Where to Now?

Germany Rethinks its Energy Transition

in German Politics and Society

Abstract

This article examines Germany’s efforts to transition to a less carbon intensive economy. It follows the origins of the ongoing Energiewende and the civil mentality that allowed Germany to become a leader in the transition to a cleaner future; while also critically analyzing the country’s capacity to in fact achieve those targets, looking closely at both the achievements and shortcomings of existing policies. To date, the focus has largely been on reforming electricity generation; however, as the Energiewende moves along focus must move beyond just sustainability to address other parts of energy policy including energy security and affordability. Beyond just generation attention must also move to sectors such as transportation and construction.

Eighteen years after the adoption of the Renewable Energy Sources Act (Erneuerbare Energien Gesetz or eeg), German political and business leaders are re-examining the foundations of the Energiewende (Energy Transition), reconsidering its achievements, and, above all, its costs. While Germany has led in building renewables and has been a global frontrunner in the clean energy movement for more than a decade, these achievements have come at a high price. Germany’s electricity prices are among the highest globally—not, however, due to the actual price of wholesale electricity, but rather to the heavy surcharge burden necessary to support feed-in tariffs and transmission and distribution improvement costs. Moreover, besides economic efficiency, security of supply is becoming a growing concern as the availability of electric power becomes increasingly unbalanced—with the north of Germany facing oversupply and curtailment, while the south braces for further supply reduction as nuclear plants prepare for their ultimate closure by 2022.

Nevertheless, public support for the Energiewende remains remarkably strong. The enduring popular support for the Energiewende is tied to its origins in the 1970s as a grassroots protest movement directed against nuclear power. It is a relative rarity in German politics—a movement that arose from the local level against the indifference of the political establishment and the opposition of the utilities. From the beginning it was a moral cause, a critique directed against established political and economic institutions, which continue to be viewed with deep suspicion by large parts of the citizenry. Much of the Energiewende, particularly the early development of solar energy, consisted of local experiments in decentralized, participatory democracy, which have transformed the entire political process.1 This is still an important part of the social base of the Energiewende, and helps to explain why it retains such strong public support, despite its mounting costs.

Yet, of all the shortcomings that threaten the German Energiewende, the most acute one is that since 2008 emission levels of co2 and other greenhouse gases have failed to decline, as short-term increases have offset any meaningful achievements.2 It is now broadly acknowledged by all the major players, both in business and in politics, that Germany will miss its 2020 targets by a wide margin. This prospect is causing a nationwide re-examination of the foundations of the energy policy, including an update of the basic law, the Renewable Energy Law (Erneuerbare Energien Gesetz, or eeg). As such, the most recent reassessment of the eeg in 2016/2017 looked beyond the simple increase of renewable capacity, reconsidered the current strategy, and asked, at what price? Since that time, the Energiewende has featured prominently in the political debates surrounding the legislative elections of September 2017 and the subsequent protracted negotiations over the composition of the government. The goal of this article is to take stock of the current discussion and assess what changes in the Energiewende may be expected now that a new government has come to power.

In principle, a sound energy policy should strike an even balance between sustainability, energy security, and economic efficiency. So far, however, Germany’s energy policy has predominantly concentrated on sustainability, and specifically on increasing the share of renewable energy in Germany’s electricity mix. Despite being commonly referred to as the energy transition, most of its achievements have been on the electricity side, with little attention being paid to either the transportation or heating sector, and even less to industry. Indeed, industry has actually received exemptions from many of the renewables policies, most notably the eeg surcharge, which this article discusses in detail below. Moreover, even within the renewables envelope, the near-exclusive focus on increasing generation has led to a neglect of costs to the customer and growing threats to existing infrastructure.

The challenges faced by the eeg are further exacerbated by problems in other parts of German energy policy, especially Germany’s nuclear program. Based on a 2011 decision, Germany’s nuclear plants are scheduled to come offline for decommissioning by 2022, creating an 11 percent power shortage yet to be filled, as well as further stress on the German power grid. At this writing, the German government does not have a settled plan for replacing the lost capacity after the end of nuclear power. Instead, the conversation has focused more on possible retirements of Germany’s lignite coal plants, which would widen the supply gap even further.

Nevertheless, the German general public shows little apparent concern and remains broadly approving of the energy transition as is. The question remains how much longer this relatively unquestioning support will last, and when citizens will demand a more economical and efficient policy. Moreover, in the final analysis, the Energiewende must still prove it can reach its ultimate goal of reducing greenhouse gas (ghg) emissions and fighting climate change.

This article is divided into three parts. The first reviews the achievements of the Energiewende; the second its shortcomings; and the third the outlook for the policy’s future. The emphasis in the article is on the power sector, since this is simultaneously the most successful yet the most controversial aspect of the policy.

A Brief History of Energiewende Policy, 1990–2017

The origins of the energy transition date back to the early 1990s. In 1991, the government passed the Electricity Feed-in Law, requiring electric utilities to accept and pay for third-party electricity generation from renewable sources. Together with the market deregulation in 1998, initiated by the European Union’s 1996 Internal Energy Market directive, the Electricity Feed-in Law laid the foundations for the Renewable Energy Law of 2000.3 The eeg, together with its many updates over the following years, is the German government’s blueprint for the Energiewende, defining both targets and approaches to reducing co2 emissions, increasing power production from renewable sources, and promoting energy efficiency.

The most important new feature of the eeg, which set it apart from the Energy Feed-in Law that preceded it, was an increase and broadening of the feed-in tariffs, which were not only raised but also extended to previously excluded power sources such as geothermal and larger (5–20 mw) hydropower plants. In addition, the eeg gave “dispatch priority” to electricity from renewables, mandating its delivery into power systems ahead of power from conventional sources.

