Germany’s energy revolution has hardly begun, but it’s already running out of steam. There is a lack of political decisiveness and companies are complaining of a dearth of incentives to invest billions in necessary infrastructure. Progress or no progress, taxpayers continue footing the bill.
German Chancellor Angela Merkel, the leader of the center-right Christian Democratic Union (CDU), will see federal diversity on display this Wednesday when she hosts Germany’s governors for an energy summit in Berlin. She can expect to see 16 governors and hear 16 different opinions – at the very least.
Each delegation has a different notion of what Germany’s energy revolution should look like. The delegation from the northwestern state of Lower Saxony wants to promote offshore wind farms, while the representatives of the southwestern state of Baden-Württemberg favor projects that make more sense farther inland. The Bavarians are calling for new gas-fired power plants in the south, while politicians from the northeastern state of Brandenburg are championing the unfettered expansion of the solar industry, which is ailing in the east.
The cacophony reflects the current state of affairs. Things are all over the place in the energy turnaround at the moment, and nothing seems to be working. The key project of the coalition government of Merkel’s CDU, its Bavarian sister party, the Christian Social Union (CSU), and the pro-business Free Democratic Party (FDP) is stalling before it has truly begun.
A year ago, the chancellor was still able to fire people’s imaginations with her energy plans. “We can be the world’s first industrialized country to successfully navigate the transition to the electricity of the future,” Merkel said at the time. When she summarily fired Environment Minister Norbert Röttgen last Wednesday, she had returned to the harsh light of reality. In a considerable understatement, Merkel admitted that “the implementation of the energy turnaround still requires substantial efforts.”
Brandenburg Governor Matthias Platzeck, a member of the center-left Social Democratic Party (SPD), deplores the “intolerable jumble of authority” the federal government is creating during the energy turnaround. His fellow Social Democrat Matthias Machnig, economics minister of the eastern state of Thuringia, compares the “biggest infrastructure project of the postwar era” to a marathon, adding that Germany is “only 50 centimeters past the starting line.” And that, says Kurt Beck, the SPD governor of the southwestern state of Rhineland-Palatinate, is the federal government’s fault. “To this day, there is no clear policy in Berlin,” he says.
In Berlin, there is even strife within the ranks of the CDU and CSU. On the Friday before last, Stanislaw Tillich, the CDU governor of the eastern state of Saxony, allowed an amendment to the Renewable Energy Sources Act (EEG) to fail because he didn’t like the cuts in subsidies for solar electricity it included.
The divisions reach deep into the federal government. While the Federal Ministry of Economics and Technology is trying to relax environmental restrictions in order to rapidly expand power lines, the Federal Ministry for the Environment is opposing its efforts and campaigning on behalf of threatened harbor porpoises and barbastelle bats.
There is no recognizable strategy, no grand design upon which to organize the transition into the age of renewable energy. The only thing clear is that installing more solar panels and wind turbines won’t be enough. The other task – and the more challenging and costly one – is to adapt the rest of the energy system to new conditions.
Germany lacks the power lines it needs to bring electricity from the north to the more industrialized south. It lacks the technologies needed to store renewable energy. And, finally, it lacks power plants to satisfy demand for electricity when the wind isn’t blowing and the sun isn’t shining. The estimated costs of the necessary infrastructure expansions range between €154 billion ($195 billion) in the next 10 years, according to the market research firm Trendresearch, to €335 billion by 2030, according to Bavaria’s VBW industry association. Other forecasts are even higher.
Passing On Risks and Costs to Customers
So, who is supposed to pay for this? So far, politicians have succumbed to the illusion that the energy turnaround will basically pay for itself. But potential financiers have shown little interest in investing their capital in projects promising only slim returns.
Due to the lack of investment incentives, consideration is now being given to an alternative source of funding so that the necessary power plants, grids and energy-storage facilities can be built after all: passing the costs of the energy revolution on to electricity consumers.
This model has been already applied to solar energy for years. The EEG grants the operators of solar power plants fixed feed-in tariffs for more than 20 years, while electricity consumers foot the bill.
