A tale of two countries: The greening of power generation in Germany and the UK

MartinJenkins
May 27, 2020 · 10 min read

With Andrew Horwood / 27 May 2020

Senior Consultant Andrew Horwood looks at two European economies that have been wrestling with their own transitions to a low-emissions future. From their experiences Andrew draws out some lessons for us here in Aotearoa.

There’s reason to be proud of the level of renewable power generation in New Zealand. We’ve been lucky to have had a relatively high percentage for decades, but in the last 20 years we’ve achieved a quite spectacular jump, from 65% renewable in 2001, to 84% in 2018 — largely because of the lower long-run marginal cost of renewables compared with fossil-fuel generation. Only Norway and Iceland have higher rates of renewable generation than New Zealand, and the OECD average is around 25%.

Both the German and UK governments have implemented targeted programmes of interventions to lift renewable generation to reduce greenhouse gas emissions. Only one of them has been successful, however, and in this article I look at the reasons why.

IN GERMANY, RENEWABLES HAVE REPLACED NUCLEAR GENERATION

Germany’s Energiewende (‘Energy Transition’) policy programme was launched in 2010. The programme’s main objectives include a complete phase-out of nuclear power plants by 2022, and escalating targets for renewable electricity generation. The targets set in 2010 were 20% by 2020 (later raised to 35%), 50% by 2030 (later raised to 65%), and 80% by 2050.

Energiewende is intended to be integral to decarbonising Germany’s electricity production, and the objectives above sit alongside the country’s carbon reduction target. Since 2007, successive German governments have pledged to reduce carbon emissions to 40% below 1990 levels by 2020. So serious investment into rapid upscaling of renewable generation should help with this, right? Isn’t that the main point of encouraging renewable generation?

Well, let’s consider the effects of Energiewende, starting with some wins. The programme has been effective at increasing renewable generation, which reached 38.5% in 2017, surpassing the 2020 target. It then passed 40% in 2018, reaching 46% in 2019. Slightly more jobs have been created than lost. So far, so good.

Germany’s Energiewende (‘Energy Transition’) policy programme was launched in 2010. Energiewende is intended to be integral to decarbonising Germany’s electricity production. Image: Unsplash

However, Energiewende is failing to reduce carbon emissions as much as the German government would like. A recent review of Germany’s energy policies by the International Energy Agency (IEA) found that ‘Germany is struggling to achieve its climate change ambitions, and is not on track to meet its near-term emissions reduction targets’.

This has been anticipated for some time. The IEA found that in 2018, Germany had reduced its total emissions by around 31% compared with 1990, meaning it ‘remains far off its 2020 emissions target of a 40% reduction’. This was admitted by the German government at the time. Climate Action Tracker, an independent climate watchdog, estimates that Germany’s emissions will be 33 to 36% lower than 1990 levels in 2020.

DOWNSCALING NUCLEAR RATHER THAN COAL GENERATION

The shortfall can be partially explained by the fact that the substantial rise of renewables has accompanied a downscaling of nuclear electricity production rather than of coal electricity production. This is particularly important, because much of the coal used by Germany is lignite, the dirtiest kind.

The reduction in nuclear rather than coal reflects these two industries’ different political weights and different standing with the German public — issues that these days are often bundled into the concept of ‘social licence’ (discussed by MartinJenkins co-founder Kevin Jenkins in New Zealand Policy Quarterly in 2018). The nuclear industry is associated with disasters — Chernobyl 1986, Fukushima Dai-ichi 2011 — while the coal industry is strongly unionised and able to wield political influence.

The weather-dependent and therefore intermittent nature of renewable generation reinforces the continuation of coal power. Solar panels need sun, and wind turbines need wind. When the conditions haven’t been right, Germany has relied on coal to keep the lights on (much like New Zealand has needed to maintain some thermal generation capacity). Further, to completely eliminate nuclear generation by 2022, additional thermal generation may be needed to achieve enough supply.

