. Neither currently exists. The German government says it will produce a national energy plan by the beginning of 2013 with support from all institutions. There are also calls for a central body to coordinate the energy transition, such as an energy ministry. But the Ministries of the Environment and Economics reject this idea and say current institutions suffice.

The German chancellor has at least promised to spend more time talking with the parties involved in the energy transition. In particular, meetings will be held four times a year with the German states (Länder) on this topic. The 16 German states play a major role in the energy transition and the structural changes that have to be made. If the local power system doesn't work and if people refuse renewables on their ground (e.g. protests against wind turbines), the energy transition won´t work at all.

At the same time, the energy companies are taking things into their own hands because they say politicians are moving too slowly. The German Industry Association (BIA), the largest industry lobby group in Germany, has founded its own Energy Competence Initiative for this purpose. Will the energy transition lead to massive chaos as some analysts fear?

Rules of the game

What is clear that for the energy transition to become a success, a number of issues will have to be urgently addressed over the next few years. The first one is a massive expansion of power lines and

What is clear that for the energy transition to become a success, a number of issues will have to be urgently addressed over the next few years

improvements in the storage of power. Already, the grid is often overloaded and power is exported at negative prices. The country needs 3,000 kilometers of new power lines. Once stable, the German power system now needs to be rescued hundreds of times a year to prevent power outages. For example, according to Tennet, one of the four transmission system operators in Germany, the number of network interventions to stabilize the power system rose to several hundred in the last year. Just a few years ago, grid operators only had to intervene around 15 times a year to ensure stable power supply.

Regional differences are another problem. Power providers say that wind power is the most important source of renewable energy, and they mainly plan to expand offshore capacity. All offshore potential is in the North, however, whereas most energy-intensive industry is in the South. It is as yet unclear how the networks can be expanded, who will pay for what, and who will own these news grids.

Then there are the support schemes for renewable energy that need to be renegotiated. In general, the future of the Renewable Energy Act (EEG) is uncertain. "The EEG will not get us to the end of the energy transition", argues the BDEW's Hildegard Müller. The German government basically agrees, so new legislation on renewables is likely. Gradual changes have already been made. For instance, feed-in tariffs for solar power have been controversial for some time now. At the end of June, an agreement was finally reached and a limit set at 52,000 Megawatt for solar feed-in tariffs. A lot of representatives of the renewables sector say this is "the beginning of the end of the EEG."

Coal and gas are to serve as bridge technologies. But coal is controversial because of its environmental impact. This could be addressed through carbon capture and storage, but the passage of a carbon capture law has been a difficult process. A draft law on CCS was approved by the Bundestag (lower house) last year, but rejected by the Bundesrat (upper house). In June, a parliamentary mediation committee approved a compromise that would allow for CCS on an experimental basis, but final passage of the law is not guaranteed. Moreover, the States still have room to reject CCS projects.

The gas sector has its own problems. Virtually no investments are being made in gas-fired power capacity, because it is not profitable in the current market circumstances. A higher price for carbon emissions would help, but this will only happen if the EU takes measures to "fix" the Emission Trading Scheme.

There is also a necessity to get consumers involved. "It seems that the energy transition will not really be taking place for consumers", says Gerhard Billen, head of the German Association of Consumer Advocates. In particular, there is a lot of room for improvement when it comes to energy efficiency, a crucial part of the German energy concept. Thousands of buildings need to be renovated, local public transport switched over, and power-intensive appliances banned from households. Already, according to reports in the press, rising power prices are keeping lights off in German households because a lot of people can no longer afford to pay their power bills.

Nonetheless, the energy transition also offers consumers opportunities, and they are increasingly taking advantage of them. In Berlin, a citizens group is currently trying to buy back the city's grid from Vattenfall, and a number of municipalities in Germany have been ramping up renewables for years. Customers may also benefit from the introduction of smart grids and smart meters over the next few years. Changes may also be expected if and when companies from outside the energy sector, e.g. software or telecommunication companies, start becoming active in the market.

The energy revolution thus still faces numerous uncertainties. Neither the rules of the game nor the players are clear yet. But the worldwide discussion about Germany's energy transition has at least put the subject on the global agenda. For many countries, Germany serves as a model, regardless of the problems it faces in making its energy dreams come true.

 

Germany's Gamble

For a very instructive analysis of the Energiewende, we recommend the recent paper by David Buchan from the Oxford Institute for Energy Studies "The Energiewende - Germany's Gamble."

Buchan argues that "Germany is on track to meet only one of its three main targets (a one-third renewable share of electricity by 2020), that the country will fail to reach the second target (to cut energy consumption by a fifth by 2020), and that this failure will make attainment of the third goal (emission reduction) harder".

Yet, he adds, that "in a broader sense, the gamble may still come off, provided future gains in renewable technology and jobs can be achieved with lower subsidy costs. No other country possesses Germany’s combination of technical expertise from industry and of bottom-up activism from municipal companies and citizens’ cooperatives in support of low-carbon energy." For example, he notes that private citizens own 40% of the country's renewable energy production capacity, largely through cooperatives.


Related articles on European Energy Review

Germany's stalled energy transition: waiting for the master plan

How Germany's powerful renewables advocacy coalition is transforming the German (and European) energy market


 

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