Since then, Germany’s renewables policy has been under continuous review. So far there have been five revisions to the original eeg (2004, 2009, 2012, 2014, and 2016/2017), each intended to adapt the policy to evolving conditions. The 2004 revision further increased feed-in tariff rates and significantly strengthened support for household and community solar generation; the 2009 revision set a 30 percent target for penetration by renewables into the power sector by 2020 and expanded the focus beyond electricity to include heating. The 2012 revisions marked a turning point. By that year solar installations had grown impressively while capital costs had declined, and the government responded by reducing feed-in tariffs for solar generation, although it simultaneously increased subsidies for the less mature offshore wind industry.

The most significant revision of the eeg to date came in 2014. Following the 2013 election, the new Christian Democrat-Social Democrat (cdu/csu- spd) coalition under Chancellor Angela Merkel adopted a 10-Point Action Plan in 2014, which for the first time widened the focus of energy policy to include security and affordability. It combined heightened renewable penetration targets for 2025 (40–45 percent) and 2035 (55–60 percent), while further reducing feed-in tariffs. Most importantly, it began moving away from direct subsidization to competitive tendering, requiring the tendering of larger renewable projects by 2018 and establishing a 400 mw pilot program for 2016.

Finally, the most recent revision (2016/2017) formalized the shift away from direct subsidization towards competitive tendering. Under the new regime, the government determines the demand requirements for a given year and then holds a competitive auction for the contract. With this shift to tendering, the government has effectively set limits to renewable new build, as it predefines the maximum amounts of new renewables eligible for subsidization each year, instead of letting the market develop on its own. That said, with recent auction results coming in ex-subsidy the question is also how long it will take until new projects are being built ex-tendering and ex-subsidy. The 2016/2017 eeg revision, thus, represents a meaningful shift in the German government’s approach to the Energiewende.4

Achievements of the Energiewende

The greatest achievement of the German Energiewende, without a doubt, has been the spectacular increase of renewables in the electricity mix. In 2000, at the beginning of the policy, renewables contributed only 6 percent of the total electricity supply. Today, eighteen years later, renewables contribute on average more than one-third of electricity generation.5 The rise in generation from renewables is based primarily on wind and solar, with lesser contributions from biomass and hydropower. At the end of 2017, Germany renewables capacity consisted of approximately 42.8 gw of installed solar, 55.6 gw of installed wind (50.3 gw onshore and 5.6 gw offshore), as well as 7.4 gw of biomass and 5.6 gw of hydropower.6 Over the ten-year period from 2005 to 2015, more than euro150 billion in private funds flowed into German renewable investments.7 This enormous financial effort has made Germany a leader in renewable energy development, third to only China and United States in terms of total installed capacity.8

Beginning in 2016, the government’s focus moved beyond simply increasing the renewable capacity deployed to growing the share of renewables in the power generation mix by promoting energy efficiency. As the Ministry for Business, Industry, and Energy says, “Energy that isn’t used need not be produced.” Reducing energy intensity requires a decoupling of gdp growth and energy consumption, something that is not easy in a large industrial economy like Germany. Yet Germany has already made progress in this direction. Between 2000 and 2015, German gdp grew from u.s.$1.9 to u.s.$3.4 trillion, while energy consumption remained fairly flat. This decoupling, however, occurred selectively. Households have shown the greatest decrease of energy intensity, with significantly more modest contributions coming from transportation and industry. These unbalanced achievements in energy efficiency help to explain why Germany continues to miss ghg emissions targets, as we discuss below.

Thus, whereas in the first decade-and-a-half of the Energiewende renewables held center stage, energy efficiency is now increasingly viewed as the key to making the energy transition work.9 This growing stress on energy efficiency can also be seen through the monetary support the German government has devoted to it. Since 2006, the government has invested over euro 271 billion in energy efficiency improvements, with another euro 17 billion scheduled for investment by 2020. This financial effort has already begun to payoff: the energy-intensity of Germany’s economy continues to fall, decreasing the amount of co2 emission per u.s. $ of gdp and for the first time in its history leading to a decoupling of gdp and co2 growth. Yet, this has not been enough to put Germany on course to meeting its most important 2020 target a reduction in ghg emissions target by 40 percent compared to 1990.10 This is the policy’s most serious shortcoming, but it is not the only one, as we discuss in the next section below.

The Shortcomings of the German Energiewende

While the Energiewende has made meaningful strides over the last fifteen years, some of these achievements appear less shiny when seen in context. Thus, most of the reductions in co2 emissions occurred in the 1990s, following the reunification of the country and the abrupt drop in industrial production in the East (the so-called “wall fall” effect). Since 2000, however, progress has been slow, and indeed, co2 emissions actually rose by 0.4 percent year-on-year in 2016, with energy-related emissions growing even more at 0.9 percent.11 Not only will German fall short of its goal of reducing co2 emissions by 40 percent by 2020, it will also fail to meet its consumption target of reducing energy consumption by 20 percent vis-a-vis 2008 statistics, with energy consumption increasing by 1.0 percent in 2017.12

Germany’s continuing dependence on coal is the greatest single obstacle to further progress. Coal’s share of total primary energy has barely decreased over the last decade. In 2017, coal still accounted for 22.2 percent of primary energy, making it the second largest source of primary energy behind oil. As about 80 percent of coal is consumed in the electricity sector, coal represents the largest fuel input into electricity production. In 2017, 37 percent of electricity generation, 242 twh, came from coal.13 Coal accounts for 81.3 percent of total electricity related ghg emissions. But, coal also accounts for a large share of total co2 emissions in the economy as a whole. Of the total 906 million tons of co2 emissions in 2016, approximately 306 million (34 percent) originated from electricity production, with coal alone contributing 249 million tons or 27.5 percent.14

What explains coal’s continued dominance in the German power sector? First, coal is at most times significantly cheaper than alternative conventional fuels (such as natural gas), thus, coal-fired power plants are typically dispatched ahead of their gas-fired alternatives. Second, as most of the existing power infrastructure is coal-fired, simple inertia accounts for much of coal’s continuing dominance. As long as coal retains its present place in electricity generation, significant decreases in ghg emissions from power generation are difficult, and with transportation and heating likewise showing little improvement, the overall 2020 emissions target has become impossible to reach.

