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German energy policy in the spotlight – the future role of renewables in the energy mix

Dr Wilhelm Beermann, Honorary President of the German Hard Coal Association (GVSt), Essen: German energy policy has for years been the subject of heated debates and factional disputes and the country has not had a national energy policy for some twenty-five years. In 1991 the CDU-led Government under Federal Chancellor Kohl in fact drew up common “energy-policy guidelines for a reunified Germany”, but soon after this the national energy consensus collapsed – primarily about the issue of Germany’s continued use of nuclear energy.

Dr. Beermann

Dr Beermann: At the same time the European scene became an increasingly important factor for German energy policy, even though technically the EU only had very limited jurisdiction over energy matters and indeed still has very little because of the absence of a European Constitutional Treaty. Yet power-line supplies were deregulated by way of the EU’s single-market and environmental regulations and one year ago the CO₂ emission rights trading scheme was introduced on a Europe-wide basis, while more recently Germany’s energy taxation legislation was also amended. Europe therefore exerts quite a strong influence in this area, although key decisions on energy mix continue to be taken at national level.

The “red-green” German Government of 1998 to 2005 adopted a large number of ad-hoc measures relating to energy policy – from the phasing-out of nuclear power to the Renewable Energies Act (EEG) – but at the end of the day failed to draft a coherent and consensual overall plan. In 2001, after efforts had been made to achieve a cross-party and cross-group energy dialogue, the Federal Ministry of the Economy produced a groundbreaking “energy report”; however this did not meet with the approval of the “green” coalition partners and the Environment Minister of the time, Jürgen Trittin. After this, in spite of a Bundestag Committee of Enquiry on energy policy and further attempts by a second “red-green” coalition, no national energy plan was forthcoming.

German energy policy today

The current major coalition under Federal Chancellor Merkel has stated its intention to develop a national energy plan that “includes a contingency strategy to counteract the growing shortage of fossil-fuel resources”. While there is still no agreement on the future use of nuclear power – and the current atomic energy law with its provisions on withdrawing from nuclear therefore continues to apply – the coalition partners have at least expressed their intention to continue with the present nuclear safety research work and to find a solution to the safe disposal of radioactive waste during the current parliament. The coalition agreement also includes the following energy-policy targets:

- promotion and extension of energy research, an innovation offensive entitled “Energy for Germany”

- increased energy efficiency (objective: doubling of energy productivity by the year 2020 in relation to 1990 levels), including the introduction of a building renovation programme, further energy-saving initiatives and modernisation of the country’s power stations

- greater coordination between energy-policy targets and climate protection

- a more competitive market for electricity and gas

- measures to regulate the future of the subsidised coal industry and to allow Essen-based RAG Aktiengesellschaft to trade on the stock exchange

- an ambitious set of targets for the extended use of renewable energies combined with a revision of individual legislative acts.

The coalition agreement has set the following targets specifically for the development of renewable energies:

- renewables’ share of the German electricity market to be increased to 12.5% by the year 2010, which is roughly double the 2000 figure (the current input stands at 10 % gross)

- renewables’ share of total energy consumption to be increased to 10% by 2020 (in 2005 it was 4.6 %) and to be further increased in the following years in accordance with the national sustainability strategy, which means a non-binding target of +/–50 % for the year 2050

- a “significant medium-term increase” – without further quantification – in the biomass input and better development of the market potential of renewables in the heat generating sector (also without quantification)

- expansion of renewable natural resources, especially bio-fuels, to a level representing 5.75 % of total fuel consumption by the year 2010

- a greater export drive for renewable energies and an initiative to set up an International Agency for Renewable Energies (IRENA) that will promote the international efforts towards developing renewables-based energy.

National Energy Summit

In April 2006 Chancellor Merkel launched the National Energy Summit, whereby the Federal Government – in collaboration with industry, the trades unions and representatives of consumer and environmental groups – hoped to draw up an energy plan for the next 15 to 25 years based on the aforementioned targets. Those attending the Energy Summit were in agreement that Germany’s increasing dependence on imported energy, rising energy prices and global climate change has created enormous challenges that had to be tackled by acting in unison on a national level and moreover that required an even greater degree of European and international collaboration.

