by Davis Swan
There is an ongoing debate regarding the value and/or wisdom of the German Government’s implementation of an energy transformation – the Energiewende.
The primary driver for Energiewende was the policy decision, first made in 2000, to eliminate nuclear power in Germany. Nuclear generating stations contributed as much as 25% of the electricity supply in the late 1990’s.
Sorting out fact from fiction when assessing the Energiewende is not as easy as you might expect because most commentators put a significant “spin” on data that is admittedly subject to multiple interpretations. In this post I will try and summarize the most salient points regarding the Energiewende that can be supported by publicly available factual information. These are:
- Germany has successfully developed a very significant base of renewable energy over a sustained period of time without going bankrupt or causing unbearable economic hardship to electricity consumers whether they be residential or industrial. This is a very laudable achievement – one that many observers would have declared impossible.
- The Energiewende in and of itself represented enough of a demand for wind turbines and solar panels to have resulted in very significant decreases in the prices for all of the components associated with these technologies. As every country in the world develops their own renewable resources they will ultimately enjoy substantial cost savings due in large part to the Energiewende.
- Germany has spent far more public money, in the form of direct grants, tax incentives and utility rate increases than was needed in order to attain the same level of renewable energy generation that it enjoys today.
- Germany, like Denmark, has only been able to develop intermittent renewable energy resources because of the high capacity inter-connections with other large European energy providers/consumers. In effect, Germany and Denmark have used the European and Nordic grids as a large battery. It follows that if other European countries were to follow the path taken by Germany the system as a whole would soon run out of capacity to deal with the fluctuations in renewable energy production.
- The German Energiewende has not resulted in less dependence on the burning of coal to generate electricity and will not do so anytime soon.
- The preferential access to the grid that is given to renewable energy production has frequently pushed thermal generation off-line for extended periods of time, particularly at mid-day on windy days in the springtime. These base-load plants were designed to run 7x24x365 and the business cases underpinning the financing of these plants assumed high utilization factors. As a result these plants are marginally profitable at best. The market response to this situation would be to close many of these plants to reduce capacity and stabilize wholesale prices. That is not possible because all of the thermal capacity is required in the late afternoon and into the night on calm days.
These facts (see detailed discussion below) lead me to the conclusion that the Germany Energiewende has achieved remarkable changes to the energy economy of the largest country in Europe. Unfortunately, I believe that the approach taken was far from optimal and has influenced many other jurisdictions around the world to follow a similar non-optimal path. I also believe that without finding an economical and hugely scaleable energy storage system this approach cannot proceed much further.
The impact of the Energiewende on Wind and Solar Component Prices
I suppose you could argue that the impact of the Energiewende on Wind and Solar Component Prices has not been significant but given the scale of development and the timing it seems clear to me that there has been a large impact. Until China got moving on solar panel installations Germany was purchasing about half the worldwide supply and still represents about 25% of installed capacity.
Germany has also been one of the largest purchasers of wind turbines consuming about 10% of the worldwide supply from 2004-2010 dropping to about 5% more recently as other countries have accelerated their development of wind resources.
Roof-top Solar: $100 Billion plus lost in translation
The biggest failing of the Energiewende has been the investment in subsidies of roof-top solar panel installations.
As I have argued in another blog posting even under the best of conditions in arid regions between 35 degrees latitude north and south roof-top solar does not make sense. Installations are complicated and expensive, roof pitch and orientation is never ideal and there is no ability to implement sun tracking.
In the case of Germany which is located between 48 and 52 degrees north latitude subsidizing roof-top solar panels is pointless. The graph below summarizes electricity consumption and solar power production in Germany in 2013.
Solar power production peaks at about the same time German electricity consumption is at a minimum. For those months solar can meet about 11% of total demand (as much as 30-35% at mid-day on sunny days).
The real problem comes in the winter months when German consumption of electricity is highest. In the months of December and January German solar production is about 500 GW-Hours which meets about 1% of demand. Even if Germany was to double the number of solar panels that have been installed over the past 15 years it could meet only 2% of winter demand and in that situation there would be a huge surplus of solar power at mid-day in the summer. There is no solution to this imbalance between winter and summer insolation which is the primary reason that solar power is so ineffective in Germany.
I am not alone in my criticism of the German approach. A recent report states that Germany has in effect wasted over $100 billion by focusing on solar power. The study suggests that if the same amount of financial support had been directed towards developing solar power in Spain together with additional transmission capacity in central Europe then northern European Countries would have access to much more renewable energy when they need it most in the winter.
It is undeniable that solar panels generate a lot of electricity in Germany. But it is also true that the return on the investment made in solar power has been very poor both in financial and environmental terms.
“Green power sets new record at 78% of German supply!”
Statements similar to this come out on a regular basis, usually in June or July. They are factually correct and impressive but they can easily lead the reader to conclude that the majority of electricity in Germany can be generated from renewable sources quite often. It is in fact a very rare event.
On very low demand days between May and August when winds are blowing strongly Germany can see renewables reach those levels for a few hours at mid-day. However, there are many, many more days and even more late afternoons and evenings when renewables make almost no contribution to the electricity supply. This can be seen by the annual average generation by renewables which stands at about 25%.
Renewable penetration of 25% of total generation would be very impressive if it was actually used in Germany. However, just as in Denmark which makes similar claims regarding wind as a percentage of total generation, a large amount of renewable generation in Germany is of absolutely no value. This is solar energy at mid-day and wind energy at night when there is insufficient domestic demand. In those circumstances Germany has no choice but to export this surplus electricity at very low prices (sometimes negative) and Germany’s neighbours have to absorb this electricity whether they need it or not. The Czech Republic, France, Poland, and Switzerland have been complaining quite bitterly about the negative impacts of these exports. Stress on the regional grids, the need to cycle power sources in those countries in response to the fluctuations in German generation, and low wholesale spot prices are issues that are increasing in severity every year.
