Energy Transition in Germany “Energiewende”

Energiewende – History

“Energiewende” or “Energy transition” is one of the most publicized and highly watched renewable energy reform in Germany. Although the term “energiewende” gained international popularity in 2011, the term was already coined in 1980 in a study by German Institute for Applied Ecology. This study was one of the early publications that argued for economic growth with lower energy consumption - by including renewable energy and energy efficiency.

Germany has a long history of energy transition into renewable energy. Power generation in Germany was historically based on coal and lignite with nuclear power plants sprouting in 1950s. Nuclear power plants, since their inception, have been heavily criticized by the general public. After the Chernobyl incident in 1986, there was even a stronger protest against nuclear energy. Therefore, no new reactors were constructed after the incident. In 1991, the Grid Feed-In Law (Stromeinspeisungsgesetz – StromEinspG) was accepted, which laid the groundwork for supporting the renewables. It was the first feed-in-tariffscheme in the world. In 2000, Stromeinspeisungsgesetz was replaced by the Renewable Energy Sources Act (EEG 2000). In 2002, the government also decided to phase out the remaining 19 nuclear power plants in Germany by 2022, giving another 32 years to the power plants.

In 2007, the government adopted a climate and energy policy package targeting at 40% Green House Gas (GHG) reduction by 2020 as compared to 1990s level. Similarly, 14 additional laws and ordinances were passed to promote renewables and energy efficiency in the heat, power and transport sector. In 2010, the Energiekonzept was introduced; a long-term energy strategy focusing on a renewable based economy. This reform also extended the lifetime of existing power plants by 8-14 years and thus delaying nuclear phase out to 2036.

In 2011, after the Fukushima nuclear disaster, the German government revoked its earlier decision announcing that they will phase out nuclear power plants by 2022 and gradually increase renewables to meet at least 80% of the power production by 2050. Germany also shut down 8 nuclear power plants. The term Energiewende became mainstream since 2011, and has been a synonym of Germany’s commitment to promote renewable energy and energy efficiency.

Energiewende was strongly supported by the energiekonzept as well as the 2011 revision but the EEG reform in 2014 was the driving force to restructure energiewende and make its goal affordable.

Energiewende – Definition

Energiewende is an ongoing policy framework that is driven by four main political objectives: “combatting climate change, avoiding nuclear risks, improving energy security, and guaranteeing competitiveness and growth.”

For achieving these objectives, following targets are set:

Combatting climate change: reduction of GHG emissions by 40% by 2020 as compared to 1990s level

Avoiding nuclear risks: the 9 remaining nuclear power plants in Germany will be shut until 2022 and no new nuclear power plants will be constructed. As of 2018, 7 of the reactors remain online.

Improving energy security: renewables will contribute to 35% of total electricity production by 2020 and 80% by 2050. Similarly, 20% primary energy efficiency improvements will be achieved until 2020.

These targets will ensure the competitiveness and growth of Germany in the international market. Similarly, solar and wind energy has been promoted under this framework, as these are now mature technologies and are also cost competitive as compared to conventional energy sources. 

Energiewende – Renewable Energy Act (Erneuerbare Energie Gesetz, EEG)

EEG is the primary tool for realizing energiewende and was introduced in 2000. It regulates only the renewable electricity sector. This law has been revised a number of times since then. EEG when it was first introduced in 2000 had the following four provisions:

• Renewable energy producers will receive fixed remuneration for 20 years (feed-in-tariff) and will also have priority access to the grid over the conventional sources;
• The FITs will decrease by a fixed percentage to incentivize renewable energy producers to reduce cost;
• FIT is not paid by government funding but rather by the market and consumers. Renewable energy is directly sold in the market and receive the market price. The difference between the market price and the predetermined FIT is levied on the consumers in the form of EEG surcharge. The surcharge is applied to household consumers and small scale industries, while the energy intensive industries are exempted from it. Similarly, operators of renewable and small conventional power plants that use the electricity they themselves generate are also exempt from the EEG surcharge.

The latest reform to EEG in 2014, the EEG 2.0, aims to keep the energy prices down, promote energy security, and also to develop the electricity market. The most striking features of the reform (EEG 2.0) include:

• EEG surcharge exemption for energy-intensive industries have increased from 297 in 2005 to 2098 in 2014. These companies were not excluded from all EEG surcharges, instead the privileged companies have to pay 15% of their EEG surcharge.
• Feed in tariff are adjusted according to the targets (flexible cap) i.e. newly built renewable plants (above 100 kW) are required to market their electricity themselves and only received market premium. This market premium covers the difference between the fixed payment stated in the EEG and the average spot electricity price. No feed-in tariff during period of negative power prices (more than 6 consecutive hours), exceptions apply.
• Consumers are obligated to pay a smaller portion of the EEG surcharge as compared to before.