The problems with the Energiewende in the power sector, however, go well beyond the dominance of coal. Indeed, paradoxically, Germany’s very success in developing renewables has brought the electricity sector to the edge of crisis. To explain this, we turn first to a brief discussion of dispatch and merit order, before going on to describe the consequences of the spread of renewables for both producers and consumers.

Dispatching, Curtailment, and Merit Order Issues in Power

In order for the power grid to function correctly it must remain balanced, i.e., there must exist enough electricity on the grid as demanded, and outflows must be matched with inflows. Too little electric capacity in the grid will result in power outages; too much electricity will overload the wires carrying the system, also ending in power outages. Thus, the key to providing electricity is the balance of the grid. Anticipating demand and matching it with adequate supply is the essential condition for successful electricity management.

Traditionally, electricity has been produced by large power plants. Those conventional power plants (coal, gas, nuclear) provide a continuous, stable stream of electricity, which is given access to enter the grid by the network operator. “Dispatching” is the technical term used to describe this transfer of power from the generating plant into the grid. Usually there is more than one power plant ready to fire up and dispatch when called upon; thus, there exists a “merit order” determining priority. Historically, merit order was primarily determined by price, i.e., the cheapest source of electricity was dispatched first. The eeg shook up this price dependency, when it included a clause prioritizing renewable energy in the dispatch merit order. In other words, whenever there are two generators waiting to be dispatched, the renewable resource will receive priority, regardless of how much cheaper the conventional alternative is. This prevents the more economical power producers from entering the market and increases the price of sourced power.

The market entry of renewables, however, has brought another issue as well. As mentioned previously, power generation historically relied on large conventional power plants, which generated continuous, stable supplies. Moreover, the exact output was easily manageable through the amount of input (coal or gas). The network operator thus had to handle only the unpredictability of customer demand, but not electricity supply. With the increase of deployed renewable power, this has dramatically changed. Renewables such as solar and wind are intermittent power sources, i.e., they do not produce electricity continuously. Instead, they only operate when their underlying electricity source (chiefly sun and wind) is available. Hence, the amount of their generation can also not be determined and is fully dependent on how brightly the sun is shining or how powerfully the wind is blowing.

On a cold, rainy day without much wind, Germany relies almost completely on electricity from conventional generation. On a “good” day, however, when the wind is blowing and the sun is shining, these previously idle renewables can generate enough electricity to satiate the country’s total consumption. Since renewables are at the top of the dispatch “merit order,” they receive priority when it comes to entering the grid. Thus, all the other conventional generators, which provided the power in the prior example, must then be throttled back. This creates a problem called “grid curtailment.” Curtailment refers to a situation in which generators that could enter the market with available electricity are shut out to maintain the system’s balance and prevent the grid from overloading. With increasing renewable penetration, these swings from little available renewable capacity to full-on renewable power intensify, and overall system volatility increases.

While curtailment is painful for conventional power generators, increased network volatility affects everyone, as it increases the cost of grid network stabilization and maintenance. In 2017, costs of network operations amounted to over euro 7.48 cents per kWh, while the actual generation cost was only euro 5.63 cents per kWh. So far, Germany has relied on its neighbors to balance some of these supply swings, importing electricity during non-sunny, non-windy times, and exporting electricity during windy and sunny days when there is excess of supply. At most times, there is excess. As a result, Germany’s power import-exports balance has shifted significantly over the last fifteen years: from importing 3 twh in 2000 to exporting over 55 twh in 2016.15

Transmission and the Ever-growing Cost

The integration of renewables not only creates network issues from an intermittency standpoint, but also from a geographic standpoint. Historically, Germany’s power generation was relatively evenly distributed, with a significant portion of generation located in the southern areas. With increasing levels of wind generation, more generation capacity is now shifting northward, where wind conditions are more favorable than in the south. This shifting capacity, however, has created issues for the grid infrastructure, which was never built to transport large amounts of electricity from the northern coast to middle and southern Germany. Chancellor Merkel herself addressed the issue in a speech at an energy conference in mid-2016, when she stated: “We have a situation where wind power in the north can’t be transmitted where it is genuinely needed.”16 In fact, in order to integrate the increasing amount of renewable power generation, Germany’s transmission infrastructure needs significant updating and expansion. Current estimates call for some 13,000 km of updating and new build by 2030, including a planned 2600-km high-voltage direct-current line, which will bring wind power from the north coast of Germany to the southern Länder, with a capacity of up to 8000 mws. Moreover, the additional transmission lines required to bring power from offshore wind parks will total between 2300 and 3700 km with a capacity of 7400 mws by 2030 and 11,400 by 2035, the equivalent of eleven nuclear power plants.17 The anticipated costs for these infrastructure improvements will come to between euro 33 to 50 billion.18

In addition to its high cost, the restructuring of the transmission system has run into local resistance. Lately, the opposition to Südlink and other proposed high-voltage interregional lines has stiffened, as powerful advocacy groups such as bund (Association for the Environment and Protection of Nature in Germany) lobby against the large transmission projects. Critics include for the most part regional wind power producers who prefer a “decentralized” transmission model, with multiple access points along the route to enable regional producers to feed in and offtake power at the local level. They are demanding a review of the entire transmission concept—a demand that is fiercely opposed by the supporters of Südlink, who argue that such a decentralized design would entail large power losses along the route and would therefore not be economical. In an effort to reach a compromise, the government has agreed to bury the line along most of its route, but it is far from clear that the opponents are satisfied. The result of this ongoing controversy will undoubtedly be more delays in developing badly needed north-to-south transmission capacity.19 The Südlink line is already three years behind schedule, following the decision to bury the transmission infrastructure; any additional delays could thus severely impair the Energiewende and pose risks to the grid capacity of northern Germany, which continues to increase its load due to continuing large-scale additions of new wind power capacity.

