Germany’s slow decarbonisation
I really like this new windmill. Maybe we could have another one in a decade or two? Flickr.com / Danish Wind Association CC-BY-NC
Germany must still eliminate 145 Mt of annual greenhouse gas emissions to achieve its 2020 climate target, 16 per cent below current levels.
Germany has made inadequate progress in decarbonising its energy supplies. Renewable technologies are generally only being used to replace outdated nuclear reactors, while coal and lignite power plants continue to impede greenhouse gas reduction strategies. Carbon capture and storage (CCS), encouraged by many EU parliamentarians, has not been realised because of high costs and technological complications. Confirmed geological formations are also not available for storing the billions of tonnes of carbon dioxide that will still be emitted by electrical power generation before final coal phase-out. According to the German government, lignite plants could now continue operation without carbon reduction until 2040.
CO2-neutral renewable energy has achieved noteworthy levels, exceeding original expectations. Renewable technologies have also become cost-competitive whenever available, but that is not always the case. Only about four per cent of Germany’s primary energy requirements are currently being met by solar and wind power, and 12.4 per cent overall when biomass, hydroelectric and geothermal energy are included.
Renewable power generation is expanding faster than transmission line construction, making it difficult for CO2-neutral electricity from the countryside to reach urban customers. Highly redundant wind and solar capacities often overload transmission networks on windy sunny days, necessitating expensive grid-balancing measures. Renewable electricity surpluses may cause wholesale trading prices at the EEX European Energy Exchange to plummet below €15/MWh, half the break-even price of even the most efficient power generation. Because of renewable energy shortages at other times, however, coal and lignite power plants continue to provide more than 40 per cent of the electricity used in Germany.
The guaranteed feed-in tariff (EEG) payments that initiated the energy transition are now being replaced by a market-oriented model for large installations. Germany’s new “Power Market 2.0” legislation (Draft 18/7317) favours renewable energy projects awarded to the lowest bidder. Due to the simultaneous reduction of customary EEG incentives, however, renewable energy investments fell by 42 per cent in 2015 alone (see figure 1).
Figure 1. Investments in renewable energy in Germany. Source: Bloomberg.
Since renewables and fossil fuels now compete at the same price level on the power grid, the new German legislation treats them indiscriminately. Beginning in July 2017, comprehensive data will be made available on a “national information platform” encompassing electricity generation, load conditions, transmission capacities, and power imported and exported between countries.
Technological impartiality is exemplified by electrical storage as “only one of many flexibility options within the framework of the altered electricity market design”. Despite the achievable benefits of dispatchable storage in combination with renewable energies, for instance, demand-side load management often proves more cost-effective.
After Germany’s nuclear phase-out schedule was legislated in 2011, net greenhouse gas emissions have stagnated at around 27 per cent below the 1990 reference level of 1,248 million metric tonnes (Mt), of which 88 per cent are presently carbon dioxide (see figure 2). The federal government’s 2013 coalition agreement stipulates an 80 to 95 per cent reduction by mid-century. Less than four years now remain to achieve the 40 per cent interim target set for 2020. The corresponding 159 Mt greenhouse gas elimination figure roughly equals Germany’s total lignite power emissions.
Figure 2. Greenhouse gas emissions in Germany, history and targets.
The Power Market 2.0 departs from technological neutrality by requiring the standby retirement of eight aging lignite power plants that supply 2.7 GW. Starting in 2016, each installation will assume reserve status for four years before being decommissioned. By the time the final plant has entered standby service in October 2020, annual CO2 emissions will have been diminished by 10 Mt. The participating operators – RWE (with 5 plants), LEAG (2), and MIBRAG (1) – will collectively receive €230 million annually for seven years to compensate for lost revenues, increasing electricity rates by 0.05 €/kWh.
An additional CO2 reduction of 4 Mt/a will be achieved by expanding co-generation.
Only 5.2 per cent of Germany’s transportation was powered by renewable energies in 2015, notably in electrified rail service. Reduced motor fuel prices since 2014 are impeding CO2 emission reductions in road transportation. Renewable technologies also cover just 13.2 per cent of all heating and cooling demand (see figure 3).
Figure 3. Development of renewable-based heat and cold consumption in Germany. Source: Federal Ministry for Economic Affairs and Energy.
After deducting power plant CO2 reductions under the new power market legislation, Germany must still eliminate around 145 Mt of annual greenhouse gas emissions to achieve its 2020 climate targets –16 per cent below 2015 levels.
Jeffrey H. Michel
An electricity market for Germany’s energy transition a White Paper by the Federal Ministry for Economic Affairs and Energy