Germany takes energy transition away from grass-roots movements

The Carbon Brief

On Tuesday last week, Germany announced some new policy reforms to its high-profile ‘energy revolution’. Some reports have suggested the country is slamming on the brakes to prevent renewable energy further pushing up prices. In fact, with these new reforms, the government’s main priority seems to be protecting big business while continuing to roll out renewables.

Germany’s energy transition – the Energiewende– has largely been a bottom-up grassroots movement over the past 25 years. Citizens and energy cooperatives account for roughly half the investments. Large utilities are only just now getting on board.

Firms like RWE and Eon have seen their share prices drop dramatically over the past four years. During that time, wind and solar power have largely offset demand for expensive peak generation capacity, lowering wholesale prices for four years in a row.

The real policy changes designed to rescue Germany’s Big Four will be announced later, when the discussion turns to capacity payments. But this week’s reforms could help those big companies in a number of ways.

At the beginning of the month, Renewables International began a new series of charts to track the plight of conventional baseload power in Germany under wholesale prices too low for profitability.

Onshore wind is community wind

At the end of 2013, Germany had 33.8 gigawatts of wind power installed. Only about one gigawatt of that was offshore. By 2020, Germany is to have 6.5 gigawatts in the water. There is no such target for onshore, which, in contrast, is to be prevented from growing too quickly (see below).

A big difference between offshore and onshore wind power is that local communities don’t have a stake in offshore in the same way. German wind organization BWE, which mainly represents citizen owners of onshore turbines, is remarkably lukewarm about offshore, when compared to British and American wind organizations.

One major goal of the current reforms is allegedly to keep costs from rising further. But offshore wind costs roughly twice as much as onshore wind in Germany.

However, in combination with the restriction on onshore wind, which will slow down community projects, the set-aside for offshore wind will provide big investors with a protected market niche.

Target corridors

A “target corridor” is also going to be implemented for wind power, based on the model adopted in 2012 for solar power, with knock-on effects for the future of the technology’s support mechanism: feed-in tariffs (FITs).

With talk of new limits for some renewable energy sources, you might think the Energiewende is slowing down. But the old targets are right in the middle of the new target corridors, so the new system should still allow the government to hit the Energiewende’s ambitious renewable energy goals.

If more than the target is installed in a given year for onshore wind, future FITs for that technology will be reduced ahead of schedule – as was the case with solar FITs.

For solar power, the target corridor is 2.5 – 3.5 gigawatts per year, resulting in a monthly FIT decrease of one per cent, equivalent to 11.4 per cent annual drop.

For onshore wind, the annual target is 2.5 gigawatts; that target does not include offshore wind or repowering – where existing wind farms are upgraded. If more than that is installed, the FIT for onshore wind will drop more in the following year. None of these changes are retroactive; they only affect new systems, not existing ones.

By 2017, feed-in tariffs might be done away with in part or whole for wind power, although the detail is currently lacking. This change might not be as dramatic as it sounds, however; already, in Germany roughly 80 per cent of wind power is sold on the open market, not financed with feed-in tariffs.

Furthermore, contrary to numerous reports, feed-in tariffs for solar have not been changed at all. Solar is to remain eligible for feed-in tariffs until 52 gigawatts has been installed in total; the country is currently at 36  gigawatts.

Overall, these new targets should still allow Germany to reach its renewable energy goals (as my colleague Thomas Gerke recently calculated). So the government’s main reason for implementing the reform is to get better control of renewable energy’s growth, not to roll back its renewable energy ambition.

Industry exemptions

Another major issue addressed by the reforms comes from Brussels. Although energy policy remains a matter for each member state, the European Commission is increasingly investigating national policies for violations of competition rules.

Germany is not alone here – France and Finland were also investigated recently, and the UK is subject to an ongoing investigation into its new nuclear deal.

In Germany, energy-intensive firms have always been largely exempt from the “renewables surcharge” (added to each kilowatt-hour of electricity consumed in order to cover the feed-in tariffs paid out). This surcharge now stands at 6.24 cents per kilowatt-hour, but heavy industry only pays 0.05 cents.

But since Chancellor Merkel took office in 2005, the number of exempt firms has quadrupledfrom 500 to around 2000. So while you may have read that high energy prices are hurting the German economy, the big Energiewende winner is industry – and the European Commission isn’t convinced that’s fair.

Now, Brussels and Berlin have agreed that industry should pay 15 per cent of the surcharge or 0.94 cents. That’s less than the roughly 1.5 cent drop in wholesale prices since 2009, but is a step towards making heavy industry pay its share.

Offshore wind is just getting started in Germany and has exceeded all expectations. In mid-March, it ran at a high level for several days in a row – nearly at baseload levels. 

The reforms don’t just affect big industry. German Small and Medium Enterprises (SMEs) pay a higher surcharge – essentially subsidising their competition. In response, these businesses started generating more of their own electricity as renewable power becomes cheaper than electricity from the grid.

But the government now aims to apply 50 per cent of the surcharge to power consumed directly. So from 2015 these companies will not only pay part of the surcharge on behalf of big business for power from the grid, but also 3.1 cents (half of the 6.24 cents surcharge) for electricity they generate.

The surcharge will not be applied to power consumed directly by power plants, so big utilities are exempt. At present, the surcharge would be applied to new facilities used by businesses – such as, say, whatever power source chemicals giant BASF builds for in-house consumption. But such big firms may yet manage to carve out another exemption for themselves.

German households with solar roofs are also exempt; the surcharge only applies to systems of at least 10 kilowatts.

Hence while the changes to FIT mechanism won’t harm homeowners with solar panels on their roofs, big utilities and heavy industry are also largely protected.

Public support

All of this week’s reforms protect corporations at the expense of SMEs and retail consumers. But contrary to international reports about Germans being upset about power bills, there have been no demonstrations in Germany against the high cost of electricity. In fact, the high level of popular support remains noteworthy.

There have, however, been numerous demonstrations for the civil right to make your own power – something the British are yet to properly discover. While only six per cent of Germans now make their own energy, a survey last summer found that another 56 per cent would like to, and only 28 per cent believe it is a task that should be left up to utilities.

Not surprisingly, given the nature of this week’s reforms, consumer advocates now plan to suethe government – not over high prices, but because of the double standard of exempt corporations consuming fossil fuels and non-exempt smaller businesses building renewables.

Therein lies the reason why Germans have been so tolerant of rising prices up to now – they pay them back to themselves, their neighbors, and their communities, not to foreign suppliers and domestic corporations. This week’s reforms are a first step towards wresting the right to build renewables away from citizens and giving the sector back to corporations.

Source: Carbon Brief. Reproduced with permission.