Although rates have gone down in recent years, several hundred billion euros have accumulated so far – money critics refer to as “solar debts” that are being passed on from one generation to the next.
The excessive subsidies have made solar power by far the most expensive source of green energy. It is now emerging that the other components of the energy turnaround are also being artificially propped up with government help to make them profitable: offshore wind power, the power grid, energy-storage systems and gas-fired power plants.
Last week, for example, it was revealed that the German government plans to support offshore projects by taking on a share of the operators’ economic risk. The companies are currently responsible for the financial consequences when the rotors have to be shut down due to technical problems and are consequently unable to feed electricity into the grid. Under the government’s plan, the industry would be able to pass on some of the costs to its customers. The only contested aspect of the program relates to how the price hike will be identified on electricity bills.
Part 2: ‘Made in Germany’ Problems
Within eight years, some 2,000 wind turbines are supposed to be up and running in German territorial waters in the North Sea and Baltic Sea. At the moment, there are exactly 52 turbines in operation. But timid investors are not the only reason construction on the high seas is so far behind schedule.
There is also a shortage of special ships, trained workers and, most of all, experience in pulling off such projects under adverse weather conditions. The German electronics and engineering giant Siemens recently announced delays in the completion of transformer platforms in the North Sea that it is building for TenneT, the Netherlands’ state-owned grid operator. Siemens CEO Peter Löscher admits that the company underestimated the challenges.
But lawmakers are also making things especially difficult for the engineers. German regulations require offshore wind farms to be situated far from the coast, at depths of 30 meters (98 feet) or more. So, it’s hardly surprising that potential backers prefer to invest in places where construction isn’t quite so complicated. Half of all offshore wind turbines in Europe are in British waters, usually in close proximity to the coast, followed by Denmark and the Netherlands.
Another problem in Germany is that TenneT lacks the financial means to connect all wind farms to the grid. The Dutch company has already invested about €5 billion, but it needs another €15 billion. Since TenneT is unable to drum up enough capital on its own, it wants support from Germany’s state-owned KfW development bank. In other words, German taxpayers are once again supposed to be put on the financial hook.
But connecting the offshore wind farms to the grid isn’t the only problem. It is proving to be just as difficult to expand power-transmission lines to where most of the electricity is needed: in the densely populated areas and industrial zones of the western state of North Rhine-Westphalia and the southern states of Baden-Württemberg and Bavaria. Until now, the demand for energy in these areas has been met by coal-fired and nuclear power plants.
Already before the energy turnaround, grid planners had estimated that roughly 2,000 kilometers (1,250 miles) of additional transmission lines would be needed. Today, they expect that figure to be closer to 4,500 kilometers. In the last six years, grid operators have completed only 200 kilometers of these new transmission lines.
Jochen Homann, the head of Germany’s Federal Network Agency, says that there is reason to be concerned that not all projects can be completed within the targeted timeframe
A law enacted last year to accelerate grid expansion is unlikely to change that. On the contrary, power plants and grids are being planned in parallel and without mutual coordination in the various states. Completed wind farms are not being connected to the grid because the power lines haven’t been installed yet.
Nevertheless, consumers are still being asked to pay a portion of the costs – even though the electricity is not available to them yet – because the turbine operators are entitled to compensation.
Such effects drive up grid and electricity costs. The Federal Network Agency estimates that power grid charges will increase to between 5 and 7 percent of the price of electricity in the coming years owing to costs associated with expanding power-transmission lines.
The expansion of energy-storage facilities in Germany will also be extremely costly. They play a key role because of their ability to integrate the fluctuating amounts of renewable energy – which are incalculable due to the unpredictability of wind and sunshine – into the system. The storage facilities offset fluctuations and stabilize the power supply.
One of Germany’s largest energy-storage facilities is on the southern edge of the Black Forest. When electricity is cheap, the Schluchsee plant pumps tens of thousands of liters of water 400 meters up and into a reservoir at the top of a mountain. When the demand for electricity increases and prices go up, plant operators allow the water to shoot back down through a pipe and, with the help of a turbine, generate electricity and then sell it. The direction of flow changes about once every nine minutes, and the operators derive their profit from the spread in electricity prices.
