Energiewende: How Germany is approaching the energy transition.
If you want, you can listen to the content of this post in the second episode of the GET: Global Energy Transition Podcast in Spotify.
In this post we will explore the main drivers and challenges of the energy transition in Germany, one of the countries that lays at the forefront of it and has a strong leadership in Europe, a region that has some of the most tight net-zero emissions milestones. We will put focus on the Energy Concept and the Renewable Energy Resources Act, a law that has laid the foundations for an accelerated adoption of renewables in Germany. To get better insights on the topic, two experts on the field, that have deep knowledge on renewables, energy policy, industry and social organizations.
Stefan Jessenberger, who is an experienced business development and solution design professional that has done extensive network in renewables, energy storage, energy trading and works in the Smart Grid Industry. He works as well at the Energiewende association in Erlangen, that provides support to local communities on a voluntary basis to support the energy transition.
Thorsten Herdan,who is an expert with more than 21 years of experience in the energy industry, more specifically in the wind industry. He's a former vice president of the German offshore foundation and has around 7.5 years at the Federal Ministry of Economics and Climate Protection where he's now the Head of the Department in Energy Politics
As global consensus builds around the need to reach net-zero emissions, the energy transition is one of the most important strategic concerns of our times, and so it is for Germany. The energy transition is Germany's way into a secure, environmentally friendly, and economically successful future.
But that's too broad, first let's talk numbers. Germany wants to cut emissions to 65% below the 1990 levels in 10 years from now and to be climate neutral by 2045. To be even more concrete, Germany has established the following transition goals:
- Increase the share of renewable energies in gross electricity consumption to 65% by 2030.
- Reduce greenhouse gas emissions by 55% by 2030 compared to 1990 levels.
- Reduce primary energy consumption by 50% by 2050 compared to 2008.
To achieve these goals, Germany has an ambitious plan to alter its energy supply, which means moving away from nuclear energy, reducing dependencies on oil and gas imports and moving towards renewable energy. The energy supply has to remain secure and affordable, which requires an accelerated and democratized use of renewables, the exploitation of energy flexibilities and a significant increase in energy efficiency.
Although the road is full of challenges, the energy transition has for Germany a strong character of innovation that promises to create new business opportunities and ways to improve societal life for the country.
Stefan, do you think the aforementioned goals are attainable?
We have managed to implement a big volume of renewables in the past years. Last year it was a bit less than 50% of the electrical energy coming from renewables. The target of increasing this share to 65% until 2030 is definitely manageable. But our new government has set new more ambitious targets especially in regard to photovoltaics (PV), to increase PV capacity to up to 200 GW and we now stand around 53 GW. So this is a very ambitious goal. I think it is manageable but we will still need to consider improvements in the Renewable Energy Act and other regulatory conditions in order to make this happen.
Thorsten, where does Germany stand right now in the energy transition journey?
Many people said that the energy transition started after Fukushima, but that's wrong, it started in 1998, with the Stromeinspeisungsgesetz, the predecesor of the Renewable Energy Sources Act law, and since then we have been extremely successful in getting renewable energy deployment in the electricity sector. Now we are, depending on the wind, between 42 to 46% of renewable share in the electricity mix, but we are still not successful enough in the other sectors. In the heating sector, which is double the size of the electricity sector, around 1200 TW, compared to 550-560 TW in the electricity sector, there is only 15% of renewables share. Also we are lagging behind in the transport sector. Right now we have to reach 80% renewables in the electricity sector, coming from 65%. To sum it up, we have been extremely successful in the electricity sector, but now we have to improve in the heating and transport sectors. I am optimistic that we can do that, but we need to focus on new business models.
Germany has quite a lot to do in such a short time. Of course, the energy transition in Germany won't happen from one day to another. It is full of complexities and affects companies from all sizes, the public sphere and the lives of the population.
A bit of the background
Over the past 50 years, German energy policy has ranged from keenness to skepticism for both nuclear and coal energy. Some of the most considerable changes in energy policy occurred as a response to nuclear accidents, although the inadvertent effects of coal energy have also caused significant changes in policy. As climate discussions have been emerging in the past two decades, the coal industry was not seen as a replacement of nuclear energy. In light of it, in 2011, the German government announced the Energiewende, which stands for energy transition and decided to dramatically reduce the amount of fossil fuels from the energy supply and to shut down nuclear energy, to have net zero emissions by 2045.
In parallel, Germany has been pioneering in climate protection and is perceived as a global role model for a successful energy transition.
The German Electricity Feed-In Act (Stromeinspeisungsgesetz) dates from 1990, and its aim was the paid purchase of electricity, which is generated exclusively from hydropower, wind power, solar energy, landfill gas, sewage gas or from products or biological residues and waste materials from agriculture and forestry, by public electricity supply companies. For the first time in the history of the Federal Republic of Germany, electricity supply companies were obliged to purchase and pay for electrical energy from regenerative conversion processes from third parties.