In July 2016, EEG has been further amended and one of the major amendment was the transition from feed in tariffto auctions, to mostly encourage big German utilities to invest in renewables. For renewables under 750 kW capacity (in case of biomass under 150 kW), the auction system will not apply. However, this law has been criticized as it discourages the small cooperatives and individuals who do not have enough expertise or face higher transaction cost to participate in the auction.

For more information on EEG, click here.

Please note that the EEG does not incentivize all electricity generated from renewable energy sources. For example, large hydropower plants or conventional power stations that incinerate biomass alongside their regular fuel do not received compensation under EEG.

Energiewende – Achievements

Growth of Renewable Energy

In 2017, electricity produced by renewable energy sources covered about 36.1% of domestic demand in Germany.The initial goal was 35% by 2020. The rapid growth of renewable energy raised a demand for more ambitous goals. 

Decline in Coal Use and Carbon Intensity in the Electricity Sector

The Enegiewende includes the phasing out of both nuclear and coal power plants. Because the phasing out of nuclear power plants came first, Initially this caused a temporary growth of coal use. However, renewable growth has quickly filled the gap since. Coal use in Germany has declined since 2013, and according to Agora Energiewende, carbon intensity in the electricity sector was 500 g CO₂ eq/kWh in 2017, compared to 558 g CO₂​ eq/kWh in 2010.

Increase of Flexibility and Reliability of the Power System

To integrate as much renewable energy into the grid, Germany's power system has developed more flexible and reliable during the transition.

Many of the conventional "baseload" power plants were retrofitted or designed in a new manner. Their ramping rate increased and minimum load decreased, making them more suitable in meeting the flexibility demands of residual load variations. Market designs, such as the introduction of negative prices, has also played a role in providing incentives to operate conventional power plants flexibly.

Although residual load flexibility still rely heavily on conventional power plants, renewable energy sources has proven to be capable of providing many other important flexibility and reliability services. Therefore, the grid was not destabled because of higher amount of solar and wind feeding in. In contrast, Germany has one of the most reliable grid in the world, and its performance continue to improve during Energiewende.

Unique Features of Energiewende: Accelerators towards Success

Public Support

Energiewende might not be the most unique reform but what sets it apart is the scope, speed and the amount of public as well as political support it has managed to gather. The enormous public and political support is mostly relevant with respect to their willingness to pay for energiewende. For example, polls in Germany have shown that more than 90% of the German citizens are in favor of its goals.

Citizen-owned Projects

Renewable energy like solar are often deployed in decentralized and scattered manner, they are mostly owned by non-utility actors like private households, farmers, energy cooperatives. In 2012, 46% of all installed renewable capacity in Germany was owned by non-utility actors and the utilities only owned around 13%. Therefore, energiewende has promoted a lot of citizen owned projects and encouraged the change from consumers to “prosumers”- users who produce and consume their own electricity.

Energiewende – Criticisms and Pro-Arguments

Costs Are Too High (EEG Surcharge)

The energy transition to renewables comes with a hefty price. There are different publications that have tried to model the cost of energiewende with some estimating the cost to be around 1 trillion euros. Who pays for what, has become one of the important discussion points in the debate about the energiewende.

The cost for the transition is met by the small industries as well as the general consumers in the form of EEG surcharge (difference between the set feed-in-tariff and the trading electricity price) on their electric bills. This makes the electricity price in Germany one of the highest in Europe. The big energy intensive industries are exempt from this charge to keep them competitive in the international market. The EEG surcharge increased from 0.19 cts€ per kWh in 2000 to 6.24 cts€ per kWh in 2014 and fell for the first time in 2015 slightly to 6.17 cts€.

Aggregate EEG surcharge = Forecasted Support costs (in the following year) + Account settlement ( EEG Account settled on 30 September) + Liquidity reserve ( no more than ten percent of the support costs)

For more information on EEG surcharge, click here.

As counterarguments to the rising electricity costs due to EEG surcharges, the following points should be considered:

• German households have high energy efficiency, which results in low consumption of energy. This offsets the rising electricity prices, due to EEG surcharge. Similarly, for small industries, the electricity price is only a small fraction of their cost.

