Industry Market Trends
Germany's Energy Transition Accelerates Cleantech Amid Concerns Over Power Cost and Reliability
September 23, 2013
Germany's transition to renewable energy is reshaping the production and distribution of electricity in the country. According to critics, the German Energiewende (energy transition) is a dangerous experiment that will cause the cost of power in Germany to skyrocket and create instability in the country's electric grid.
According to advocates, Energiewende is going to reduce the costs and environmental effects of power production in Germany and is already giving the nation a tremendous leg-up in the global cleantech industry. Advocates also argue that Germany's transition presents a challenge to manufacturers in North America, which need to get on the ball if they want to compete in the growing global cleantech market.
Enacted into law in 2011, Germany's Energiewende rests principally on achieving certain targets by 2050: reducing greenhouse gas (GHG) emissions by 80 to 95 percent; increasing the share of renewable energy to 60 percent of total energy consumption; and increasing electricity efficiency 50 percent. The German plan phases out nuclear power by 2022 because of concerns around risks and costs.
Electricity from renewable sources in Germany reached 22.9 percent in 2012, at 76 MW installed capacity, according to the country's Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. Ten years previously, renewables represented only 7.8 percent of total consumption, at about 17.5 MW installed capacity. Craig Morris and Martin Pehnt, in a report from the Heinrich Böll Foundation, write that Germany is well on its way to the 95-percent-reduction target, having already reduced GHG emissions by 25.5 percent in 2012 relative to 1990 levels.A Booming Cleantech Sector Renewables industry analyst Paul Gipe told me in an interview that cleantech manufacturing is "booming in Germany" and generating significant employment, in part because "most of the companies that serve the industry are small and medium-sized enterprises, and those are the ones that create the most jobs in international markets." He said the global cleantech sector offers a "significant opportunity for American manufacturing," but warned that "if you want a piece of the action you can't wait any longer. The Germans are competitive because they started doing this 20 years ago." But Gipe insisted that energy transition "doesn't have to be just a German revolution or a Chinese revolution -- it can be an American revolution, too."
According to a study by the Worldwide Fund for Nature (WWF) and strategy consulting firm Roland Berger, Germany ranks third globally in cleantech sales, behind China and the U.S. In the size of its sector relative to its overall economy, Germany also ranks well, running third next to Denmark and China. R&D has contributed significantly to Germany's cleantech advancement, says the report: "Since the 1970s, Denmark and Germany have invested substantial amounts in and put a strong focus on demonstration projects, thereby creating a leading position in the wind industry." Germany has created a strong domestic market for cleantech technologies, with local communities investing in renewable power production. According to Berger,
Companies like Siemens, Repower and Enercon develop and manufacture wind turbines, and the country is a major producer of manufacturing equipment for the solar PV segment. It also manufactures solar PV cells and modules and is a leading supplier of CSP [concentrating solar power] equipment. The largest inverter company, SMA, is also based in Germany. Germany was able to keep its sales figures steady and has benefited from a larger market share in wind and the increase in its biogas manufacturing.
As of 2011, Berger states, Germany's cleantech industry stood at €23 billion, with wind accounting for 35 percent of sales, solar for 30 percent, biogas 10 percent and other segments 25 percent. One challenge in Germany is that its industry is increasingly forced to compete with lower-priced solar products from Asia. To compensate, Germany has increased its sales in other parts of the value chain, such as manufacturing equipment and system components like inverters. The German wind industry is growing faster than the global market, through sales to the U.S. and domestically. Germany holds 13 percent of the solar PV market, 16 percent of the wind market and 48 percent of the biogas technology market.Volatile Prices and an Unstable Grid?
Some commentators have charged that the transition to renewables in Germany is causing energy costs to rise. The government's renewable-energy surcharge gets blamed for this increase.
German news magazine Der Spiegel claims that in 2013 "German consumers will be forced to pay €20 billion ($26 billion) for electricity from solar, wind, and biogas plants -- electricity with a market price of just over €3 billion."
The costs could be even higher, the magazine warns, "if you include all the unintended costs and collateral damage associated with the project. Solar panels and wind turbines at times generate huge amounts of electricity, and sometimes none at all. Depending on the weather and the time of day, the country can face absurd states of energy surplus or deficit."
The Heinrich Böll report acknowledges that retail power prices rose about 20 percent from 2007 to 2011. However, they argue that the surcharge "does not explain two thirds of the increase in the average retail power rate in Germany over the past decade." Research from Germany's Network Agency shows that renewable energy in fact decreased wholesale prices during the 2007 to 2011 period. Power utilities were increasing prices, with the savings going into profit margins instead of getting passed along to consumers. The report also charges that subsidies for renewables pale in comparison to those that have been received by nuclear and fossil-fuel energy.
Amory Lovins of the Rocky Mountain Institute (RMI) writes that, in fact, "Germany is building the renewable foundation for declining long-term electricity prices" and that wholesale power prices "have fallen about 30 percent in the past two years to near eight-year lows, putting utilities that underinvested in renewables under severe profit pressure."
The pressure on traditional utilities is what's generating much of the opposition to Energiewende, according to Gipe. He told me that feed-in tariffs in Germany are structured so that anyone can install their own power-generation capacity and sell electricity back to the grid. As a result, he said, "In Germany today, over 50 percent of the renewable energy capacity is owned by people like you and me."
Gipe scoffed at the idea that renewables threaten grid stability. "We're decades beyond that point of view now," he said. "Now we're talking about not just how to do 100-percent renewables, but 200 percent or even 300 percent," meaning that renewables should be able to go beyond electricity production to providing all heating and transportation energy as well. Gipe pointed out, "Engineers in Britain and the U.S. today manage intermittency in the electric grid already. It's no different with renewables. The concern is unwarranted and overplayed -- it's not really that difficult a challenge."
Contrary to claims that renewables are making the German grid unstable, write Morris and Pehnt, "Germany ... has had by far the most reliable power supply in Europe every year from 2006 to 2010, the last year for which reliable statistics are available." They admit that power outages are always possible, but anticipated risks have more to do with the willingness to make financial investment: "A systematic shortfall in power supply will only come about if investments in dispatchable power are not sufficient to replace aging conventional plants scheduled for decommissioning." The technical solutions to a reliable grid are already available, they assert: "a combination of national and international grid extension and optimization, a power plant mix combining a variety of renewables, flexible backup capacity, a strategic reserve of power plants, demand management, and, ultimately, storage."