The April meeting was in some respects the starting signal. The Federal Government is proposing to submit its final energy plan sometime in the second half of 2007. Before that, those present at the Energy Summit and other experts have agreed to lay down the key requirements. Three working groups were set up to deal with the issues of “national energy supply”, “international aspects” and “research and energy efficiency”. The findings of the three groups have not yet been published. What has been made clear, however, is that the politically charged issues of nuclear energy and coal have been to some extent factored out and will be treated and decided-on separately. 

The second National Energy Summit, which mainly focused on ways to increase energy efficiency, was held on 9 October 2006. The agenda for the next meeting, which is scheduled for the spring of 2007, includes a debate on the energy mix that has to be provided in order to safeguard Germany’s future energy supplies.

Energy-policy lessons from the past: – a brief look back

Energy-policy objectives

In order to be able to assess and classify long-term energy-policy decisions it is very helpful to look back over the years and to draw lessons from previous experience. Some fifty years ago, that is to say in the mid-1950s, the word “energy gap” played as important a role as it does today. However, this is not now being applied to the current situation nationwide but to the fears for the future, and especially in terms of foreseeable changes on a global scale. Back then it was a real everyday experience – coal was rationed, there was still a curfew on private electricity use and the railways were forced to limit their services because of power shortages.

At the same time the accelerating economic recovery heralded growing rates of energy consumption. And what was the energy mix like in those days? Coal accounted for 85% of German primary energy consumption, while today the figure for coal and lignite combined is only 24 %. Coal’s dominant position back then was completely unchallenged. In the mid-1950s oil accounted for just 10%, while today it is the number-one fuel with a share of 36 %, although its contribution has already shrunk considerably compared with a few years ago.

Gas and nuclear power played practically no role whatsoever in the energy mix of that period, while renewable energies on the other hand – in their traditional forms of hydro-electric power and biomass/wood fuel – accounted for about 5% of the market, as they do today. Since then Germany’s energy mix has become much more broad based and the much-feared energy gap has always been kept firmly closed, although all the fuels have been needed to do this. But this was not the “once and for all” solution that our energy problems required, for there have been too many unforeseen developments and surprising twists that seriously restrict energy-policy planability. Here are some notable examples of this:

 - In the late 1950s and mid 1960s the penetration of imported energy resulted in a marketing crisis for the indigenous coal industry; this heralded a continuous process of industry restructuring and a public debate on coal industry policy that has lasted to this day

- The Yom-Kippur war of 1973 and the subsequent boycott on oil supplies introduced by the OPECB9 states gave the world its first global oil crisis.

- The fall of the Shah’s regime in Persia triggered the second oil crisis in 1979 and plunged the world’s economy into a deep recession.

- The peaceful use of nuclear energy, which at home had been the subject of vigorous protests since the 1970s, became the focus of critical debate in the wake of the 1986 accident at the Chernobyl nuclear reactor, and in Germany this continues to this day.

- Since the founding of the Green Party Germany has had an organised and politically active environmental movement that has exerted a continuing impact on the energy-policy debate.

- The political turnaround in the former Communist east bloc and in the German Democratic Republic that commenced in 1990 also brought about completely unforeseen geographical and economic changes to our own energy landscape.

- The creation of the European single energy market in the late 1990s opened up the electricity and gas sectors to competition and ushered in enormous structural changes, whereby the process of deregulation has also thrown up many questions, for example the viability of existing corporate and market structures and the subject of security of electricity and gas supplies.

- The signing of the Kyoto Protocol in 1997, followed by its ratification under international law in early 2005. has made climate protection an essential objective of national energy policy. Even before this a new environmental framework was established for the energy sector and for its industrial consumers in 2005 in the form of voluntary climate-policy commitments taken out by German industrial operators and the introduction of the Europe-wide CO₂ emission rights trading system.

Germany’s import dependence in 2005

From 2004 to the present day there has been practically no let-up in the upwards trend in international crude-oil and gas prices, which have continued to set new records. This also applies to some extent to the price of coal, coke and other natural resources. This is the result of a global boom in the raw materials market, which has been triggered by the huge upsurge in demand from newly developing countries such as China and India. In certain circumstances this could well lead to the industrial nations becoming embroiled in heated conflicts for access to energy sources and raw materials. This scenario is compounded by the threat of international terrorism as well as by the political tensions and the danger of war in the Middle East.

