Germany at the Crossroads

Posted in Uncategorized at 1:37 am by Administrator

On September 22 there was a general election in Germany.  In one of the most lack-luster campaigns in the post-war era Chancellor Merkel did everything in her power to keep issues and policies out of the news.  The assumption was that if the German people had nothing to get excited about they would see no need for change and the CDU/FDP coalition would be re-elected.  Other than the hickup caused by the FDP not getting representation in the Bundestag that turned out to be a winning strategy.

So the question becomes, what happens to the German Energiewende – the policy that aims to restructure the German energy industry in order to transition to renewable energy sources – now that the election campaign is over?

Over the past 15 years substantial government and ratepayer financial support mechanisms have encouraged the installation of residential and industrial roof-top Photo-Voltaic (PV) solar panels as well as the development of wind farms.  As a result Germany has racked up an impressive scorecard of renewable energy statistics and achieved some very notable milestones.  As of the end of 2012 Germany had more than 30 GW of “nameplate” PV solar capacity and more than 30 GW of wind generation capacity.  For a few hours around noon during windy spring days renewable energy regularly meets up to 40% or more of total German electrical requirements.

Unfortunately there is a large dark cloud towering above this silver lining.  Despite ever-increasing generation capacity, wind and solar sources have failed to consistently produce power when it is needed or significantly reduce German dependence upon traditional thermal generation assets (coal and natural gas-fired plants and nuclear plants).  The graphs below demonstrate the problem (these are taken from a comprehensive report published by the Fraunhofer Institute).

The variability of wind production is such that there are many times when virtually no generation from wind is occurring – sometimes only for a few minutes, sometimes for many consecutive hours.  PV Solar generation also displays a great deal of variability and of course is not available after sunset when electricity demand is still quite high.  The seasonal variation of PV generation in Germany is even more disturbing with winter values less than a quarter of summer values.

With renewable generation varying by an order of magnitude across the seasons and sometimes within a few hours at night how has the German electrical sector managed to keep the lights on?  By depending upon traditional thermal generating assets which must be kept fully operational as “spinning reserves” that are available at all times to back-up renewable sources.

Having “spinning reserves” is not unusual in any electrical generation fleet.  Extra generation must be available in case a large thermal plant “trips off” or is shut down for maintenance purposes.  But having 40-50 GW of spinning reserves to provide generation continuity through a regional storm event that could radically alter both cloud cover and wind speed is unique in the world and is destined to get worse if Germany continues to deploy additional PV solar and wind capacity.

As wasteful as it might seem, it would be physically possible to maintain all of the traditional thermal assets on standby.  However, such a strategy is not possible from an economic point of view.

With renewables getting preferential access to the grid, Germany’s utilities are finding it impossible to run thermal generating stations profitably.  In an ironic twist for green energy advocates, German utilities have turned back the clock, abandoning their ultra-efficient Combined Cycle Gas Turbine (CCGT) generation plants (some less than 10 years old) in favour of coal plants that emit much more CO2 per unit of electricity generated and are also the source of toxic pollutants.  Even with this “bottom line” approach these utilities continue to lose money at many of their plants.

Moody’s recently re-iterated their negative outlook for the profitability and credit ratings for these firms.

Some would say that these utilities are aging dinosaurs whose time has past.  The sooner they disappear the better.  What these folks may not realize is that these dinosaurs, with their reliable thermal generation assets, are regularly coming to the rescue on cold calm nights when their full fleet of generation assets has to be deployed on short notice.  If plans to close many thermal generation plants go forward then Germany will actually have to rely upon the renewables and that is not likely to be a pleasant experience.

Another major issue that must be addressed is the rapidly increasing cost of the Energiewende.  As more and more renewable generation comes on stream, all earning guaranteed above-market prices, an increasing proportion of the monthly bills consumers have been paying is going towards these EEG payments.

Germany industrial electricity rates are also being forced up by the inclusion of renewables and are starting to impact the competitiveness of German companies.

Chancellor Merkel has pledged to significantly reduce renewable incentives. It remains to be seen how extensive these reductions will be and what impacts will actually materialize for an industry that regularly threatens it will collapse if incentives are reduced.

The final and very thorny issue that will face the German government now is what to do about plans to decommission the remaining German nuclear plants.  In order to replace the more than 12 GW of reliable nuclear generation capacity there are plans to build up to 10 large coal-fired generation plants. It is very difficult to imagine how Germany can meet it’s CO2 emission reductions under this scenario. Given the credit ratings of the utilities that will have to build these plants and the uncertainties caused by a continued pro-renewables policy it is also difficult to see how the construction of these plants will be financed. The economic disruption and loss of skilled jobs associated with this transition will also be problematic.

So what is the most likely outcome?  In my opinion the backlash against renewable subsidies that is beginning to become evident throughout Europe will turn into a contagion.  With growing skepticism about the threat of global warming there will be less public appetite to absorb the seemingly never-ending cost increases associated with renewables.  As solar and wind become less attractive investments demand will decrease significantly leading to fierce competition for those  customers and projects that are able to follow through on the commitment to renewables.  Much of the momentum built up over the past 15 years could be lost in a relatively short time.

I also think that the German policy towards nuclear energy will flip-flop once again in order to support the country’s commitment towards meeting Kyoto targets.  The most likely change will be an extension to the length of time that some plants will remain operational.

Making the transition to a sustainable energy environment will not be easy and cannot succeed without major advances in energy storage.  A more holistic approach that addresses the reliability and variability issues associated with renewable sources is necessary.  I have outlined the major components required in my Sustainable Energy Manifesto.


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