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Germany has passed new laws to kick start its low-carbon energy transition, which has stalled because of an inability to integrate large amounts of renewables into the grid. But will it work?
Now that wind turbines and solar panels account for a third of Germany’s electricity, how will the world’s renewable energy pioneer go even further and integrate renewables throughout its economy?
Andreas Kuhlmann, the managing director of the quasi-governmental German Energy Agency, was asking the question of some of Berlin's brightest digital tech stars while standing at the head of a long room on a hot summer day in June.
The German government had just passed three new laws designed to unblock some of the barriers to its renewable energy transition, known as the Energiewende: amending its feed-in tariffs, putting coal-fired power plants on standby reserve, and a digitisation law to pave the way for a nationwide roll-out of smart meters – something the Federal Bundestag has been debating since 2007.
“Finally, we have a digitisation act,” Kuhlmann says, bubbling with enthusiasm. “We have some rules and business now can really start.”
Germany has been working on its renewables revolution for more than 20 years, and its lessons have been keenly sought by countries around the world as they belatedly try to shift to a more energy-secure and low-carbon future. "Everybody in the world is watching Germany,” says Manon Dufour, who heads the Brussels office of E3G, an independent non-profit specialising in energy transitions.
“But that doesn't mean they are all waiting and watching to implement the same policies." The UK, for example, has had a very market-driven transition but has stumbled because changes to support schemes have robbed investor confidence. Germany, by contrast, has consistently supported its renewables sector.
This support has meant that, despite its northern climate, Germany leads the world in solar capacity and is third behind China and the US in wind deployment. Forecasts are for Germany to total more than 128 gigawatts of non-hydro renewables capacity by 2024, nearly three times greater than for the UK, Europe’s second largest renewables market. And despite the fact that the German public has funded this renewables boom through higher energy bills, public opinion polls remain largely favourable.
But according to an analysis of new data from the Association of Issuing Bodies, which guarantee the origin of European energy, Germany’s renewable energy demand fell for the first time during the first half of this year, by 5% compared to 2015, and fast-growing markets such as Italy, France and Finland now threaten its market dominance.
Andreas Jahn of the Regulatory Assistance Project (RAP), an international NGO focused on power market transitions, says Germany faces a dilemma.Grid expansion has not kept pace with new renewable power plants, causing bottlenecks and raising alarm bells among grid managers.
On peak days Germany has to export excess renewables to neighbouring Poland and the Czech Republic, incurring huge costs for what is known as “redispatch”. According to Germany's transmission system operators, redispatch costs could rise to an €4bn by 2020, when renewables are forecast to rise to a 35% share of the German grid.
The problem is so acute that Germany's network regulator has called for a slow-down in renewables’ growth until expansion of the electricity grid catches up, says Jahn.
The three pieces of legislation, which come in to force next year, are designed to address this supply issue, as well as the trickier transmission and distribution side of the equation. But it will be a difficult act to pull off: to move forward with its energy transformation, Germany has to expand its power grids and high-voltage lines to transport electricity from offshore wind farms in the north to factories in the south. It has to upgrade its fibre optic network to a 1 gigabit bandwidth, and it has to do all this while rolling out a costly smart meter programme that could potentially saddle utility companies with overly burdensome upfront investments.
Two million power plants
One big issue is that more than half of all new renewable capacity in Germany is now represented by decentralised energy systems owned by private people, farmers and energy cooperatives. Where 25 years ago there were roughly 3,000 big- or medium-sized power production plants, today Germany is approaching 2 million generating units, with most of them being decentralised.
Kuhlmann says the digitisation legislation is important because it could potentially allow all these units to be combined into a virtual power plant.
“Digitisation and decentralisation is a perfect fit,” says Kuhlmann, before quickly adding: “But still a lot needs to happen.”
Because solar panels and wind turbines are dependent on the weather, the power grid has to react as flexibly as possible. Modern measuring and control technology – smart meters – are essential. With all the renewable electricity coursing through the system, Kuhlmann says it's also now possible to think across sectors – what some refer to as “sector coupling”. Heat and transport both can be electrified using excess wind energy, for example, by a process called power-to-gas. Green power can make its way into homes via electric heaters, or be used in electric cars and other industrial processes. These, along with other energy sources such as biogas, biomass, combined heat and power (CHP) engines, microCHP and provide flexibility to the system.
Because information technology will be crucial to help master the complexity of this new system, Kuhlmann has for the past year been conducting lectures like this one at energy trade shows, in government offices and at incubator hubs that breed business start-ups. For the Berlin gathering he relied on the networking site, meetup.com giving him access to a valuable constituency: Berlin software developers and tech entrepreneurs.
“My idea of this meetup is to bring all the smart and young entrepreneurial talent together, to harness their ideas together, form alliances and help them to create some impact in the energy transition debate,” says Kuhlmann.
No longer FIT for purpose
At the same time as the German energy market goes digital, it will have to undergo fundamental reforms. The explosion of renewables in Germany was primarily due to the 2000 Renewable Energy Sources Act (EEG), which paid renewable energy producers a premium through a feed-in-tariff, fixed for 20 years, and guaranteed priority access to the grid. The difference between the tariff and average electricity prices is applied as a surcharge to consumer electricity bills.