Then, as early as in 2000, Germany enacted the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz in German, EEG), which promoted a large-scale implementation of renewables projects under an expensive feed-in tariff (FIT), which is a policy that provides a guaranteed, above-market price for energy producers. As a result, installed wind and solar capacities soared from 6 gigawatts to more than 80 GW between 2000 and 2015. During this period, Germany represented one third of the renewable buildup within the EU. Additionally, this policy has led to the emergence of a green industry that develops cutting-edge technologies for renewables, energy efficiency and creates jobs for several-hundred-thousand employees.
Current hurdles
But not everything is rosy. Although ambitious, the energy transition in Germany is lagging far behind its 2020 targets: In 2018, more than 800M Tons of CO2 equivalents in emissions were released. Even though this amount represents a 4.5% drop from the previous year, it was still 12% above the target of 750M Tons for 2020. If the pace of emission reduction from the past decade continues, Germany will achieve its 2020 targets only in 2028 and those for 2030 in 2046. Not only that, Germany is still one of Europe's biggest carbon emitters per capita, with 11.45 MT, versus 7.22 MT in France, according to the most recent studies. Germany's power generation mix remains extremely carbon-heavy, emitting 500 grams of CO2 per kilowatt-hour, versus 80 grams in France in 2014.
Thorsten, what are the main policy challenges that Germany has to overcome for a sucesfull energy transition?
There are 4 of them:
- First we need to speed up permission for everything. Permission processes are too slow and they have to be taking by the central government instead of each state deciding on their own, how the permission processes would look like.
- Second, we have to heavily invest in infrastructure, that means electricity, hydrogen, EV charging and heat intrastructure. We have to rebuild the existing heating system and we have to enlarge it. The biggest question is, is it possible that we let the market do that? Or is infrastructure something that society through the Government, has to provide? This is, for the off-takers who will use it, and for the producers that will put something into, be it electricity or gas.
- Third, speed up renewable energy deployment in all sectors, electricity, heating, transport. Use our own technologies, and leave the technologies to the market.
- Finally, deregulation, we need to take out the micromanagement out of the system.
The plan
In light of the need to accelerate the energy transition to meet its goals, the German government has established the Energy Concept, which is the compass for the energy transition. It is a long-term energy strategy for the period up to 2050 that aims to secure a reliable, economically viable and environmentally sound energy supply to make Germany one of the most energy efficient and green economies in the world. It defines two main objectives: one, moving towards renewable energy and two, using energy more efficiently.
The Federal Ministry for Economic Affairs and Energy (BMWi) is responsible for choosing the right measures to attain the goals of the energy transition. To do this, the ministry is following a precise road map: The 10-point Energy Agenda, which outlines the steps that need to be taken by the government and details the various fields of action in terms of scope and timing. These scopes are: renewables, european climate and energy framework, electricity market design, regional cooperation, transmission grids, distribution grids, efficiency strategy, buildings strategy, gas supply strategy and monitoring the energy transition.
Since renewable energy is at the core of the Energy Concept, let's explore the main efforts related to it. As mentioned, the Renewable Energy Sources Act (EEG) has laid the foundations for an accelerated adoption of renewables in Germany so let's take a deeper look into it. The act adopted in the beginning of 2000 contained the following principle: Anyone generating electricity from sun, wind, water or biomass is entitled to fixed remuneration for every kWh. The funding from the EEG surcharge has transformed renewable energy from a niche product into one of the mainstays of Germany's energy supply.
Although, advances in technology have significantly cut the costs of generating electricity from renewable sources, the rapid expansion of renewables also caused the EEG surcharge to rise considerably up to 2014. For this reason, the German government fundamentally reformed the EEG. The new act entered in August 2014 and as a result, the expansion of renewables is continuing increasing rapidly, but better controlled and with a focus on cost reduction.
Thorsten, can you tell us a bit more about the Renewable Sources Act (EEG), and how does the reformed version of it differ from the first one?
Well, when we started up, one has to remember, we didn't have any energy markets at all. We had a monopoly, at that time when the renewable energy act was created. The main idea was to create a bankable business model, that was the simple point. Somebody could produce energy and could feed it into the grid and would be pay for it for certain period of time for a certain amount of money.
By that time, at 2004, the technology was so expensive that you needed to have a certain amount of feed in tariff guaranteed for ~20 years. With that, people could go to a bank to show the needed investment, return of investment, and could get a credit with no problem. It was brilliant as an starting point, because we had no renewable energy at all (monopolies would not allow renewables to enter the game without such a system).
But it had a problem, that was that the government was setting the price. Having a fixed feed in tariff is far away from market intelligence. People were reluctant to innovate more in order to get a better price. Then we changed the EEG into an option model, in which you could run for an option, set a price at which you could sell your electricity and then the EEG gave you the difference between the market price (because you had to sell the energy to the market) and the price you were able to put into the option. That changed completely the landscape, because it was all of the sudden not the Government setting the prices but the market setting the price.
The result was that the overall costs of the subsidies went down dramatically.
Although the EEG intends to bring both domestic and industrial adoption in renewables, there is certainly a gap between them.