• With the growth of renewables, the wholesale price of the electricity has also decreased and are helping to keep the retail prices down. Therefore, experts argue that the energy surcharge will decrease after some time.
• Energiewende has also created new jobs and helped to boost the economy. This statement is controversial, as some studies have claimed that the increase of EEG surcharge will also lead to losses of jobs in other sectors and therefore the net employment rate should take this factor in account. Similarly, when the subsidies have been reduced for the sector, the jobs might also decrease. For example, after the subsidy for solar was reduced, the total number of solar cell and module production employees has fallen from 10,196 to 5,973. However, a study by the Ministry of Economics argues that the new result of the energy transition has been moderately positive as compared to a scenario without the Energiewende.

Wind and Solar – Intermittent Energy: The Price of Integration is High

Wind and solar energy are characterized by high capital costs and virtually no operational costs. They are highly fluctuating and thus require the power market to develop resilience to absorb this fluctuation. Negative prices of the renewables (in case of high production) where the producers pay the consumers for buying their electricity is one of the downfalls of wind and solar energy. Similarly, there is also the integration cost for including renewables into the grid. To absorb the flexibility of wind and solar energy there need to improve the demand side management like smart grids, expansion of grid infrastructure and new storage technologies.

Is Coal Use still on Rise?

With energiewende on highlight, in 2015 42% of the total electricity generation still came from coal and therefore coal will continue to play an important role in the German energiewende. Germany has about 40.5 billion tons of coal reserve (mostly lignite). Therefore, on the way to energiewende, gradual phase out of coal will play a very important role. To read more about the role of coal in energiewende, click here .

Total Carbon Emission Stagnated 

Although renewable energy grew dramatically, the total carbon emission of Germany stagnated for the last few years. One of the reason is because the emission from transportation sector has continued to grow. For example, carbon emissions from cargo traffic grew nearly 60% between 1990 and 2017. The insufficient speed of phasing out coal is another main reason. 

According to the German Green party, to achieve the 40% reduction goal by 2020, Germany must reduce 156 million tonnes of annual carbon emission in the next three years. This could be done mostly by closing the 20 dirtiest coal power plants (50 million tonnes), energy efficiency measures in building sector (14 million tonnes), further expansion of solar and wind capacity (10 million tonnes).

Lessons Learnt from Energiewende

Although the challenges might be different, there are some experiences from Germany that might be useful for other countries in their own transition:

• Cost of the renewable subsides and the strain they put on national economy should not be neglected; this is relevant especially in case of low wholesale price for electricity caused by subsidies and grid priority to renewables.
• Retail prices for the end-users in Germany has increased significantly and therefore having public support is highly important.
• Exit strategy for the conventional power plants is a necessity. Similarly, there should be compelling incentives for utilities to invest in renewables early if the energy transition relies on these big utilities for backup generation.
• The grid has to be upgraded to absorb the flexibility of the renewables.
• The wholesale pricing model will change. Previously, the German wholesale prices followed the demand curve but now they react to the weather i.e. going down when the sun shines and the wind blows and up during times of high demand. This has resulted in short-term power trading as opposed to that in a conventional generation environment.
• In case of Germany, unsustainable FIT program led to a PV boom in 2010 where the PV producers, project developers and the installers enjoyed high profit margin while the cost was transferred to the consumers. Similarly, large subsidies and guaranteed interconnection to the grid for renewables resulted in reduced wholesale price with adverse consequences for many thermal  plants. Therefore the policies for supporting the program should be consistent as well as flexible enough to change with the need of the time. For details, please refer to this publication.
• The German Renewable Energy act is considered as one of the most successful instruments to introduce renewable energies into the well developed power markets. Many countries have copied from it, therefore it was a conceptual input for the global energy transition worldwide.

For other insights from the energiewende, click here.

Other Countries in Energy Transitions

Find more information on a selection of other countries, mostly developing countries in the article Energy Transition Worldwide.

Further Information

• For information about German power system refer to: https://www.agora-energiewende.de/fileadmin/downloads/publikationen/CountryProfiles/Agora_CP_Germany_web.pdf
• An article on Regulation to Foster Bulk Electricity Generation from Renewable Energy (status of discussion in the year 2002)
• The German Energiewende in the electricity sector includes many aspects that are crucial for the transformational change of NAMAs in developing countries. See: Olsen, Karen Holm, and Jørgen Villy Fenhann. Transformational Change for Low Carbon and Sustainable Development. UNEP DTU Partnership, 2015. http://orbit.dtu.dk/ws/files/115264160/UNEP_Transformational_web.pdf
• Energy Transition Worldwide