Transformation of the German Energy System – Rationale and Answers to Recent FAQs

I.  What is the transformation of the German energy system and why is Germany taking this course?

  • With the transformation of the energy system, Germany is on a path to a sustainable energy industry (at the latest) by 2050; in other words, the energy supply is expected to be secured over the long term, to become economically and environmentally friendly and compatible with the climate.
  • The main elements include a significant increase in energy efficiency and extensive use of renewable energies (over 60 percent in total and over 80 percent for the power supply by 2050).
  • Reason: The current energy supply is vulnerable and unsustainable.  Seventy percent of Germany’s energy sources are imported.  The raw materials used today in Germany are becoming scare and ever more expensive and are damaging the environment and climate.
  • The transformation of the German energy system is paying off: new jobs (to date, 380,000 new jobs in the renewables sector), savings on import costs totaling in the billions, and already in the midterm markedly lower energy costs than usual.
  • Apart from a secure supply, which is immensely important for an industrial nation, Germany is profiting from a newly developed innovative market (renewables and energy efficiency) which is extremely attractive to traditional sectors as well (steel, cement, chemicals).

II.  Where do we stand with the transformation of the energy system after one year?

  • Out of a total of 180 measures, already over half have been implemented.
  • Important milestones such as a further push for renewable energies and grid planning are underway (but of course – with a program running until 2050 – it is far from completed).
  • Renewable energies already provide over 20 percent of the power supply and will, according to forecasts, exceed the targets to be reached by 2020 (> 35 percent).
  • What’s missing?  In the area of efficiency, the measures implemented so far are insufficient to achieve the long-term goals (50 percent savings in total energy consumption by 2050).  Here, negotiations are currently ongoing at the EU level.  Binding measures in Germany are still under debate.  We have to accelerate grid expansion and renovation of the energy systems in the building inventory.

III.  FAQs and Myths

A. Supply and Imports

1.  Did shutting down eight nuclear power plants on short notice in March 2011 lead to power bottlenecks in Germany?
Answer:  No. The capacity reserves of German power plants (ca. 13 gig watt = GW) were significantly higher than the capacity lost from the eight nuclear power plants (ca. 8 GW)

2.   Will the power supply remain secure even after all the nuclear power plants are shut down?

Answer: Yes. The addition of renewables as well as the new fossil-fuel power plants currently being built (18 projects with a total of 12 GW power) will secure the supply over the coming years.  Another approx. 10 GW (ca. 10 large-scale power plants) could be needed by 2022.

3.   Did Germany have to import power from neighboring countries?

Answer: No, there were no imports due to scarcity.

4.  Why, though, was more power imported to Germany than exported in the interim?

Answer: That is decided on the European power market.  Between April and July 2011, there were increasingly more power imports to Germany, because (cheaper) coal-fired power plants in France and the Czech Republic were selling their power to Germany.

5. Was Germany a power-importing country in 2011?

Answer: No. Overall, Germany exported a total of > 5,000 GW in 2011, roughly the annual production of a large-scale power plant.

In October 2011, Germany began exporting more to neighboring countries again (as in previous years), because power became scarce there (in France, for example, due to the need for heating electricity), even in the consumption-heavy winter period.

6. Was the power imported to Germany in the interim nuclear power?

Answer: No. Due to the nature of their systems, nuclear power plants always run as much as possible at full capacity.  The additional power imported to Germany can be shown to have been largely produced from coal-fired power plants. Thus, the power produced from nuclear plants in the EU overall was considerably reduced by the transformation of the German energy system.

B.  Effects of the Transformation of the Energy System on Greenhouse Gas Emissions

  • The transformation of the energy system is in general leading to a continual reduction in emissions, because the still relatively high share of fossil fuels in the energy supply (approx. 80 percent of total primary energy usage and approx. 63 percent of power supply) is successively falling due to the growing use of renewable energies, and energy consumption overall is dropping due to increasing energy efficiency.
  • In 2011, greenhouse gas emissions continued to fall in Germany, albeit largely due to milder temperatures.
  • In the short term, shutting down the eight nuclear power plants in March 2011 had, or is expected to have, the following effects:
  • EU-wide no change in carbon emissions, because they are limited by the EU-wide cap (CO2 ceiling set by the emissions trading scheme);
  • Lost production volumes from nuclear power plants were compensated by renewables, less consumption, and fewer power exports, but also through greater use of fossil-fuel power plants.  This led to a slight increase in energy-related carbon emissions within Germany.

Recent observations show that the greater than expected increase in renewable energies can replace the lost production volumes of nuclear power plants in a climate-neutral fashion.

