Germany’s energy stock-take: More power to the people

(Corrected version, see below).

Japan’s Fukushima nuclear disaster struck on March 11, 2011. While Japan was still clearing away the rubble, Germany got busy reshaping its entire energy system.

Within a month, Chancellor Angela Merkel had reversed an earlier decision to slowly phase out nuclear power. And in June 2011, the German parliament voted to abolish nuclear power altogether.

This marked the beginning of the most fundamental transformation in energy infrastructure unleashed by any advanced industrial economy — what is called, in German, the Energiewende (“energy transition”).

Nuclear power is now a dead issue in Germany, as far as the country’s future is concerned. Even so, generation of nuclear power still accounted for 16% of total German electricity in 2012. However, the share is falling (down from 17.2% in 2011) and will continue to fall.

Seven reactors were shut down immediately as a result of Chancellor Merkel’s announcement. No new reactors are to be brought on stream, and all existing reactors will have been completely phased out within ten years.

Following the U-turn on this issue by Merkel and her Christian Democratic party, there is no longer any political support for reviving the nuclear industry in Germany.

As nuclear’s share of power falls, new renewables are being ramped up at a tremendous pace. Generation of solar photovoltaic electricity increased by 48%, to 27.6 terawatt hours in 2012, while wind power held steady at 46 terawatt hours, accounting for 11.9% of all electricity.

Other renewables (biomass and hydro) also increased, meaning that total renewables rose to 21.9% of total electricity generated in 2012. The proportion of renewables in capacity additions for 2012 is much higher, indicating that renewables will be taking more and more of the load.

It is notable that Germany’s promotion of renewables has moved on from market expansion policies (like feed-in tariffs) to industry promotion policies — taking a leaf out of China’s book.

German pride in being the largest wind power and solar power market in the world (until recently) moderated as it became clear that China, with its promotion of the green industries, was benefiting from Germany’s market expansion. Now Germany is focusing on building its renewable industries for both domestic reasons and as a platform for exports.

Nevertheless, such a radical reshaping of the energy sector does not come without some hiccups. One of these is that the interim (or “bridging”) power arrangements have involved marginally more coal being burned. Brown coal — lignite — increased a full percentage point to 25.6% of German electric power generation in 2012 and black coal rose 0.6 percentage points to 19.1%.

Coal thus now accounts for 44.7% of Germany’s electricity generation. But it is destined to fall quickly as the renewables are ramped up, and fewer new coal-fired power stations are envisaged.

Meanwhile, natural gas has been forced out of the German (and mostly European) electricity market because of high prices, and because there has been no “fracking” revolution (as yet) in Europe.

To claim that the Energiewende means simply that more coal is being burned — and hence more carbon emitted — is to miss the point that fossil fuels are marked for elimination.

Germany’s has undertaken a dramatic upgrade of its national power grid, which will enable it to accommodate higher and higher levels of fluctuating (renewable) power sources. Official estimates are that €20 billion will need to be invested in upgrading the grid over the course of the next decade.

The German plans are for three major north-south connections to be built first, consisting of 380-kV high-voltage lines. Installing and equipping the smart grid is the huge new growth opportunity in Germany.

Market reforms

Perhaps the most significant aspect of the Energiewende (and of the years leading up to it) is the almost complete destruction of Germany’s erstwhile power generation oligopoly. Over many years, four large firms had dominated it — E.ON, RWE, EnBW and Sweden’s Vattenfall.

By 2010, these four once-mighty firms accounted for only 6.5% of renewable electricity generated in Germany — with their role being supplanted by hundreds of local co-op, municipal and small-scale producers that have sprung into existence. This is a democratization of economic power unprecedented in the industrial world.

So there is no doubting the scale of the changes unleashed by the Energiewende and their long-term impact. Within the next decade, Germany will have shifted from a coal- and nuclear-powered industrial economy with four large, centralized power producers to a thriving, decentralized system generating power from renewable sources all over the country.

All of this is managed through a modernized and IT-enhanced smart grid. No central energy “czar” required.

