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The Official Explanation for the German Energy Transition

By Bentham Paulos, Project Manager, America’s Power Plan

In a recent posting, John Farrell of the Institute for Local Self Reliance lays out three clear drivers for why Germans are going renewable at all costs.  He lauds their focus on bills (rather than rates), a clear long term energy policy, and the widespread participation in the energy economy facilitated by feed-in tariffs.

Another side of the coin is what the politicians think of the energiewende.  Critics abroad seem convinced that German leaders will come to their senses and change course on energy.  Based on what the leaders say in their official documents, these critics are likely to be disappointed.

First, some background.  There are two federal ministries responsible for energy, the Ministry for Environment, Nature Conservation and Nuclear Safety (BMU) and the Ministry of Economics and Technology (BMWi).  Until the recent election these were headed by Peter Altmaier and Phillip Rosler. (Rosler has resigned due his party’s loss in the recent election.)

With near unanimous support, the German parliament adopted legislation in 2010 that sets ambitious targets for carbon reductions, renewable energy and energy efficiency, and commits to a phase-out of nuclear power.  According to Altmaier, the environment minister for the Merkel Administration, “this is unprecedented and brings to an end decades of public debate in Germany.”

While much international attention is paid to the rapid growth of solar energy and the phaseout of nuclear power, the legislation is a comprehensive energy policy, covering transportation, heat, and electricity use across the whole economy.

German Energy Policy Goals

German energy policy goals

Source: Dr. Martin Schöpe, Federal Ministry for the Environment

Now that the political debate about whether is over, the issue now is how.  Most of the debate hinges on how to minimize costs.

“The bulk of our energy is to come from renewable sources by the middle of the century,” writes former economics minister Peter Rosler.  “At the same time, Germany is to remain a competitive business location.  This requires a complete restructuring of our energy system.”  With typical German practicality, member of parliament Hans-Josef Fell has said, “This is not a problem, it is a task.”

What’s the Rush?

While many countries have clean energy goals, Germany has gone farther and faster than most.  What motivates German politicians to move so aggressively?

In official publications, Altmaier and Rosler’s ministries have laid out “five good reasons for transforming our energy system.”

1. Responsibility for the future

“A policy of responsibility for the future, policy that also takes account of the interest of our children and grandchildren, means that wherever technologically and economically feasible it is our duty to choose an alternative form of energy supply.” The multiple meltdown at Fukushima, only six months after the adoption of the German energy policy, compelled the Merkel Administration to close seven nuclear plants right away and phase out the nine remaining plants by 2022.  The anti-nuclear movement in Germany is strong, motivated by the Chernobyl disaster of 1986 – less than 800 miles from Berlin – and perhaps by a lingering distrust of authority from the days of the Nazi regime.

2. Protecting the climate

Germany has committed to reducing carbon emissions 40 percent by 2020 and up to 95 percent by 2050, economy wide.  Transforming the energy system enables Germany to capture the “positive dynamics of renewables and a modern energy infrastructure.”  In other words, getting ahead of the challenge allows for an orderly transition and plays into German strengths in technology development, manufacturing, and export.

3. Supply security, competitiveness and cost stability

Germany imports 97 percent of its oil, 90 percent of its natural gas, and two-thirds of its hard coal. Europe is expected to increase total energy imports from 53 percent in 2010 to 70 percent in 2030.  Increasing competition for energy from emerging economies like China and India, coupled with limited supplies, “are good reasons to develop new energy sources,” according to Altmaier.  With increasing global demand for energy, German industry will face greater competition, higher prices, and less stability.  By setting long term energy policy, the government can create “planning certainty for industry.”

At the same time, “in a highly industrialized country energy not only has to satisfy the high demands of industry and be available in sufficient amounts at all times, it also has to remain affordable.”

The main policy tool for renewable power, the feed-in tariff (FIT), pays renewable producers a fixed amount for 20 years.  This predictability results in low financing costs, which lowers the cost of capital-intensive renewables.  The tariff prices are adjusted down as technologies mature to reduce total costs.  As renewables scale up, there is an ongoing debate about the evolution of feed-in tariffs. New solar tariffs are less than the retail price of electricity, making it more attractive to self-generate than sell into the grid.  Some technologies are in the process of “graduating” from the FIT market to the competitive wholesale market.  Already, about half of renewables are sold through the power exchange, including 80 percent of onshore wind.

While the Merkel administration is keen to lower costs, they have shown little inclination to back away from the goals.

4. Growth and new jobs

Like many countries, German energy policy is an arm of their industrial and competitiveness policy.  Major corporations like Siemens and BASF, along with many smaller companies, are selling clean energy technology around the world.  A strong domestic policy is a good way to give these companies a local market to incubate new technologies and experience.  Jobs in renewable energy have grown 129 percent since 2004, employing over 370,000 people.

5. Greater public participation

As John Farrell points out, German energy policy is explicitly encouraging citizen investment in renewables.  Over half of renewable energy projects are owned by individuals and farmers, amounting to over $100 billion of investment.  This shares the wealth, but also creates important side benefits.  German energy policy is strongly pro-competition, as power markets have been deregulated since 1998. Citizen ownership has taken a 20 percent bite out of utility market share, creating a major form of competition.

Energy investment helps keep rural Germany vital too, maximizing economic development and reducing controversy over siting new projects. Like in the US, crop subsidies can only go so far in alleviating rural poverty.