As with the renewable electricity subsidization expenses which are placed on consumers through the renewable electricity surcharge (eeg Umlage) these network improvement costs are also levied on the consumers, this time through the network operations surcharge. Back in 2004, the then environment minister, Green Party member Jürgen Trittin, famously predicted that renewables “would cost the average German household only 1 euro a month—less than a scoop of ice cream.”20 To which the editor of Frankfurter Allgemeine Zeitung, Holger Steltzner, drily responded, twelve years later: “Well, yes, and the price of ice cream has gone up too, but one scoop of ice cream doesn’t yet cost 300 euros…”21 To get a clear idea of the impact of these surcharges, one must look closer at the breakdown of all-in customer electricity charges. Surprisingly, the pure generation/electricity cost accounts for only 19.3 percent, while the various surcharges account for over 52 percent of the final price charged to customers.22 Moreover, costs have been growing dramatically. Over the last eighteen years, the allin electricity price for retail customers has increased by 105 percent.23

The Nuclear Exit and the Burden of Decommissioning

Compounding the difficulties of the Energiewende are continuing problems with nuclear power. Nuclear power had never won the hearts and minds of the German public, and the commitment of the government and the utilities had never been more than half-hearted. Even so, by 1990 nuclear power accounted for over one-third of total power generation. Yet, after the nuclear accident at Chernobyl in 1986, both public and official sentiment turned decisively against nuclear power, while utilities came to see it as unprofitable, and the last nuclear power plant came online in 1989. By the turn of the twenty-first century, the main question was no longer whether Germany would exit from nuclear power, but when and at what rate.

In 2002, the German government adopted an initial plan for the phase-out of nuclear power by 2020. Yet, the decommissioning schedule was rather leisurely and back-loaded—by 2010, only six nuclear units out of Germany’s initial twenty-three had been decommissioned. Moreover, nuclear power, because of its relatively low operating costs, continued to be considered an essential “bridge fuel” to help finance the transition to the renewable future. Indeed, in that same year the federal government under Merkel granted an extension to the country’s seventeen remaining nuclear units, extending their lifetime well beyond 2020. Just two months later, however, following the 2011 Fukushima disaster in Japan, Merkel abruptly reversed course and ordered the entire sector shut down by 2022. Indeed, eight older nuclear units were closed immediately.

The utilities cried foul and brought suit before the Federal Constitutional Court in Karlsruhe, demanding compensation for damages caused to them by the chancellor’s decision, as well as lost revenue from the initial 2002 decision. But, in December 2016, the Constitutional Court ruled against them. In addition, the utilities must now pay euro 23.3 billion into a special “Atom Fund” to help finance the decommissioning of the remaining nuclear plants and the disposal of nuclear waste.24

What is still unresolved, however, is how to replace the capacity and output that will shortly be missing from the nuclear sector. Power generated by nuclear power plants has sunk by half since 2000, and now accounts for only 11.6 percent of total power production. Yet, the nuclear plants contribute much of the all-important “base load” that renewables cannot. At the same time, the contribution of renewables will be lessened by the fact that the planned transmission capacity to connect the north and the south will not be ready before 2026 at the earliest. This leaves a gap, which in all likelihood will have to be filled by coal-fired power plants, and/or by gas, as discussed below. This, in turn, will put Germany even farther away from meeting its targets for co2 and ghg reduction.

Bad Management by the Government?

The problems with the Energiewende have led to mounting criticism of the government. In December 2016, the Federal Court of Auditors issued a report to the Budget Committee of the Bundestag that was highly critical of the Ministry of Economy and Industry (bmwi), the main federal body responsible for the coordination of economic with energy policy.25 “The Ministry has no oversight over the financial impact of the Energiewende,” wrote the auditors. “Elementary questions, such as ‘How much should the Energiewende cost the state?’ are not even posed and remain unanswered.” As a result, according to the auditors, the government has no idea whether the euro 3 billion the Ministry receives each year are spent to good effect. The report urged the Ministry to develop common metrics of cost-effectiveness of its programs, such as the impact of each subsidy and support on co2 emissions.

The report also blasted the Ministry’s internal organization—an “incomprehensible” (nicht nachvollziehbar) structure, in which new positions are added without sufficient assessment of whether they are needed or not—131 in 2015 alone. The Ministry is also accused of failing to coordinate its programs with other government bodies, particularly the Land governments. The result, according to the report, is duplication of work and of subsidies. As an example, the report cited the number of state-sponsored websites offering identical energy-saving advice, all at public expense.

Yet, the deeper problem, according to the Court, is a misalignment of goals; efficiency and affordability take second place to environmental goals. “Energy reliability and affordability must be taken into account as limiting factors in the further development of the Energiewende.” Whether the ministry and government will listen is another matter; the Court has issued such warnings before. More recently small and medium sized businesses have also come out to complain about the high economic burden of the Energiewende and the drag on international competitiveness. Given this mounting criticism and the urgency of the problems facing the energy transition, what has been the reaction of public opinion? How long will the public continue to support the Energiewende?

To date German public opinion continues to be remarkably steadfast in supporting the Energiewende, and in particular the elimination of nuclear power. In surveys taken at the end of 2016, a remarkable 93 percent of respondents agreed that the Energiewende was “important” or “very important”—the highest rating in the last five years.26 Despite the high cost of the program—total subsidies for renewables amounted to euro 23 billion in 2016, more than the entire cost of unemployment benefits—on the whole, the German public continues to support them, considering that they are a good investment.27 However, Germans are less certain that the program is going as well as it might. Only 47 percent of respondents rated the program’s performance as “good” or “very good.” But, so far, these doubts have not weakened the public’s basic commitment to the transition. As already discussed, the Energiewende has deep roots in German society, but public support is likely to be tested by the challenges ahead.