Of course, there are critics — and not just from interests aligned with the former oligopolistic power producers and the coal/nuclear interests. There is fierce debate over whether the costs of the transition can be justified, whether the feed-in tariff system has run its course, and whether a predominantly renewables-driven energy system will be up to powering a modern industrial economy.

This is a healthy debate, of course — it could hardly be a revolution without such a debate.

Some neoclassical economists are reaching for unprecedented hyperbole as they denounce the whole enterprise. They call the transformation the beginnings of an authoritarian dictatorship in Germany (because the feed-in tariffs are imposed by the federal government).

Others argue there will be a “costs tsunami” — thus seeking to reverse the Fukushima disaster symbolism away from nuclear power and towards renewables. But opinion polling in Germany shows a public unmoved by such rhetorical flights. Germany’s federal elections in September 2013 will provide an interim scorecard as to how well the Energiewende is faring politically.

Leaving behind the USA?

The single most arresting issue is the contrast between Germany and China — the two industrial nations that are farthest along in building a new energy system based largely on renewables — and the United States.

Germany and China have both made forceful and determined commitments to the new energy systems — while maintaining and then phasing out their existing commitments to a “black” energy economy. Both see the upgrading of power grids as the key to accommodating higher and higher levels of renewables in the electric power mix.

And both are encouraging a swarm of new entrepreneurial ventures into the power generation space, making it more competitive and vibrant than any power system before it.

Meanwhile, the United States — the supposed global champion of entrepreneurship — is mired in political infighting and a sincere lack of both vision and determination.

China, by contrast, is enlisting its state-owned banks to make the needed investments and allocations of credit. Provincial and local administrations compete fiercely to attract new green energy industries.

Germany is accomplishing the same result without any central planning or energy “supremo” — but with comparable local and state-level competitive promotion of the new industries with their job-creation potential.

The closest that Germany has had to an energy leader would be the late Hermann Scheer — champion of solar and father of the feed-in tariff — and Germany’s protagonist in advancing renewables in the energy “clash of civilizations.”

The new green growth strategies emerging in China and Germany will prove to be far more effective at lowering carbon emissions than the Kyoto Protocol with its nominal carbon reductions. And this is as it should be: The cleaning of the industrial economy was always going to be a state-mandated industry-policy driven strategy.

Editors note: This post was corrected to say that the Big Four utilities account for 6.5 per cent of renewable energy capacity in Germany, not 6.5 per cent of overall capacity.

John Mathews holds the Eni Chair of Competitive Dynamics and Global Strategy at the LUISS Guido Carli University, in Rome. He is concurrently the Chair of Strategy at the Macquarie Graduate School of Management at Macquarie University, Sydney. This article first appeared at The Globalist. Reproduced with permission from the author.

 

Comments

8 responses to “Germany’s energy stock-take: More power to the people”

  1. Roy Ramage Avatar

    Hi there Giles.
    Another step forward in the renewables push and another chance to halt our race to the bottom. May I have permission to use the article with full atribution – on my solarprogram website. If yes I plan to use copy from “market Reforms” onwards in my update section.

  2. Steve Morriss Avatar
    Steve Morriss

    Great article, if only the Australian government and/or opposition showed a vision and leadership similar to Germany and China, the challenge of choosing which group of incompetent fools to vote for would be easier. If anyone knows of worthwhile policy, vision, and determination by any Australian political party, on the subject of our energy future, please let me know.

  3. Jonathan Maddox Avatar
    Jonathan Maddox

    “By 2010, these four once-mighty firms accounted for only 6.5% of electricity generated in Germany”

    Is it at all possible that the decimal point here is misplaced?

    1. Louise Avatar
      Louise

      It would have to be a mis-placed decimal point. Otherwise the article would not make sense.

      I read somewhere that EnBW is hoovering on the verge of bankruptcy and without government bail out or an angel investor could became unable to trade by the end of the year. They are currently trying to sell off their gas network in order to save the electricity network.

      The interesting thing is that the big four, who do have, or at least had the power in the past to invest in renewable energy, are the very same who have not done so.

      They do everything to explain to everyone that the shift to infinite energy is a big experiment that will end up badly, with Germany ending up back in the stone age, a bankrupt, third world country.