And considering that Germany was reunited less than 25 years ago, the government may be hoping that the energy transition can mend the fabric of the nation. “It is a chance for our society to come together in a unique joint action,” writes Altmaier.  “It is a major joint national project.”
 
Livestock producer near Husum, Germany

Rural prosperity: A producer of livestock, biogas and solar energy, near Husum.

Content Discussion

Bob Meinetz's picture
Bob Meinetz on November 4, 2013

Bentham, you write that

“…while many countries have clean energy goals, Germany has gone farther and faster than most.”

It’s true that the buildout of renewable energy in Germany is unprecedented, but equally false to conclude that the result is cleaner energy. Germany’s carbon emissions were up 2.5% in 2012, and three brand new coal plants are entering service in December alone. Integration of renewables has hit the industry hard; Bloomberg reports today that utilities have lost 34% of their value against the stock market, a trend which can’t continue indefinitely. In unimportant metrics like nameplate capacity Germany has gone far, while critical measures like profitability, reliability, and carbon emissions continue to disappoint.

Your statement that

“Now that the political debate about whether is over, the issue now is how.

reminds me of bills passed in the U.S. which include language making a change “permanent”. This showboating is nonsensical, for the simple reason that a new bill can always be introduced to nullify the old. That’s the way it should be – what a mess we’d find ourselves in if a law proved disastrous, and we couldn’t move to right our wrong.

I’m hoping if the answer to how to make the Energiewende work proves elusive or nonexistent, Germans will find the courage to revisit whether – and waste no time about it.

Jessee McBroom's picture
Jessee McBroom on November 5, 2013

I do applaud Germany for their adoption of; and adherence to alternative energy systems to meet their energy and transportation needs. I wish them success in reuniting as a nation as well. The FIT has worked well for them in financing their way into a renewable energy future. Gasification of their coal prior to combustion would reduce coal based emissions considerably.

America's Power Plan's picture
America's Power Plan on November 5, 2013

Bob Meinetz,

Thanks for your comments.

The point of this article was not to say that everything is fine in Germany’s energy system.  Other articles and reports address that. Instead, this article quotes elected leaders on the policy rationale they use to guide their decisions.  

It is true that carbon emissions are up, but this has nothing to do with the performance of renewables.  Instead, if I can describe the thread clearly –

1)  Cheap natural gas in the US has led to a decline in coal consumption by US utilities.

2)  That surplus coal supply is getting exported to Europe by barge.  

3)  European utilities are subject to a carbon cap, but emissions are low due to the recession, so there is headroom in the cap to burn cheap US coal.

4) Ergo, they are burning more coal, while still achieving the mandated carbon cap.

New coal plants are coming online now whose planning started 10 years ago, but old coal plants are retiring, and no additional coal plants are planned.  The carbon and renewable targets get more stringent over time, as shown in the blue chart.  There will be no room for coal eventually.  The energiewende phases out both nuclear and coal over time.

And it is very true, and very interesting that owners of fossil and nuclear plants are getting creamed by the split market they have in Germany.  Renewables are paid through feed-in tariffs, while fossil and nuclear plants are paid through a power exchange.  Rising renewable supply drives down the apparent demand in the power exchange, reducing the price on the exchange.  

That issue is beyond the scope of this article, but I will point out that the profitability of incumbent utilities is not a goal of the energiewende.  In fact, Germany deregulated their power market in 1998, and they strongly believe in competition.

You said:   This showboating is nonsensical, for the simple reason that a new bill can always be introduced to nullify the old. 

You’ve identified the fundamental point of this essay – it wasn’t me that said the debate over “whether” is over — Minister Altmaier said it.  He is the minister of the CDU, Chancellor Merkel’s dominant center right party.  (Kind of like moderate Republicans, when we still had those in the US.)  The center left party, the SPD (like the Democrats), created the energiewende in coalition with the third party, the Greens.  Even Minister Rosler, from the Free Democrats party, called “business-minded” by the Times, was mostly concerned about introducing market-based pricing to the energiewende, not in repealing it.  

There is essentially no political support for repeal currently.  So I believe the politicians when they say the “whether” debate is over.  Can that change?  Sure, but there is no change visible now.

But the “how” debate is intense.  As renewable technologies mature, they will need different policies that can be scalable, efficient, and affordable.  That is the point of America’s Power Plan, to identify a set of policies that can keep up with the evolution of technologies.

Thanks again.

 

– Ben Paulos

 

 

Bob Meinetz's picture
Bob Meinetz on November 5, 2013

Ben, I have to disagree that Germany’s higher carbon emissions have nothing to do with the performance of renewables. After Fukushima, Germany closed 8 nuclear plants with a combined carbon-free generation of 19.3GW. During brief celebratory moments Germany can replace all of that power with renewables; the other 99% of the time it’s largely replaced by burning coal.

Most importantly: because adding more capacity will not make the sun shine longer nor make the wind blow more often, every renewable gigawatt needs (and will always need) a fossil companion to cover it when it’s out of commission. This is a liability Germany can’t build its way out of, because at midnight one thousand PV panels generates exactly the same electricity as one million. In effect,  the “non-dispatchability” of wind and solar sets a limit on the amount of energy they will ever be able to contribute to the grid.

A common defense is that large-scale storage would make unused energy during peaks available at other times. How much storage would Germany need? At a cost of hundreds of $billions, the country might be able to power itself for a week on batteries. Of course that’s not enough, because letting the lights ever go out is simply not an option. In fact there is no number, and the best storage can do is increase the capacity factor of Germany’s renewables at a cost which is wholly out of proportion to its usefulness.

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