Winds of change: German turbines
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From the wind turbines that dot the plains of northern Germany to the solar panels speckling the roofs of Bavarian farmers, the shift to renewable energy has transformed the German landscape.

It has reverberated through the economy too, squeezing the profits of traditional utilities and prompting complaints from industry over high electricity prices.

In June, the utility Eon shut down its Grafenrheinfeld nuclear plant seven months ahead of schedule, marking a milestone in Germany’s transition from nuclear power. The closure of Grafenrheinfeld, serving the manufacturing heartland of southern Germany, underlined the country’s phasing out of nuclear energy and the simultaneous growth of renewables that have taken up the slack.

Proponents of the Energiewende say the success of the shift has defied the sceptics. Patrick Graichen, executive director of Agora Energiewende, a Berlin-based think-tank, says: “We will probably reach 30 per cent [of electricity generation from renewables] this year, compared with where we were 15 years ago — which was 6 per cent.

Three challenges remain. While the use of nuclear power is shrinking, the country remains heavily dependent on lignite and coal, which generated 26 per cent and 18 per cent respectively of German electricity output last year.

Angela Merkel’s government is under pressure to curb the use of coal and lignite to meet its target of a 40 per cent reduction in carbon emissions by the end of the decade from 1990s levels.

But Germany abandoned plans to raise emissions charges for older coal-fired power stations in July, in the face of an outcry from the power sector. Instead, 2.7 gigawatts of lignite-fired plants will be placed into a reserve from 2017 and then closed after four years.

Gas-fired plants, which produce CO2 in lower quantities than burning coal, have struggled to compete with cheaper coal at a time when carbon allowances are at rock bottom prices. In March, Eon filed to close two gas-fired plants in Irsching, Bavaria, because there was no prospect of operating them at a profit.

The carbon-intensity of Germany’s energy mix needs political commitment to resolve, according to analysts.

“We will probably go down a path similar to what we did on phasing out [hard] coal mining,” says Dr Graichen. We had a long debate . . . which resulted in the Kohle-Kompromiss.”

Germany’s “coal compromise”of 1997, was an agreement between the government, business and the mining union under which subsidies were gradually cut and pits closed, with finance provided to retrain miners.

A second challenge is to build the power lines needed to transfer wind power from the north to industrial regions in the south. While public support for the shift to clean energy is high, there is determined opposition to the perceived blight of power cables and pylons straddling the country.

Henrich Quick, head of asset management at 50 Hertz, the transmission grid operator in northern and eastern Germany, says: “Renewable power development in Germany is so quick that we can’t build the required grid to integrate and transmit it at the same speed.

“You can build a wind farm in three to four years. Getting permission for an overhead line takes 10 years.”

Horst Seehofer, the premier of Bavaria, has questioned the need for power transmission lines to his state. He has suggested that as nuclear plants are phased out, gas-fired power stations could take up the burden instead.

However, Germany’s vice-chancellor Sigmar Gabriel, warns that this could lead to a split power market in Germany, with higher prices for Bavaria.

There is also the challenge of managing the reform of financing for the renewables industry. By 2017, Germany is due to shift from feed-in tariffs to a competitive tender process to determine the level of funding for clean energy.

The feed-in tariffs, financed through a levy on customers’ bills, have ensured that renewables have expanded swiftly. The state-guaranteed income has encouraged a range of renewable energy producers, with community wind farms and small investors playing a leading role.

Under the auction system, the government wants to curb costs and bring a market element to the financing of renewable energy.

A pilot auction was held this year, to supply 150MW of photovoltaic energy. This was “oversubscribed several times over” according to the German economics ministry, which said there had also been a broad range of bidders — an indication that citizens’ participation in the Energiewende could be maintained even after the switch to an auction system.

Fifteen years after Germany embarked on its radical plan to rewire Europe’s biggest economy, the path ahead remains as thorny as ever.

Copyright The Financial Times Limited 2017. All rights reserved.
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