In short: Germany’s energy supply is becoming increasingly dependent on global developments. The Russo-Ukrainian gas dispute of late 2005/early2006 could well have been a warning of the potential threat facing gas supplies to Europe. Security of energy supply – or in other words the concerns for the energy gap – has again become a key political issue.

General implications for the future

It is still too early to predict the details of the Energy Summit’s decisions. Yet everyone in Germany who is occupied with energy policy matters is generally in agreement about the central energy policy objectives (Figure 1), namely security of supply, competitiveness and environmental sustainability – and some add social acceptability to this list – and about the key guidelines for the future:

- Germany continues to need as broadly based and as balanced an energy mix as possible, comprising oil and gas, coal and lignite, nuclear energy and renewables. A relative balance also has to be maintained between imported forms of energy and indigenous or quasi-indigenous energy sources. Today Germany is already more than 60% dependent on energy imports (Figure 2). In a few years this is expected to grow to more than 70 % if nuclear power is phased out and/or indigenous coal mining comes to an end. The international dimension and the adoption of a foreign policy for energy that has been endorsed as far as possible at European level are becoming increasingly important when it comes to safeguarding external energy supplies.

- Germany as an industrial base needs energy, and more particularly electricity, to be delivered at competitive prices. This is not only in the direct interest of consumers and producers but is also necessary at a macro-economic level so that growth and employment opportunities are not restricted. However, prices and competitive conditions should also not be such that the German energy industry is unable to attract the investment that is needed, for example, for the modernisation of its power stations and power transmission networks.

- Energy efficiency is one key to the future of energy supplies. Germany – and of course this goes for other countries too – still has enormous potential for making savings in the area of power generation and use and it is here that we can most easily and effectively make a contribution towards reliable, cost-effective and eco-friendly energy supply. This applies especially to the construction sector.

- Another key area is the use of modern and innovative energy technologies and the pursuance of research and development in the energy sector as a whole.

- Finally, no-one can doubt that we have to expand our use of the renewable energies, which means hydro power, wind power and geothermal, solar and bio energy. These sources are of considerable potential advantage for environmental and climate protection. In the long term our society will be increasingly reliant on them as replacements for our dwindling fossil fuels, especially oil and gas. Yet this expansion should not be overhasty and must not disregard economic considerations and the other energy-policy objectives.

Specific comments on the future role of renewables for power generation
and primary energy consumption in Germany

Power generation and primary energy consumption in Germany

Some specific comments are needed, and indeed some critical views too from a coal-industry perspective, as to the future role of renewables in the energy mix. It goes without saying that renewable energies have an important and increasingly significant contribution to make to the energy mix. Yet we must be wary of exaggerated claims and false options. On the basis of 2005 figures the combined impact of all renewable energies on indigenous primary-energy consumption has been calculated at 22 million tce (with only 6 million tce coming from hydro and wind power), which is well below the contribution made by indigenous lignite (55 million tce) and even that of home-produced coal (26 million tce).

 

The development of the renewables sector has so far tended to be concentrated on electricity generation, where it is intended to supplement coal and nuclear power and in the medium term to replace the latter completely (Figure 3). However, even if the ambitious targets set for 2020 are achieved – namely an increase in input from 10% to a figure of 20% - this will still not be sufficient to replace nuclear’s share of the generation market, which stands at almost 30 %. A much more pressing requirement is to develop renewables as a means of replacing or supplementing oil and gas in the heat market and in the transport sector. Neither are the renewable energies themselves entirely free of environmental problems. The broad-based expansion of this energy source will require huge quantities of natural resources and vast amounts of land. This may well lead to serious conflicts with nature preservation groups, as has already been experienced with many wind-power projects and also with large hydro-electric schemes.

The use of biomass for energy generation will also have to compete with other land and forestry practices, especially those aimed at food production. The production of solar cells will create similar disposal problems to those that affect may other conventional industrial products. As far as contributing to a cleaner climate is concerned, CO₂ emissions could be reduced more cheaply and more effectively by modernising our existing power stations and building a new generation of energy-efficient coal fired plant (Figure 4). Following the introduction of the European emissions trading system the Ministry of the Economy’s scientific advisory body therefore recommended against proposals to introduce separate funding for renewables-based electricity generation by way of the Renewable Energies Act.