Government Responses to Growing Criticism

While the general public has only recently become more critical of the energy transition, politicians and network operators started recognizing the shortcomings of the Energiewende earlier. This can be seen most clearly in recent policy decisions to accelerate the step-down for feed-in tariffs, to cap the installment of renewables in certain regions, and to move away from set subsidies to a tendering process, as well as suggestions to increase energy efficiency as a way to increase renewable penetration while limiting the amount of money spent on renewables. In the rest of this section, we focus on developments in wind power, which has been the most effective of the government’s responses to date.

As the federal government drafted the 2016 revisions to the eeg, it initially appeared inclined to cut back subsidies for wind power. Following a powerful pushback from the “eco-power lobby,” which mobilized thousands of demonstrators with slogans like “Save the Energiewende!” and “Defend the eeg!”, the government retreated. When the revised eeg was published in the summer of 2016, the planned cut in wind power subsidies had been removed. Instead, in April 2017, the government (specifically the Bundesnetzagentur, the agency that licenses and oversees networks, bna) began auctioning leases to offshore wind park locations in the North and Baltic Seas.28 Under the new system, the winners are those that submit the lowest bids for state subsidies—a system already in use in Denmark, where it has led to sharp drops in state support. The bna is planning to auction twenty-year leases for a total of 3100 mws of additional wind generation capacity over the next two years. This will represent a sizable addition to the 4100 mws of capacity supplied by the 947 (offshore only) windmills currently in operation, although initially the increment will be limited to 500 mw, because of the lack of transmission capacity to shore. There is presently a growing level of demand for leases among would-be builders—twice as many, in fact, as are likely to be awarded. Large European utilities and E&P companies are expected to be among the most active bidders.29

Countering all expectations, Germany’s 1.5 gw offshore wind tender brought extremely low bids. Despite critics’ arguments that offshore wind in Germany would not price as competitively as experienced in previous tenders in Denmark and other Nordic countries, 1.38 gws of the 1.49 gws bid on in the tender came out subsidy free. This 1.38 gw of subsidy-free offshore wind includes two Orsted projects, namely owp West (240 mw) and Borkum Riffgrund West 2 (240 mw), as well as EnBW’s He Dreiht (900 mw). These three projects bid in at euro 0/mwh, implying that they will receive no subsidy and instead rely solely on wholesale power prices. The fourth project contract awarded to Orsted Energy (Gode Wind 3, 110 mw) passed with a subsidy of euro 60/mwh. The average subsidy for all four contracts up for tender is euro 4.4/mwh, significantly below current levels eeg subsidization of euro 194/mwh for eight years for offshore plant going online by 2019. The results of the tender took the industry by surprise and highlighted the cost-competitiveness of offshore wind. The success of the offshore wind tender will also likely increase pressure for tenders for onshore wind.

With the shift towards tendering, the government has also effectively set a limit to renewable new build, as it predefines the maximum amounts of new renewables for each year, instead of letting the market develop on its own. The 2016/2017 eeg revision, thus, represents a meaningful shift in the government’s approach to the Energiewende.30 As the most recent competitive wind auctions have cleared at little to no subsidization, the changes in the eeg could lead to a possible stabilization of the eeg surcharge, as the cost of new subsidies decreases and old existing subsidies roll off (the average subsidy/feed-in lifespan ranges between fifteen-twenty years).

So far, the tender applies only to new windmills, but eventually the result, at least in the long run, will be cheaper wind power. The new tender procedure, however, ran into strong opposition over the summer of 2016, and the result was a compromise, under which the new rules would not come into effect until 2019 (for windmills on land) and 2021 (for offshore windmills). Meanwhile, the windmill business is booming, as governments and investors scramble to take advantage of the existing subsidy, which stands currently at euro 9 cents per kilowatt-hour, and which the government continues to guarantee for twenty years. Even Länder to the south, where hitherto there had been little construction because there is too little wind for wind power to be economic, are now hurrying to catch up.

New Policy Directions and Initiatives: the Grünbuch and the Klimaschutzplan 2050

Over the last year, the German government has published a number of policy papers framing the government’s shifting approach to climate change and the Energiewende. The two most important documents were by far the Grünbuch (White Paper) and the Klimaschutzplan 2050 (Environmental Protection Plan). These two documents mark a potentially important shift in Energiewende policy, inasmuch as both look beyond the current focus on renewable generation, shifting attention to energy efficiency. In August 2016, the bmwi under then Energy Minister Sigmar Gabriel published its Grünbuch as a means to propose strategies to tackle the recent challenges and initiate discussion on possible new legislation. The argument made by Gabriel is that increasing renewable energy sources alone is not enough, instead, energy consumption must also be dramatically decreased by 20 percent in 2020 and 50 percent in 2050. Every unit of electricity that can be saved/avoided, Gabriel reasoned, does not have to be produced, stored, and/or transported. Thus, a focus on efficiency first saves energy, lowers ghg emissions, and avoids the cost and complications of integrating new energy sources into existing infrastructure. Based on this assumption, the Grünbuch provides a number of solutions on how to increase efficiency in the electricity sector as well as the transportation and heating sectors, as well as how to make efficiency measures legally binding both within Germany and the European Union, and how to mitigate the rebound effects of efficiency. After all, a common problem of falling total electricity costs is more careless consumption. While the Grünbuch consider a variety of measures to prevent this rebound effect, one measure in the transportation sector stood out specifically and received significant attention: price controls, and the idea of sliding gasoline and energy taxes. The basic idea was simple: the lower the gasoline price, the higher the tax.31

The initial reaction towards the Grünbuch by the business community was rather critical. The majority of respondents warned against setting absolute energy consumption targets and using price controls to counteract low energy prices. Despite widespread agreement that low energy prices discourage energy efficiency measures, not even the more green-leaning respondents supported the proposed sliding energy taxation. Across the board, such measures were understood to interfere with market pricing mechanisms, and artificially inhibit Germany’s competitiveness. Utilities, responding both individually and through the utility association, raised similar objections, arguing against any form of targeted consumption cuts, and instead for stronger support of capacity markets and co2 emissions tax. Surprisingly, perhaps, expanding the European carbon-trading system (ets) to include more industries and sectors, as well as increasing the carbon tax, found the most support. The Ministry of Economics, somewhat startled by the hue and cry, protested that the draft was no more than a discussion paper, and went back to the drawing board.

