ANALYSIS: Germany's fossil conundrum

With all his energy focused on a heated debate about rising costs to finance renewable power, environment minister Peter Altmaier is failing to tackle another critical issue.

It is one that could derail Germany’s energy transition away from nuclear power – gas being pushed out of the market.

Germany’s big power utilities E.ON, RWE and EnBW in recent weeks have all said they are reviewing their fossil power plants.

Faced with falling profits, E.ON may mothball up to 11GW in conventional generating capacity across Europe by 2015, much of that in Germany, E.ON CEO Johannes Teyssen said in late January.

Germany’s complex electricity pricing system is part of the problem. Renewable power enters the electricity market with priority, and at a production cost of close to zero.

On days of plentiful sun and wind, that has the effect of pushing the most expensive power sources out of the spot market at the European Energy Exchange in Leipzig. That is usually gas, as nuclear power from old reactors that have long since been paid for and coal are comparatively cheap.

So although gas causes fewer greenhouse emissions than coal, due its high price utilities have to switch off some of their gas-fired stations half of the time.

The effect has already changed Germany’s energy mix. Gas accounted for 11.3% of electricity output in 2012, down from 13.6% in 2011. Coal and lignite combined boosted their share to 44.7% from 43.1%. The trend is set to continue, countering German efforts to cut CO2 emissions.

Higher prices for CO2 emission certificates would help, but Europe hasn’t yet found a way to resolve the problem of rock-bottom carbon prices.

German energy security is also at stake. Last year, renewables already met 23% of German power needs and their share is rising fast.

But on days with weak sun and wind conditions, the country still needs reserve capacity from conventional power. The problem is worsened by transmission bottlenecks to transport wind power from coastal regions in the North to industries in the South.

Keeping a “cold reserve” in gas capacity would be the ideal solution for the coming years, an official from a utility that itself is increasingly betting on renewables told Recharge recently. But no utility will do that for free, he added.

In the end, Germany’s consumers may again have to foot the bill. Altmaier so far has largely ducked that discussion.