Fossil-fuel plants can’t scale down production quickly and easily to adjust to increases in supply in the market from other sources. On sunny, windy days the grid can be oversupplied to a point where the price of power becomes negative. While German law requires renewable energy to be used first on the German grid, non-renewable generators can export their power to Germany’s neighbours — so why reduce production when you can easily export what you can’t sell domestically? Further, the price of CO2 emissions in Germany has only just risen to a point where it is having a negative impact on the economics of some coal production.

In Germany the substantial rise of renewables has accompanied a downscaling of nuclear electricity production rather than of coal electricity production. Image: Unsplash

Going green isn’t cheap. Energiewende has cost the world’s fourth largest economy about $13 billion per year since 2000, much of which consists of subsidies. This has been paid for by a levy accounting for roughly 23% of consumers’ electricity bills, with grid costs added on top of that. Pressure to keep costs down has led to the original feed-in tariffs being replaced by auctions, where companies effectively ‘bid’ to realise their green power initiative up to a capacity level set by the government.

It is now 2020 and, despite significant progress, Germany’s carbon reduction target has not been met. Attention now turns to the medium-term targets. Future German governments will need to grapple with a number of questions. To what degree will the targeted 65% renewable generation by 2030 help Germany reach its goal of reducing carbon emissions by 55% below 1990 levels at that point? Will Germany manage the political, social and economic challenges to smoothly downscale coal production? And will other sectors of the German economy, like transport and heating, need to do more if Germany is to reach its carbon reduction aspirations?

RENEWABLE GENERATION IN THE UK — AN INTERESTING CONTRAST TO GERMANY

In the UK, 2017 was a landmark year — the first year when the UK generated more than half of its electricity from low-carbon sources. Renewables (wind, solar, hydro and biomass) and nuclear accounted for just over 50% of electricity generation. Coal accounted for only 7% and gas around 40%. In contrast, during 2010 low-carbon sources contributed less than 25% of generation in the UK, with fossil fuels making up most of the difference.

Underpinning this transformation is a conscious downscaling of coal generation, en route to a goal of ending coal generation altogether by 2025.

The targeting of coal generation has meant the UK has been much more effective than Germany in reducing emissions from the electricity generation sector. The UK’s CO2 emissions have fallen by around 40% since 1990, with 80% of this reduction resulting from burning less coal. The country’s CO2 emissions are the lowest they’ve been since the 1920s — in fact, out of all the G7 economies, the UK showed the largest reduction in CO2 emissions from 1990 levels.

The gains are clearly significant, but there is more work to do if the UK wants to hit its target of cutting emissions by 57% below 1990 levels by 2032. According to Simon Evans of Carbon Brief, low-carbon nuclear and renewable generation would need to account for roughly 75% of generation by that year, accompanied by more progress in transport and heating, the other major components of the energy system. For example, significant gains could be made by tackling the emissions made by the gas boilers that heat many British homes.

Excitingly for the UK renewables sector, the cost of new offshore wind generation has fallen to the point where it is cheaper than building new nuclear capacity. The UK government offers a ‘strike price’ — essentially a top-up above the market price of electricity to make new projects economically viable. New offshore wind projects can produce power at around £60 per MWh once the top-up is applied, while future nuclear projects are expected to cost £80 to £90.

In the UK the cost of new offshore wind generation has fallen to the point where it is cheaper than building new nuclear capacity. Image: Unsplash

This has the immediate effect of allowing the UK government to either subsidise more renewable capacity or spend less subsidising the amount of capacity it planned to subsidise through its strike price mechanism. The government had allocated £240m per year for subsidies but may need only 73% of that. In the longer term it may be that renewable generation starts to eat into nuclear generation, as it has done in Germany.

THE LESSON FOR NEW ZEALAND…

… is that we’re really lucky! We enjoy a national grid largely run on renewable generation, effectively topped up with some thermal generation to handle peak demand, scheduled outages (for example, for maintenance), and weather that’s unfavourable to electricity production (for example, low rainfall affecting hydro generation). We’re lucky we don’t need nuclear generation (and its inherent risks), and we don’t need to consider trade-offs between phasing out nuclear and thermal generation.