The Klimaschutzplan 2050, released later in 2016, picked up and expanded upon many of the themes addressed in the Grünbuch; primarily discussing policies with which Germany can meet the promises made at the Paris Climate Conference in 2015. Similar to the Grünbuch, the Klimaschutzplan 2050 was intended merely as guidance and does not include any legally binding conclusions. On the face of it, the plan is extraordinarily ambitious. It argues that in order for Germany to achieve its ghg emission reduction targets by 2050, it will have to largely eliminate all energy-related emissions in the electricity, transportation, and construction sectors. The government argues that a near complete elimination of ghg emission in these three sectors is a necessity to reduce overall ghg emission by 90 percent versus 1990, as there is only limited improvement capacity in other ghg emitting sectors such as agriculture. Based on these assumption, the report—like the Grünbuch—focuses on efficiency first, with the intention of reducing overall energy consumption in these three sectors (electricity, transportation, construction), as well as increasing the integration of renewable electricity in both transportation and construction. The report presents products such as the electric car and electric heating as possible ways of implementing efficiency first.32

The Grünbuch and the Klimaschutzplan are long on ideas and short on specific action items, but their significance lies in the fact that they signal a rethinking of the foundations of the Energiewende. Since the beginnings of the Energiewende, policy has focused almost exclusively on renewables and on electricity. That policy direction is now showing its limits, as symbolized by the fact that Germany will miss its 2020 targets for emissions reduction, and this is leading to soul-searching among policy-makers, business, and the public. With the new government, this debate is bound to widen. In the final section of this article, we discuss two of the outstanding issues ahead—the exit from coal (Kohleausstieg), and the future of gas.

Where to Now?

As we have seen in this article, the mounting costs of the Energiewende have absorbed much of the recent attention of German policy-makers, and the broad answer they have proposed is increased efficiency and further centralization. Indeed, the government has already taken initial steps in this direction with the latest revisions of the energy policy, in which it focuses more on mitigating excess consumption and centralizing new renewable build through targeted tendering processes.

There is broad agreement that the challenges ahead require more coordinated execution and centralization around larger-scale projects. This strategy, however, comes at a potential political cost, that of leaving behind one of the key features of the original clean energy movement—decentralized, participatory democracy in small-scale projects. Yet, in order to build renewables cost-efficiently, utility-scale applications will be necessary, and centralized planning will be critical to placing renewables into the grid on a timely basis and avoiding costly curtailments. As the remaining nuclear capacity, primarily located in the south, rolls off, this more centralized tendering system will become ever more important. Larger-scale projects are not only cost-effective from a grid-integrity perspective but also from an economic point of view, as recent tendering projects have come in around euro 60–65/ mwh vs previous projects supported through feed-in tariffs in the euro 200/mwh range. To maintain if not increase the competitiveness of German power, it is thus key to replace existing generation (nuclear or coal) with cost- competitive alternatives, primarily offered through large-scale, centralized projects. Yet, as the German Energiewende shifts away from its decentralized, participatory roots, the question arises whether public support will weaken as large corporations and utility-scale projects come to play the lead roles, as opposed to the participatory nature of the Energiewende in its first phase.

In the meantime, there is another fundamental issue looming in the next decade: energy security. How will Germany manage the capacity gap in electricity that will open up in 2022, when the last nuclear power plant goes offline? That gap may not close until the late 2020s or beyond, when the north-south transmission system, necessary to transport new offshore wind capacity from the North Sea and the Baltic to demand centers in the south is finally operational. What will fill the gap, if not coal? Will gas play the lead role as a bridge fuel? There is a crunch coming in the German Energiewende, which will put coal and gas at the center of the debate for the next decade.

The Debate over the “Exit from Coal”

The dilemmas facing German energy policy could be seen from two events that took place in the spring of 2017 at opposite ends of the Glienicke Bridge (the famed “bridge of spies”) separating the city of Berlin from Potsdam, the capital of surrounding Brandenburg. In late May, at a ceremony at the Klingenberg, the spd mayor of Berlin, Michael Müller, officially shut down the old plant that had been burning brown coal to provide heat and power to the city for thirty years, replaced by a brand-new gas-fired unit on the same location. “The exit from lignite will save 600,000 tons of co2 per year.” Müller stated proudly. It’s a drop in the bucket, compared to the 20 million tons of co2 the city emits every year, and, in any case, the city will continue to use black coal until 2030, but it is a highly symbolic step forward all the same.33

In Potsdam at virtually the same moment, Albrecht Gerber, also spd, Economics Minister of Brandenburg, as if in echo to the event in Berlin shortly before, stated to a conference on wind energy: “It is utopian to assume that we can exit straightaway from nuclear power and brown coal.” Over 60 percent of Germany’s power generation comes from conventional fuels, he reminded his audience.34 He reassured the audience that Berlin’s action would have no economic impact on the production of brown coal (and jobs) from its supplier at Lausitz in Brandenburg.