Core Question 1:  What does that mean for the EU and German climate targets

  • No impact on the EU targets: Presently, there is even a considerable surplus in emission allowances.  That is why the price for carbon allowances has been rock bottom for a long time now (significantly below €10/CO2 t; the impetus to develop and use more effective technology is not expected to occur until the price hits about €35).
  • Shutting down the German nuclear power plants had no negative influence on the EU situation.
  • Emissions could, however, increase in Germany by up to 40 million t/year (approx. 3 percent of the baseline emissions) for about 10 years due to additional coal-generated power.
  • But the German climate targets still remain attainable: Based on energy scenarios, a 44 percent emissions reduction (relative to 1990) would be expected by 2020 without the shutdown of the nuclear power plants; in other words, even with an additional 3 percent of emissions, the German 40-percent target would still be reachable.
  • That, however, assumes that further progress is made in the area of efficiency.  Without progress in that area, according to expert estimates, Germanywould fall short of its reduction target (only approx. 35 – 37 percent reduction).

C.  Effects on Energy and Electricity Prices

  • Generally speaking, comprehensive and numerous investments are necessary in technology, grid lines, and efficiency in order to achieve the transformation of the energy system.
  • In the media, these investments and the increase in the costs of energy, which is in any case occurring, are incorrectly portrayed as “additional costs of the transformation” and thus fuel concerns over significantly rising energy costs.
  • The tenor of all serious energy studies is, however, that implementation of the energy-strategy measures will lead, at the latest, over the midterm to lasting, clear economic advantages over “business as usual,” even if Europe or Germany goes this course alone.
  • The reasons for this are the considerable energy savings and the falling costs of renewable energies, while fossil fuels will tend to grow more expensive.
  • If one takes into account the estimated (external) costs avoided for damage to the environment and climate, the renewable energy course taken would already now be economically profitable.

Electricity Price Trend:

  • In various studies, a moderate rise in the price of electricity for private end-users is deemed possible as a result of shutting down the eight nuclear power plants.
  • However, so far, no immediate price effects have shown up either in the spot market price or in the carbon allowances (which ultimately effect the price of power).  Surprisingly to all observers, prices have actually fallen since summer 2011.
  • The renewables surcharge has remained constant in 2011 and 2012, despite a big increase in the use of renewables.  The surcharge for grid fees has, however, increased.
  • Irrespective of these developments, many power suppliers have raised the prices they charge private end-users.
  • The price of power currently remains very cheap for many industrial customers:
  • Energy-intensive sectors are exempt from the relevant surcharges.
  • The equivalent value of all exemptions/concessions comes to over €11 billion/year.
  • Currently falling spot market prices have tended to push down prices for industrial power.
  • German industry remains competitive.  Energy costs per production unit of German industry are, on the whole, low in international comparison (also due to higher efficiency).

D.   Grid

  • The black-out in Germany feared by critics did not materialize.
  • During the coldest winter period (which is traditionally also the period with the highest consumption) larger power volumes were regularly exported, (primarily) to France.
  • According to German grid system operators, interventions in the power grid did increase, but there were no critical situations caused by low capacity.

The major challenges are now:

  • To feed renewable energies, whose volumes are increasingly fluctuating, into the grid system and to adapt the remaining power plant system in a flexible manner.
  • To install a new grid to transmit and distribute increasing electricity volumes (North-South route).
  • To connect the wind farms to the grid in a timely manner.

E.  Critical Questions (and Answers)

Will we miss the German climate goals without nuclear energy?

Answer: No, not even with a temporary increase in the use of fossil-fuel power plants, because the renewable energies and the somewhat warmer weather have so far more than compensated for this effect.  It is assumed, however, that for emissions to continue to fall, energy efficiency must further improve.

Will the transformation of the German energy system now send costs through the roof?

Answer: No. Fossil fuels will inevitably become more expensive through the global demand for energy.  The transition to renewables and efficiency is consequently more affordable (not only in an economic sense), but does require meaningful investments.

Will the high investments pay off?

Answer: Yes. Several efficiency measures are paying off over time – as My Kinsey has shown many times over.  Renewables save on the costs of imports, fuel, and environmental damage and are also worthwhile in an economic sense.  Germany is the leading exporter in environmental technology and already now over 1.5 million people are employed in this sector.  The renewables subsector alone has created over 380,000 new jobs.

Would new nuclear power plants be cheaper and safer than renewable energies?

Answer: No. The cheap production costs of nuclear power plants are gained only in old, depreciated power plants.  New nuclear power plants can only be built with government guarantees (and assumption of the risk gap).  By contrast, the production costs of renewable energy plants are continuing to fall and are already well below those of nuclear power plants.  Moreover, they have significantly shorter construction periods and virtually no operating costs as well as considerably lower accident risks, as is well known.

To ensure a secure power supply, renewable energies do need powerful and flexible power grids, an intelligent power market design, and feed-in possibilities.  Over the coming decades, fossil-fuel power plants (in particular gas) will play an important role in supporting renewables.

FAQ – Energy Transformation

Wind Energy Plant (c)