Stefan, how do you see the adoption of renewables comparing the domestic and indutrial sector?
I see that there is quite a gap, a lot of people in the residential area, are on their way to implement PV, but we there is still a full potential still for commercial plants and here we have huge opportunities on both hand sides for reducing emissions, but also for reducing the energy costs. Considering increasing electricity prices, specially in the last couple of months, with PV there is a chance to limit the energy bill and to stabilise it, not only for the residential sector but also for the industrial / commercial sector.
Thorsten, what are the main challenges for the adoption of Wind Energy in Germany?
You need to take society with you and make them a part of that game. It is very simple: the more wind turbines that you have which you are not profiting from, you don't like that. The more you have, that gives you money into your municipal budget and streets will be built with that, and then you would like those turbines. Not paying for acceptance, but looking how society would be involved in this energy transition is key.
The expansion of power lines is a natural consequence of extending and descentralizing the adoption of energy sources such as renewables.
Stefan, do you think Germany's grid is currently prepared to welcome the energy transition?
Of course here it depends. Here we have limitations, we see problems to implement larger systems, where you need long connection distances. Therefore we need extension of the power grids in certain areas.
I general I see the requirements for different energy systems and trading schemes in the future where more incentives are provided for the local adoption of renewables, or at least near the load center, specially in the north of the country, where a requirement of huge extension of the grid would be necessary. That is a requirement for the energy transition, to avoid being limited by capacity.
We need to have more different pricing. The concept of pricing should be implemented of different grid feeds depending on where the supply and the usage takes place. For example if you have a supplier that is nearby the consumer, only using the low voltage or medium voltage, he should only pay a fraction of the grid fee, whereas if the consumer uses energy from the north, it should be the full grid fee.
Stefan, what do you think on how Germany is approaching the flexibilities on the grid?
Also here, I see a lot of room for improvement. Right now, there is not the right framework in order to make use the different kind of flexibilities on different levels and different technologies. Specially when talking about storage for small systems, we do not have much incentives in order to accelerate the provision of flexibilities.
Another aim is to integrate electricity from renewable energy more into the market. In the future, renewable energy sources must increasingly stand up to competition and the plant operators must market their electricity themselves. Also, the funding rates will not be stipulated by the government, but will be more likely determined by auctions. This will enable the cheapest and most efficient producers to win.
Thorsten, do you think energy markets are adapting well to the adoption of renewable energy?
If we follow the way of taking out the micromanagement, call it deregulation, then yes, if not, then no. To be very frank. It only works if we let the market work and provide it the right infrastructure. But if we tell the market you can only work on only certain circumstances and you have to take care of your own infrastructure, then this doesn't work.
Conclussions and Outlook
We have seen that Germany has a strong leadership in the global energy transition and has set itself very ambitious goals. If, however, the country follows current trends, it will fail to reach its targets. To fight this, Germany has been developing two of the main ingredients for a successful energy transition, which are a good roadmap and good cooperation between stakeholders.
The key points of this post are:
- The Energiewende, which stands for energy transition, is Germany's way to dramatically reduce the amount of fossil fuels from the energy supply and to shut down nuclear energy, to have net zero emissions by 2045.
- Germany's key goals are to: 1) Increase the share of renewable energies in gross electricity consumption to 65% by 2030. 2) Reduce greenhouse gas emissions by 55% by 2030 compared to 1990 levels. 3) Reduce primary energy consumption by 50% by 2050 compared to 2008.
- The energy transition in Germany started in 1998, with the Stromeinspeisungsgesetz, which then was augmented into the Renewable Energy Sources Act law, and since Germany has succesfully deployed renewable energy deployment in the electricity sector (~42 to 46%). But still there is a lot to do in the heating and transport sectors.
- The Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz in German, EEG) is a law that promotes a large-scale implementation of renewables projects under an expensive feed-in-tariff, which is a policy that provides a guaranteed, above-market price for energy producers. In is first version, the government defined the tariff, whereas in the reformed version of 2014, the market defined the tariff, which dramatically reduced costs.
- For a succesfull energy transition, Germany needs to: 1) Speed up permission processes. 2) Heavily invest in infrastructure, that means electricity, hydrogen, EV charging and heat intrastructure. 3) Speed up renewable energy deployment in all sectors, electricity, heating, transport. 4) Promote deregulation, to take out the micromanagement out of the system.
- The 10-point Energy Agenda from the The Federal Ministry for Economic Affairs and Energy (BMWi), outlines the steps that need to be taken by the government and details the followingfields of action in terms of scope and timing: renewables, european climate and energy framework, electricity market design, regional cooperation, transmission grids, distribution grids, efficiency strategy, buildings strategy, gas supply strategy and monitoring the energy transition.
- There is a significant gap in de adoption of renewables between the industrial and residential sector, which could be shortened, considering the increasing electricity prices, which motivates both institutions and residents to reduce their energy bills.
- The country needs to consider improvements in the Renewable Energy Act and other regulatory conditions in order to make the Energiewende happen.