The two speakers from the same party were separated by only a few kilometers, yet a gulf apart. The reality of German power is that lignite will remain in the picture for some time to come. There are still fourteen brown-coal plants operating in Germany, of which the seven worst emitters account for 140 million tons of co2 per year—nearly one fifth of the country’s total greenhouse gas emissions. In 2016, electricity supply from coal and lignite represented approximately 40 percent of total available capacity.35

The future of German coal featured prominently in the abortive “Jamaica” talks in late 2017, in which the cdu/csu, the Greens, and the Free Democrats (fdp) attempted to hammer out the basis for a coalition government. The talks failed for multiple reasons, but a key point of disagreement was the Greens’ demand to close the twenty oldest coal-fired powerplants by 2020, in a last-ditch attempt to rescue the 2020 emission target. The Greens’ demand was rejected by the other parties, particularly the fdp.

Following the failure of the “Jamaica” talks, the issue of the exit from coal was taken up in the subsequent negotiations between the cdu/csu over the formation of a new grand coalition. Because of divisions within the spd, however, it was clear from the outset that the negotiators would take no strong position on coal. Instead, the two parties settled for a general commitment supporting a long-term phase-out of lignite, combined with federal assistance for coal-mining regions, under the supervision of a strategic coal commission led by the environmental and energy ministries. But, the joint document produced by the parties contained no concrete measures or dates. There is little to suggest, based on this track record, that coal will play more of a role in the renewed grand coalition.

With the nuclear exit looming, the question arises of what will replace the lost capacity. As the north-south transmission will most likely not come online prior to the late 2020s at best, it seems large-scale offshore wind installations cannot be the only answer. This leaves either coal or gas as the natural replacement. It is hard to imagine the German government would build any new coal-fired plants; but the increased use of existing coal-fired capacity will drive up related ghg emissions. On the natural gas side, the opportunity to build new capacity seems more likely, given its complementary nature to renewables, that is, its ability to smooth out some of the intermittent nature of renewable electricity generation. Either way, the exit from nuclear power equates to more fossil-fuel generation during the decade of the 2020s, if not beyond. Germany has already conceded it will not reach its 2020 targets, but this line of logic suggests it may not meet later dated targets either. More generally, if the Energiewende does not move meaningfully beyond the power sector to address transportation and industry, it is hard to see how Germany will meets its stated targets.

Conclusion

This article reviewed the German Energiewende policy, its origins, achievements, and shortcomings, and evaluates how it has developed over nearly two decades of existence and where it is heading over the next decade. The key argument is that the Energiewende as it has evolved to date is unbalanced. Its primary focus has been on the power sector, and even within the sector it has concentrated primarily on increasing the generation capacity of renewable energy, largely overlooking the larger implications for economic efficiency and energy security. Our analysis shows that this narrow focus must now be broadened if Germany wants to meet its outer-year targets to limit greenhouse-gas emissions. That said, a radical rethink of the Energiewende in the present political climate is doubtful. Judging from the negotiations between the cdu/csu and the spd, the focus of the current coalition will remain on the power sector. Historically, this has been the easy route. Adding renewable capacity through feed-in tariffs and now tendering has been straightforward, and, indeed, highly successful, in the sense that it has made Germany one of the world leaders in the share of electricity generated with renewables. Beginning in the 2020s, however, the path will grow much more difficult. To reach its ghg targets in 2030, Germany will need to think beyond the adding of renewable energy capacity. It will need to determine the role of gas for energy security in the 2020s and agree on the reductions necessary in the coal sector. Above all, it will need to broaden the Energiewende to place more emphasis on industry and the transportation sector.

The crucial question is whether there will be the political will and popular support to carry out this demanding agenda. In a speech at a January 2017 Handelsblatt Energy Conference, Johannes Teyssen, the ceo of energy company e.on, criticized the “faint-heartedness” (Mutlosigkeit) of current energy policy, as well as observing a sense of backsliding, skepticism toward the Energiewende, and the initial euphoria.36 That is precisely the challenge that German energy policy now faces—whether the German political class can muster the resolve to rethink the Energiewende, and whether the public will continue to support it.

Notes
1

For background on the origins of the Energiewende as a political movement, see Carol Hager, “The Grassroots Origins of the German Energy Transition” in Germany’s Energy Transition: a Comparative Perspective, ed. Carol Hager and Christoph H. Stefes (New York, 2016), 1–26.

2

Umweltbundesamt, “Daten zur Umwelt 2017,” Umweltbundesamt, June 2017; available at https://www.umweltbundesamt.de/publikationen/daten-zur-umwelt-2017, accessed 31 August 2018.

3

For a brief history of the Energiewende, see https://www.erneuerbare-energien.de/EE/Redaktion/DE/Dossier/eeg.html?cms_docId=71110, accessed 23 August 2018.

4

For a convenient summary of the significant milestones in German energy and climate policy, see the website of the German government’s Agentur für Erneuerbare Energien, https://www.bmwi.de/Navigation/DE/Themen/eeg-reform.html, accessed 23 August 2018.

5

Agora Energiewende, “Die Energiewende im Stromsektor: Stand der Dinge 2017. Rückblick auf die wesentlichen Entwicklungen sowie Ausblick auf 2018;” available at https://www.agora-energiewende.de/fileadmin2/Projekte/2018/Jahresauswertung_2017/Agora_Jahresauswertung-2017.pdf, accessed 31 August 2018.

6

Umweltbundesamt, “Erneuerbare Energien in Deutschland: Daten zur Entwicklung im Jahr 2017,” March 2018; available at https://www.umweltbundesamt.de/sites/default/files/medien/376/publikationen/180315_uba_hg_eeinzahlen_2018_bf.pdf, accessed 31 August 2018.

7

David Nelson, et al., “Policy and Investment in German renewable energy,” Climate Policy Initiative, April 2016; available at https://climatepolicyinitiative.org/wp-content/uploads/2016/04/Policy-and-investment-in-German-renewable-energy-Summary.pdf, accessed 31 August 2018.

8

REN2, “Renewables 2016 Global Status Report,” (Paris, 2016), 21; available at http://www.ren21.net/wp-content/uploads/2016/05/GSR_2016_Full_Report_lowres.pdfREN21, accessed 31 August 2018.