      It is noteworthy that the Origin Energy boss sounds not unlike the four doomed Germany utility bosses. “Renewables are not financially viable.”

      Their new investments in non-renewable generation assets will become stranded investments by the year 2025.

      That is well before many newly created plants/assets would have amortised.

      By the year 2025 it will become cheaper to make one’s home an off-grid self-sufficient home than to continue to purchase electricity from arcane utilities who missed the signs of time and went into receivership.

      The current generation of citizens is last generation needing an electricity grid. The next generation will choose to build energy autonomous structures instead of wasting money on rent-seekers.

      Solar shade cloth/sails from printed solar cells will have a dramatic decrease in the price of solar power, for they do not need any heavy glass plate cover or an aluminium frame and once you have a builder install a 10 meter by 10 meter area cornered with four big posts, then solar sails are quick to installed.

      Residential properties are usually 20 meters wide.
      Two of these 10m x 10m squares installed at the back of ones property would power a 4 person family home and provide sufficient electricity for two average Australian cars to run on electricity.

      If one of these cars were a hybrid like the GM Volt or the Mitsubishi Outlander, then the car could be used as an emergency generator for the house should the need arise.

      If the household has a hybrid vehicle, then the household would not need stationary electricity storage capacity for an entire week, in case of continued unfavourable weather, resulting in insufficient electricity production.

      That means that the house hold could do with a stationary battery capacity for one to two days.

      Eos’ zink-air battery which goes on sale later this year to utility customers only, will start selling to the public in 2015, according to a return E-mail I received from them. For large scale purchases, the price will be US$160 per kilowatt hour storage capacity with an estimated battery life of 30 years.

      If that happens, then I am disconnecting my already “energy plus house” from the electricity grid for good.

      That is the only language the big polluters understand, decreasing revenue, the lost of customers.
      I hope many house holder will do the same once storage technology costs come down to an affordable level.

      .

      1. Jonathan Maddox Avatar
        Jonathan Maddox

        I read here that the big four own “under 7%” of *renewable* generation in Germany, which is entirely credible.

        http://www.reuters.com/article/2013/03/08/us-utilities-threat-idUSBRE92709E20130308

        1. Louise Avatar
          Louise

          The big 4 produce 73% of conventional electricity, form fossil fuels and nuclear power.

          http://www.bpb.de/politik/wirtschaft/energiepolitik/152780/die-grossen-vier

          1.3.2013

          Die großen Vier: RWE, E.ON, Vattenfall und EnBW. Zusammen produzieren sie 73 Prozent des konventionellen Stroms aus fossilen Brennstoffen und Kernenergie. Doch bei den Erneuerbaren haben Sie den Anschluss teilweise verpasst. (© AP, Vattenfall, EnBW)

      2. Jonathan Maddox Avatar
        Jonathan Maddox

        If your home is “energy plus” but you disconnect from the grid, your neighbours and industrial consumers can’t benefit from your carbon-free generation (yet your generation isn’t entirely carbon-free or independent, because you must buy fossil or biofuels to run the hybrid car/backup generator). Geographical distribution of power will remain a vital service for many years to come, even as it becomes a two-way street.

        1. Louise Avatar
          Louise

          If I am getting paid 8 cents per kWh, then I don’t see much sense in staying grid connected once batteries become affordable.

          I have enough roof space to extend my system to 12kW.
          If everything goes to plan, then I will upgrade my solar panels to a 12kW system and I buy a 100kWh Eos battery and go off grid.

          My daily driving is 37 km per day. As I almost never drive long distances, I could do with a hybrid vehicle and that would mean that I would reduce my petrol consumption by 99%.

          I would not buy a pure electric EV for I would want to be able to drive beyond my electrical range without any inconvenience in case the unexpected happens that I need to drive out of town. I usually use a plane for intercity/interstate travel.

          Council is planing to install fast chargers in the city centre, 1.5km from my house.
          That means, I would not even need to use the petrol engine of a PHEV to power my house if there is a week of bad weather effecting my energy harvest.

          I do not anticipate to run low on electricity once I add another 7kW to my existing 5kW solar system.

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