Under the new legislation there will be a shift from feed-in-tariffs to tenders for most new renewable energy projects, starting in 2017. Robert Busch, head of the Association of Energy Market Innovators (BNE), says the move helps to improve planning security. It means less government interference and potentially a stronger price signal that reacts to the actual supply and demand. Providers of load management, flexible power production or storage capacity will be given access to the power market.
Wind turbine manufacturers such as Enercon, which has more than 24,000 turbines installed worldwide, haven’t waited for the new legislation to adjust their business models.
Felix Rehwald, a spokesperson for the company, points out that Enercon invented inverters, which allow wind farm operators to sell their energy directly into the market, thanks to built-in intelligence controls. Now standard on all turbines – and in use for some solar and hydro installations as well – these inverters will allow renewables to replace the income that was formerly guaranteed by feed-in tariffs.
Large utilities and industrial clients have already made the shift, says Rehwald. They either operate their own virtual power plants (VPPs), or outsource the operation to software companies, so-called “aggregators”, that bundle and control disparate power sources by using fast-acting sensors and special IT controls. The power can be sold into energy markets according to the given characteristics. Though intermittent, wind can still be controlled with a fair degree of accuracy, allowing its sale to grid managers and on spot trading markets.
In the four years since going live, aggregators and their clients have earned lucrative revenues. Network operators now regularly purchase large amounts of energy from these aggregators to balance the grid and keep it reliable.
Yet it's not at all clear whether smaller operators like farmers and citizen cooperatives can follow suit.
Enercon offers a direct marketing service geared towards these clients. But because there's an overcapacity of power generation in the market, there exist very low margins for this kind of trading, says Jahn at the Regulatory Assistance Project. As a result, there's been a considerable amount of consolidation among VPP operators as revenues have been declining. “There are lots of technology solutions but hardly a business case,” says Jahn.
The new energy law exempts some small renewables installations under 750kw capacity from mandatory participation in the tender system. The Ministry of Economics believes this rule, in combination with a “simple and transparent” auction system for onshore wind, will ensure that citizen cooperatives and small project developers remain active in operating small renewables plants. However, there will be no exemption for wind farms under six turbines, and that worries Rehwald.
“From our point of view this is a threat,” says Rehwald. “It threatens Germany as a place of investment for the energy turnaround, and for certain small players who pushed this whole topic forward from the very beginning.”
In the past year Germany launched a massive smart grid investment program called Sinteg. The effort, premised on the creation of regional data markets, is organised according to five showcase regions into which the country's 16 federal states are now participating.
All are grappling with big data issues. More than 200 companies are involved, including research institutes and software start-ups sitting alongside big utility companies. Their target to employ VPP controls and other new technologies is aimed at developing the right business case.
“The idea is to create business models while also ensuring grid stability,” says Beate Braams, a spokesperson at the Federal Ministry for Economic Affairs and Energy. There's considerable overlap, Braams continues, but then each region has its own specific goals.
“C/sells” in the south of Germany is specialising in the regional optimisation of solar energy. Five eastern states and Berlin are grouped together in “WindNODE” to, among other things, address issues of market design and system architecture. In all, €200m will be spent, with another round of €130 million in matching funds from the private sector giving the effort significant lift-off – or so it's hoped.
The showcase “Designnetz” in Nordrhein-Westfalen, Rheinland-Pfalz and the Saarland specialises in flexibility, especially regarding decentralised plants. “Enera” in Lower Saxony, includes the two large population centres of Hanover and Bruanscheig, and also focuses on the challenge of decentralised generation units like battery-connected rooftop solar and the possible role of variable pricing plans that reflect actual prices in a given 15-minute time period. Part of the effort also involves rolling out smart meters, with the large municipal utility EWE teaming up with more than 70 partner companies.
Matthias Brückmann, CEO of EWE, told Energie & Management magazine about the company’s approach: “You do not have anything you can not develop itself. With so many challenges facing the industry, we believe it is better to bring together expertise from different sectors to provide our customers with an optimal value. Our aim is not only to cooperate. We want corporate law to enable us to merge with partners, assuming participants in these companies have the skills that we are lacking today.”
Last, “NEW 4.0” is planned between Schleswig-Holstein as a major producer of wind power and Hamburg as a major power consumer. Central topics are an efficient approach to handling local power surplus and generally improving the flexibility of the grid, which is vital to reach the goal of the region: To be able to reliably supply the general region from 70% renewable sources by the year 2025.
“Electricity is cheap to transport, and of course we can't transmit electrons to China, but in regional markets it makes perfect sense,” says Jahn.
“Germany can profit from the system it set up in the past decade, but it has to clarify what and where it's needed, and then let the market create the necessary platforms.”
Historians could see 2017 as the year the Energiewende gets back on track – or the year it falls off the rails.
This is just one part of a 4-part briefing on German Renewables;
renewable energy climate analysis NGO RAP transformation solar technology wind energy