9

Energy efficiency policies are summarized in Germany’s National Action Plan on Energy Efficiency (nape); available at https://www.bmwi.de/Redaktion/EN/Publikationen/nape-national-action-plan-on-energy-efficiency.pdf?__blob=publicationFile&v=1, accessed 31 August 2018.

13

Moreover, adjusting for coal’s low efficiency factor in comparison to other fuels such as natural gas and renewables (significant amounts of energy are lost in form of heat when burning coal), the share of coal in electricity inputs is even higher.

16

Quoted in ibid.

17

Andreas Mihm,”50 Millarden Euro für Stromleitungsausbau bis 2030,” Frankfürter Allgemeine Zeitung, 10 February 2017.

19

Deutsche Press Agentur, “Initiativen: Protest gegen Suedlink intensivieren,” Frankfürter Allgemeine Zeitung, 11 February 2017.

20

“Es bleibt dabei, dass die Förderung erneuerbarer Energien einen durchschnittlichen Haushalt nur rund 1 Euro im Monat kostet - so viel wie eine Kugel Eis.” - Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit, Pressemitteilung 231/04, Berlin, 30.07.2004; available at www.bmu.de. http://www.bmub.bund.de/presse/pressemitteilungen/pm/artikel/erneuerbare-energien-gesetz-tritt-in-kraft/, accessed 23 August 2018.

22

“Stromreport,” available at https://1-stromvergleich.com/strom-report/strompreis/#, accessed 23 August 2018.

23

Ibid.

24

Frank Dohmen and Dietmar Hipp, “Frustrierte Investitionen,” Der Spiegel 50, 10 December 2016, 90. For background on the decommissioning and waste disposal problem, see also Frank Dohmen and Michaela Schiessel, “Mahnmale des Versagens,” Der Spiegel 42, 10 October 2015, 69-74.; Gesetz zur Neuordnung der Verantwortung in der kerntechnischen Entsorgung 2017; available at https://www.bgbl.de/xaver/bgbl/text.xav?SID=&tf=xaver.component.Text_0&tocf=&qmf=&hlf=xaver.component.Hitlist_0&bk=bgbl&start=%2F%2F*%5B%40node_id%3D%27262311%27%5D&skin=pdf&tlevel=-2&nohist=1, accessed 23 August.

25

Andreas Mihm, “Bundesrechnungshof kritisiert undurchsichtige Energiewende,” Frankfürter Allgemeine Zeitung, 15 January 2017.

26

Agora Energiewende, “Die Energiewende im Stromsektor: Stand der Dinge 2016;” available at https://www.agora-energiewende.de/fileadmin/Projekte/2017/Jahresauswertung_2016/Agora_Jahresauswertung-2016_WEB.pdf, accessed 23 August 2018.

27

Julia Klaus, et al., “Vom Winde verwöhnt,” Der Spiegel 27, 5 July 2016, 29.

29

Andreas Mihm and Helmut Bünder, “Das Wettbieten um neue Windparks beginnt,” Frankfürter Allgemeine Zeitung, 11 February 2017.

30

For a convenient summary of the significant milestones in German energy and climate policy, see the website of the German government’s Agentur für Erneuerbare Energien; available at https://www.bmwi.de/Navigation/DE/Themen/eeg-reform.html, accessed 23 August 2018.

31

bmwi, “Grünbuch Energieeffizienz,” August 2016; available at https://www.bmwi.de/Redaktion/DE/Publikationen/Energie/gruenbuch-energieffizienz-august-2016.pdf?__blob=publicationFile&v=15, accessed 31 August 2018.

32

bmub, “Klimaschutzplan 2050: Klimaschutzpolitische Grundsätze und Ziele der Bundesregierung,” November 2016, 20-21; available at https://www.bmu.de/fileadmin/Daten_BMU/Download_PDF/Klimaschutz/klimaschutzplan_2050_bf.pdf, accessed 31 August 2018.

33

“Berlin verzichtet auf Braunkohle zur Energieerzeugung,” Süddeutsche Zeitung, 24 May 2017; available at http://www.sueddeutsche.de/news/wirtschaft/energie—-berlin-berlin-verzichtet-auf-braunkohle-zur-energieerzeugung-dpa.urn-newsml-dpa-com-20090101-170523-99-571918, accessed 23 August 2018.

34

“Gerber: Schneller Ausstieg aus Kohleverstromung utopisch,” Süddeutsche Zeitung, 13 July 2017; available at http://www.sueddeutsche.de/news/wirtschaft/energie—-potsdam-gerber-schneller-ausstieg-aus-kohleverstromung-utopisch-dpa.urn-newsml-dpa-com-20090101-170713-99-230121, accessed 23 August 2018.

35

ag Energiebilanzen 2017; available at https://ag-energiebilanzen.de/index.php?article_id=8&archiv=5&year=2017, accessed 31 August 2018.

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Contributor Notes

Thane Gustafson, Professor of Government at Georgetown University, is a widely recognized authority on Eurasia who has spent forty years studying and traveling in Russia, Ukraine, and the rest of the Former Soviet Union. Recent books include Wheel of Fortune: the Battle for Oil and Power in Russia (Cambridge, 2012) and Fragile Bridge: Natural Gas in a Redivided Europe (Cambridge, forthcoming). Formerly a professor at Harvard University and a political analyst at the Rand Corporation, Dr. Gustafson holds a bs from the University of Illinois in political science and chemistry, and a PhD in government from Harvard University. Email: gustaft@georgetown.edu

Josephine Moore is a research associate focused on utilities and alternative energy; formerly working at Bank of America Merrill Lynch and ubs, she holds a Bachelors in International Politics and a Masters in Foreign Service, Business and Finance both from Georgetown University. Email: jkm97@georgetown.edu