German transition at the crossroads

Germany’s “grand coalition” government has been in power for just a few weeks, but we are already standing at a crossroads.

Will Germany continue to be a renewables front runner and show how the Energiewende can work? Or will the energy transition away from nuclear be choked off?

The draft that Energy Minister Sigmar Gabriel presented in mid-January to reform the Renewable Energies Act could wreck the Energiewende. The new government says it wants to slow the rise of electricity prices. Well, Gabriel’s draft lacks concrete details, but one fact is clear: the proposed measures won’t lead to stable prices. On the contrary, the build-up of renewables will become unnecessarily expensive and the danger of the Energiewende failing is great.

The reform draft is relying heavily on offshore wind. Yet, at around $0.20 per kWh, it is the most expensive of the renewable options. At the same time, support for the cheapest source — onshore wind — is supposed to be lowered and capped, placing a limit on its expansion. That puts many projects and jobs in danger. Ten times more people are employed in the onshore wind sector than in offshore.

In my book My Indecent Proposal to the Chancellor — the Energiewende must not fail, I calculate that if we abandoned offshore wind and instead installed more onshore turbines and biogas plants, we could save roughly 30% on the cost of implementing the Energiewende.

The velocity with which Gabriel wants to put his measures into practice resembles a cloak-and-dagger operation. The concept of regulatory and financial certainty necessary for wind and solar parks that cost millions is annulled in an instant. The reason is that the current remuneration for the various technologies is slated to be valid only for installations that start operating by 1 August this year. This will have drastic consequences for municipalities, developers and co-operatives that have already invested a lot of money in projects that can’t make that deadline. Investors will not put money into new developments any longer because there would be too much insecurity, especially as the level of future feed-in tariffs remains unclear.

Renewables need reliability and predictability. The construction of wind and solar parks is based on years of expensive planning — a wind farm can take two or three years, from preliminary land-use contracts to completion of construction.

The entire planning system depends on fixed remuneration levels to calculate whether installations can operate profitably. That is at risk now. Gabriel has suggested that rather than selling energy to the grid, thousands of small generators would have to sell to individual customers. In practice, that means operators of renewables projects would need to market their electricity at the Leipzig power exchange, and would be exposed to its ups and downs. In my view that is economic nonsense. It will scare off investors and slow down the Energiewende.

The nature of renewable energy is that the installations themselves are relatively expensive, and the interest on loans has to be written off over many years. But their operation is incomparably cheap, as the raw materials — wind and sun — are free. However, we can exploit this advantage only if there is reliable long-term remuneration. That is not a given if the electricity is marketed at the Leipzig exchange, and this will have consequences: banks and investors will price the risks of fluctuations into their interest rates and profit margins. That will make electricity more expensive — and many plants won’t be built in the first place.

For more than 17 years, I have developed renewables with Juwi across the globe. In my book I outline ideas on how to carry out the Energiewende much more cheaply. A fundamental point is a new calculation of Germany’s renewables surcharge, which is now $0.0624/kWh. Paradoxically, it is constantly rising, although renewables are proven to lower prices at the Leipzig exchange. This burden on the consumer becomes even heavier because large power users are exempt from paying the surcharge.

The introduction of a tax on CO2 would also have positive effects, not just for the climate and the environment; using this revenue, the surcharge could be lowered considerably, and with it the costs of the energy transition. I estimate that this could save consumers at least $0.04/kWh.

We can’t afford a failure of the Energiewende. The world is watching to see whether Germany can make a success of this great project. I only hope the government grasps this historic opportunity. Once the Energiewende is up and running, with the necessary renewables infrastructure built and operating, electricity costs will stabilise, then come down — and if the government passes these savings on to the consumer, prices will start falling. For that alone, it is worth fighting for.

Matthias Willenbacher is co-founder of German renewables developer Juwi

This piece was published as part of the Thought Leaders series. Recharge’s Thought Leaders Club brings together leading thinkers and participants from the renewable-energy sector to examine the key challenges facing our industry