The two largest electricity utilities in Germany – E.ON and RWE – have declared they will build no more fossil fuel generation plants because they are not needed, challenging a widespread belief that the phasing out of nuclear in Europe’s most industrialised economy will require more coal-fired generation to be built.
Both E.ON and RWE say the rapid expansion of renewable energy, particularly solar but also wind, would make up for the loss of capacity from nuclear. “We won’t be building any more gas and coal power generation plants in western Europe, because the market does not need them,” a spokesman for E.ON told reporters at a briefing at the group’s headquarters on Friday. RWE made a similar statement a week earlier. A third major operator, Vattenfall, agreed that the market in Western Europe is oversupplied but said some limited capacity may be needed in the southern part of Germany.
The nuclear industry has been trying to ridicule Angela Merkel’s decision to exist nuclear, suggesting that without nuclear grid operators will simply turn to more polluting energy sources such as coal or gas. Germany is their Exhibit A, where they insist that 20GW of coal-fired power will be required to be built to substitute for retired nuclear plant.
But that’s not happening. The only fossil fuel plants that are being built are those committed to, or commenced, before the nuclear phase out was announced. And not only do Germany’s two biggest utilities dismiss the need for additional coal or gas capacity, they say that the current fossil fuel generation will ultimately be relegated to a role of back-up generation for renewables, rather than being called upon to supply “baseload” power. In some cases it is already happening. Indeed, a 2,200MW lignite-fuelled power station opened by RWE this month is designed to act as a sort of peaking plant, with the ability to ramp up (and down) 500MW of capacity within 15 to 30 minutes.
This is a fundamental transformation of the energy industry. In effect, RWE and E.ON are suggesting that the traditional model of electricity generation – that of baseload and peaking capacity – will be replaced by a new concept of flexible and inflexible power sources. The inflexible sources are those such as wind and solar, which produce when the wind blows or the sun shines; the flexible generation is that which can either be stored, or switched on when required, to fill in the gaps.
So far, this concept has only existed in modelling of the type undertaken by David Mills, and a separate team from UNSW, and also the Desertec project. The International Energy Agency also canvassed this energy model in its recent report on the solar industry. Interestingly, the modelling done on these scenarios suggest less spare capacity is needed than in the baseload/peaking model, where extra capacity is built to meet demand peaks that amount to just a few hours a year. RWE and E.ON are effectively recognising that this will be the future – hence the need for RWE’s “Fit for the Future” and the “E.ON 2.0” transformation campaigns.
Which is not to say that the transformation will be easy. There is great debate in Germany over how much capacity will be needed to shepherd through the transformation of the grid from the conventional baseload/peaking model to one of renewables/storage – and whether older plants will need to be replaced by newer plants while that transformation continues.
DENA, a government-owned body, suggested that up to two thirds of the current fossil fuel generation capacity may need to remain in place (and some of it replaced by newer plant) by 2050. Others disagree. Those decisions will be influenced by judgments on how quickly Germany can achieve that transformation. It currently aims for 35 per cent renewable energy by 2020, but in the first half of 2012, renewables accounted for 26 per cent of generation. Some suggest Germany will exceed 40 per cent renewable generation by 2020.
And the issue is not just about capacity needed, but in providing the economic incentive for these generators to stay open – because they were built on a model of operating at, or near, full capacity. Even gas generators, some of them designed as peaking plants to be switched on when demand is high, are facing financial challenges because the impact of solar PV (Germany has more than 30GW of rooftop solar) is reducing the length (and depth) of summer peaks.
Financial modeling, and recasting the incentives in the electricity industry, such as the introduction of a capacity market, were some of the key topics in a series of conferences convened between Merkel’s government and the energy industry this week – along with the need to fund some $200 billion in new investment, including in new transmission wires. Vattenfall estimates it could cause retail electricity bills to rise by 30 per cent out to 2020. That sounds a lot to Germans, but Australians are facing such rises every two years – just to support its conventional grid.
Storage will also play a crucial role, because apart from smoothing the output from intermittent sources, it is the only way to ensure that the output from wind and solar is used effectively.
There are currently at least 60 separate energy-storage projects being undertaken around Germany – ranging from various forms of battery storage, to high-speed charging stations that can turn electric vehicles into mobile storage providers, to devices that turn water into methane, which can be stored in underground caverns (Audi is building a 6MW plant using that technology next year).
Both RWE and E.ON are heavily focused on distributed generation, and the creation of “virtual power plants” that optimise the output of rooftop solar by combining it with other distributed generation devices such as batteries and micro combined heat and power plants.
“Electricity storage really is the holy grail for the German energy transformation,” Dieter Manz, the chief executive officer of German engineering group Manz told Bloomberg in a recent interview. “There’s no way around it if we want to make things work.”
Merkel, meanwhile, says that the program to phase out nuclear and ultimately move to renewables will be a “herculean” task. But she says Germany can be an example to other nations by showing them that you can succeed. Not that her plan is going without criticism, and she will be facing a new election in 2013, when consumer energy prices are likely to be a focus. But such is the nature of the political debate in Germany that her opponents accuse her of going too slow.