Specific CO2 avoidance costs

When it comes to security of supply certain concerns must also be raised about the use of renewable energies. While they constitute an indigenous or quasi-indigenous source of energy, in the same way as home-produced coal or nuclear power, their availability is naturally irregular and dependent on weather conditions. It will be some time before the existing storage technology is able to compensate for this discontinuous pattern of supply. Renewables-based power generation therefore has to be permanently backed-up by conventionally based “balance power” and reserve capacity, in other words by coal and gas fired power generation plant.

 

According to a study carried out by the German Energy Agency (dena) only 6% of Germany’s planned additional wind-power capacity can be rated as reliable, the rest requiring back-up from coal or gas fired power stations. Almost every serious prognosis predicts that Germany will remain reliant on fossil fuels for many years to come. If renewables’ share of total energy consumption is increased to 10% by the year 2020, as the Government plans, this obviously implies that 90% of consumption will still have to be met by oil, gas and coal – and by nuclear power, provided that is still available. Even if in several decades time renewables were to account for 50% of energy consumption, the other half would still have to be met by conventionally-generated power. As oil and gas become less available this means using coal and, where possible and practicable, nuclear power.

The future of renewables will ultimately be decided on the basis of their economic viability. Progress is clearly being made in this area and any increase in usage will have cost-reducing effects. Add to this the rise in energy and electricity prices in the non-renewables sector. Yet technological advances are also being made in other segments of the energy sector, including clean coal-based generation. Most renewables still have a long way to go before they reach the feasibility threshold and are much further from this than, for example, indigenous coal. This is clearly shown by the figures. According to calculations by the VDN (Association of Network Operators) the average payment for electricity generated from renewable energy after the Renewable Energy Act in 2004 was 9.29 cent/kWh. Some 8.5% of the public-services electricity was generated in this way (the EEG quota). This required a total of € 3.6 bn in payments.

According to the German Institute for Economic Research (DIW) the 9 cent/kWh and more being paid for infeed renewables-based electricity is replacing an average figure of about two cents per kilowatt-hour for conventional electricity. This equates to a subsidy of about 7 cent/kWh for renewables, which is being met in this case not by the tax payers but by the electricity users, who are paying a levy on their electricity bills. In 2004 a total of € 2.6 bn was paid in subsidies by way of the EEG, and the figure for 2005 is put at some € 3.3 bn. This is far more than the German mining industry currently receives in aid – the figure for 2005 was € 2.7 bn – and this has to cover not only coking-coal production costs and closure costs but also inherited liabilities from mining activities of years ago. While subsidies to the German coal industry are to be cut back even further – and some high-ranking groups are calling for them to be abolished completely, even in North Rhine-Westphalia – it is amazing to see that no-one seems similarly bothered by the high-cost subsidies being paid out to renewables.

 

Electricity from renewables and the additional cost of the EEA

If no fundamental changes are made to the Renewable Energies Act the amount of subsidy paid to renewables will continue to increase and will, by the year 2010, constitute a burden of nearly € 5 bn on electricity prices (Figure 5). At the same time additional subsidies are already being contemplated to promote the use of renewable energies for heat generation. Is this really what we call a balanced and future-proof energy policy? Neither should we exaggerate the employment potential of the renewables sector, which is popularly depicted in fanciful terms. Any extra jobs in this area tend to be created during the investment phase rather than when the technology is up and running.

 

At the same time these activities often supplant jobs in other energy-related fields and sectors of industry. Reputable economists have expressed doubt as to whether the net effect is in fact a positive one. What we really need is a much greater level of efficiency in the production of renewable energy, and certainly a lot more patience when it comes to commercial development – for the industry is still very much in its infancy – combined with a great deal less bias in the energy debate. The future of energy supply technology is not solely in the hands of the renewables. Sensible energy policy provisions for the future must therefore be based around a broad mix of energy sources and energy technologies that keep all available options open. If Germany is to have a reliable, competitive and sustainable supply of energy the country does not need opt-out clauses but rather as many open doors as possible and certainly a different energy mix from the one we operate today. This will be better than any supposed quick-fix solution – for there is no such thing.

Source:

with the kind permission of VGE Verlag GmbH, Essen

Glückauf, 11, 07.11.2006,  vol. 142.

www.vge.de