If these so-called pumped-storage hydroelectric power plants were deliberately used as a tool in the energy turnaround, it would conflict with the current business model. In that case, energy would no longer be stored for minutes or hours, but for days or even weeks at a time. That’s how long a period of no wind, for example, can drag on. But without moving the water, the operators make no money.
Under these circumstances, there is little incentive to invest in such power plants. The same thing applies to other storage solutions: compressed air reservoirs, which store energy in the form of compressed air in underground caverns, and batteries, which already offer a relatively modest energy density compared to fossil fuels.
Absent suitable storage systems, suppliers will still have to generate a large portion of energy from fossil sources, with natural gas playing a key role. The advantage of natural gas is that it is capable of meeting base load requirements. In other words, it is quickly available and can be used at any time, day or night, whether the weather is stormy or calm, sunny or overcast.
The need for gas-fired power plants is growing even faster than anticipated because, according to the energy industry calculations, the shutdown of Germany’s nuclear power plants will soon create a dangerous energy gap. By 2022, the base load could face a shortfall of about 15 gigawatts, roughly equivalent to the output of 15 large gas-fired power plants.
Especially in southern Germany, where the energy industry operates a relatively large number of nuclear power plants, alternative energy sources are urgently needed. But construction of gas-fired plants is no longer profitable for the industry.
Balancing Profits and Targets
Ironically, the culprit behind this is legislation that gives priority to solar and wind energy.
The more green energy is fed into the grid, the sooner providers must decommission conventional power plants. The number of operating hours during which they generate and sell electricity is constantly declining. As the Essen-based energy utility RWE has put it, it doesn’t pay to invest “billions in new plants.”
Even operating existing gas-fired power plants hardly seems lucrative anymore. A few days ago, RWE competitor E.on informed the Federal Network Agency that it would have to decommission three gas-fired turbines unless it received financial compensation for their continued operation.
“Without additional incentives for the construction of new gas-fired power plants, the security of supply along the core energy phase-out path cannot be guaranteed,” Bavarian Economics Minister Martin Zeil has written to Federal Economics Minister Philipp Rösler, a fellow member of the FDP. In other words, he wants the federal government to step in. Although he takes a “critical view” of fresh subsidies, Zeil wrote that they are needed in this case “to avert substantial losses.” Once again, taxpayers are being asked to pony up.
The idea is already being fleshed out. Officials at the Federal Ministry of Economics, the Federal Network Agency and the Chancellery are discussing the creation of a so-called capacity market. The idea is to pay companies for keeping power plant capacity available even if they aren’t generating any electricity. However, it is still unclear exactly how this system would work and who would regulate the new market.
Chancellor Angela Merkel knows how critical it is to create the right incentives for the expansion of renewable energy – and what the hidden risks are. We have to be careful, Merkel warned at a conference in early May, “that we aren’t ultimately just generating subsidized energy, but that we also taking profitability into account.”
Making a Fresh Start
Indeed, there will be plenty to discuss at Merkel’s meeting with the governors on Wednesday. The states with SPD-led governments have come up with their own to-do list specifically for the meeting.
But the success of the energy revolution doesn’t just depend on how the Berlin meeting goes. What is far more important is whether Röttgen’s successor, Peter Altmaier, proves to be a skilled moderator and facilitator between those championing different strategies. At any rate, his appointment most likely means that the idea of creating the position of energy coordinator at the Chancellery is off the table for now. Matthias Kurth, the former head of the Federal Network Agency, was under consideration for the job.
Now it will be up to Altmaier to make a fresh start with the energy turnaround while at the same time settling the annoying, ongoing conflict with FDP Economics Minister Rösler. What’s more, unlike his predecessor, Röttgen, Altmaier will refrain from touting the advantages of forming an alliance between the CDU/CSU and the Green Party on a weekly basis.
Translated from the German by Christopher Sultan
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