From the graph above you will note that German exports have increased about 35% since 2009 as more renewable energy has entered the market. Note however that imports have decreased less than 10% since 2009. This is because of the intermittent nature of renewables. Exports take place at times of low demand and garner low prices. Imports typically take place at peak demand times and at peak demand prices. As a result German retail electricity prices have continued to rise despite the fact that generation capacity has exceeded domestic demand for a number of years. In my blog I have called this combination of increasing supply, increasing or stable imports and increasing prices an Electricity Paradox – or Electrodox
Non-Renewable Sources Supplying More Electricity Than 25 Years Ago
One of the claims by supporters of the Energiewende is that the growth of renewables will allow Germany to reduce its dependence upon coal-fired generation thereby reducing CO2 emissions. That has not happened over the past fifteen years and reducing coal-fired generation will not take place anytime soon.
Source: Heinrich Böll Stiftung
Germany is burning almost exactly as much coal today as it was 10 years ago. A number of new coal-fired plants have actually come on stream in the last 5 years. The addition of natural gas fired plants means that Germany is now generating more electricity from burning hydro-carbons than it was 25 years ago.
From the graph it might appear that renewable generation has largely replaced nuclear generation but the situation is a bit more complicated than that.
Germany has had surplus capacity for many years (all responsibly regulated electricity markets have reserve capacity) and has exported electricity since before the turn of the century. In the past those exports were primarily nuclear power at peak demand times and prices and German nuclear was a welcome addition to the central European energy mix. Now those exports are renewables at off-peak times and very low prices which cause issues for Germany’s neighbours.
It is true that every day of the year renewables make a significant contribution to the electricity supply in Germany, reducing the need to burn hydro-carbons and/or generate power from nuclear stations. The positive impact on CO2 emissions and other forms of pollution is significant. But it is also true that there are many times when renewables contribute very little generation and Germany must make use of all its thermal generating capacity and import power from its neighbours. As a result it has not been possible to retire any significant amount of coal-fired or natural gas-fired generation capacity.
Can Price Volatility Guarantee Security of Supply?
With renewables pushing conventional generation off the grid frequently and with little notice it is very difficult to operate thermal power plants efficiently or profitably. Frequent and unpredictable cycling of coal-fired and natural-gas fired plants increases operating expenses, reduces service life, and introduces uncertainty into revenue projections.
In the absence of any kind of capacity plan utilities are making economic decisions that can be in conflict with the goals of the Energiewende. For example, highly efficient Combined Cycle Gas Turbine (CCGT) facilities are being closed while lignite coal-fired plants remain open. Natural gas is simply more expensive than coal in Europe. As a result the rational economic choice favours plants that emit more than twice as much CO2 as well as harmful airborne pollutants.
The heated debate over the need for a capacity market in Germany has been going on for several years. For the time being nuclear plants contribute to a significant oversupply situation. That will change in 2022 when the remaining nuclear plants are due to be retired. Making sure that there is adequate and reliable generation capacity available to replace the loss of the nuclear plants remains a work in progress.
The government position at the moment is to allow high spot market prices to be the primary incentive for utilities to maintain adequate generation capacity. German Energy Minister Sigmar Gabriel has stated that “high prices at times of scarcity would ensure that conventional power plants would remain profitable”. The idea is that if prices are allowed to go high enough when renewables are not available (for example on calm nights), then it will still be possible to make a profit running a thermal generation station if only for a few hours on a few days.
This is the same approach taken by Texas which has raised its ceiling spot price to $9,000/MW (the average price paid is $45/MW). The response of Texas electricity utilities has been “That dog don’t hunt”. In January, 2014 they took out a full-page advertisement warning of a future plagued by blackouts and system failures.
Where Do We Go From Here?
Of course nobody can reliably predict the future so the following comments are pure speculation.
I cannot see how Germany can continue to develop significantly more wind and solar resources in the next few years. The imbalances between supply and demand at different times of the day and different months of the year are becoming too extreme. And with so much generating capacity in place it is difficult to imagine utilities building any new plants. What that means when the nuclear plants shut down is anyone’s guess but it does not look like a pretty picture to me.
The ability for other European countries to move aggressively with renewal energy development also appears to be constrained by the challenges to regional grid stability introduced by Germany. The need for a pan-European strategy seems clear.
Setting up a capacity market in Germany might address the profitability of existing thermal generation but would raise electricity prices. Despite a small decrease in 2014 Germany consumers still pay the second highest retail prices in Europe. Any further increase to support a capacity market would not be welcome.
There is certainly plenty of potential to continue developing solar power in southern Europe – particularly CSP plants that can provide power after sunset such as the Gemasolar plant that runs 7x24x365. The potential to make greater use of Nordic hydro resources through conventional pumped storage schemes or by adding generation capacity in a concept I have termed “unpumped storage” also exists. Both of these approaches would require significant investments in the European grid infrastructure as well as an increased level of political co-operation amongst Euro-zone members.
My assessment of the German Energiewende is mixed based upon what I feel is the ultimate goal – an end to the burning of hydro-carbons to generate electricity. Reducing hydro-carbon usage is not sufficient and will not transform us to a truly sustainable energy society.
What Germany has achieved so far is impressive. It is impossible to deny that. But I would have preferred to see even 20 GW of renewable energy equipped with storage of some sort so that some coal-fired or natural gas-fired generation could be permanently retired. A financial and policy commitment to storage technology that was as firm as the position taken by Germany with respect to solar panels would have been more constructive in my opinion.
JC note: This article was originally posted at Davis Swan’s blog Black Swan. As with all guest posts, please keep your comments relevant and civil.