Germany and the UK have increased renewable generation through significant government intervention. New Zealand did this decades ago with the construction of large hydroelectric dams ordered by Prime Minister Muldoon (even if his motives were not environmental).

More recently, the approach of the government has been relatively hands off. In the 2000s, Helen Clark’s Labour-led government set a target of 90% renewable electricity generation by 2025, a target that was maintained by the subsequent National Government. The current Government now has an ‘aspirational’ target of 100% renewable generation (in a ‘normal’ hydrological year) by 2035. Further, the ban on new petroleum exploration permits outside of onshore Taranaki signals that natural gas may play a smaller role in electricity generation over time.

These policies reflect the Government’s aspirations in this area, as well as factors largely outside government control — for example:

New Zealand is lucky to have a national grid largely run on renewable generation, topped up with some thermal generation. Image: Unsplash

THE CHALLENGES WE FACE

Despite these favourable circumstances, New Zealand faces some challenges in achieving 100% renewable generation. David Prentice, former Chair of the Interim Climate Change Committee (and now also Chair of MartinJenkins), has said that achieving this target would be expensive and that the focus should be on reducing emissions in other areas.

The Productivity Commission drew a similar conclusion, noting that removing thermal generation altogether could greatly increase wholesale electricity prices. The Commission said a reliable, affordable supply of electricity was important for decarbonising other sectors such as transport. But regardless, achieving higher than 95% renewable generation is possible and expected in decades to come.

The New Zealand electricity generation sector also has a couple of outliers, and decisions on these could alter the industry’s carbon footprint significantly. On the demand side, the main outlier is the Tīwai Point aluminium smelter, which uses about 13% of our national electricity supply. If the smelter were to close, the need for thermal generation in the medium term would be greatly reduced, due to the hydro-generated power the smelter runs on being freed up (so long as sufficient transmission infrastructure were built to carry the power to the North Island where it would be needed). Decision makers also face uncertainty over future demand — it’s unclear how fast other sectors like transport will electrify, and also how far demand will be moderated by improvements in energy efficiency.

Our supply-side outlier is the Huntly power station, which Genesis has signalled will remain open until 2022. Huntly is New Zealand’s most carbon-intensive electricity generator, generating power from both coal and gas, and its future is of great interest to those seeking to decarbonise New Zealand electricity generation.

GREAT FOR THE PLANET

We’re lucky that renewables generally compete among themselves to be the cheapest producer of electricity for New Zealanders. This is great for the planet, for consumers, and for New Zealanders’ pride in our increasingly clean, green national grid.

ABOUT THE AUTHOR

Andrew Horwood is highly skilled in regulatory analysis. He understands ministerial and government agency perspectives and knows the public policy and regulatory environments intimately. With his open, straight-up interpersonal style, he is recognised for always providing free, frank and constructive advice. Andrew knows how to build and manage successful relationships with government, industry, iwi and other stakeholders.

Clients value Andrew’s canny, energetic focus on getting things done. With his proactive, pragmatic approach, he is able to see problems and priorities clearly, develop solutions that work, and build the collaborative relationships needed to make the solutions happen.

Andrew’s recent projects for MartinJenkins include co-leading a review of New Zealand’s sport integrity arrangements at Sport New Zealand, which included preparing a comprehensive discussion document. In 2018 he also supported the Treasury’s advice to Select Committee on the Overseas Investment Amendment Bill, and helped the Ministry of Education by mustering Budget bids.

Senior Consultant Andrew Horwood

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From the Exosphere

From the Exosphere is a platform for sharing thoughts from…

From the Exosphere

From the Exosphere is a platform for sharing thoughts from the team at MartinJenkins. The exosphere is the last layer of atmosphere before space, offering an unrivalled view of our blue planet and where we might go next.

MartinJenkins

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From the Exosphere

From the Exosphere is a platform for sharing thoughts from the team at MartinJenkins. The exosphere is the last layer of atmosphere before space, offering an unrivalled view of our blue planet and where we might go next.

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