Intelligent Energy

Myth-busting Germany's energy transition

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Despite what you may have heard in the press, Germany's transition to renewable power has been a stunning success. Energy analyst Chris Nelder runs down the facts.

Major English-language media have been propagating a false narrative about the stunning success of Germany's transition to renewable energy: the Energiewende. To hear them tell it, the transition has been a massive failure, driving up power prices, putting Germany's grid at risk of blackouts, and inspiring a mass revolt against renewables.

Nothing could be further from the truth.

The biggest offender is Der Spiegel, a German newsweekly that resolutely scrounges up every shred of support for its anti-renewable story, while touting fossil fuels and nuclear power as the only sensible paths forward. For just one small example, consider its Sept. 4 editorial, "How Electricity Became a Luxury Good," which went slightly viral and featured this lede:

"Germany's aggressive and reckless expansion of wind and solar power has come with a hefty price tag for consumers, and the costs often fall disproportionately on the poor. Government advisors are calling for a completely new start."

U.S. media have also followed this story line. A follow-up CNN story titled "After Fukushima: Could Germany's nuclear gamble backfire?" repeated many talking points from the Der Spiegel article, touted Germany's high grid prices without any context whatsoever, and featured an expert from an infamous German climate science skeptic think tank with the Orwellian name of European Institute for Climate and Energy.

Of course Fox News, ever a friend to fossil fuels and a foe of renewables, has also done its part. Fox Business reporter Shibani Joshi became an overnight sensation in cleantech circles in February, when she tried to explain why the United States hasn't kept pace with Germany's solar growth:

"They're a smaller country, and they've got lots of sun. Right? They've got a lot more sun than we do. ... The problem is it's a cloudy day and it's raining, you're not gonna have it." Sure, California might get sun now and then, Joshi conceded, "but here on the East Coast, it's just not going to work."

(Point of fact: The only part of the Lower 48 that gets less sun than Germany is western-most Washington.)

An oil-and-gas industry veteran from Canada recently warned that "the backlash against renewable subsidies that is beginning to become evident throughout Europe will turn into a contagion." And of course longtime oil cheerleader and energy analyst Michael Lynch can always be counted on to twist the facts. (I have a long history of disagreement with Mr. Lynch.)

I debunked a few of the hoary tropes about the Energiewende one year ago, such as the notion that the grid can't handle a large share of variable renewable power. But apparently many in the major Western media still haven't gotten the memo.

So let's clear out the fog and debunk a few of the favorite myths about the Energiewende.

Myth: "After the Fukushima nuclear accident in Japan two-and-a-half years ago, Merkel quickly decided to begin phasing out nuclear power and lead the country into the age of wind and solar." (This one is from the above-mentioned Der Spiegel article.)

Fact: Germany's switch to renewables started in 1991, and the nuclear phaseout started in 2002.

Craig Morris, lead author of German Energy Transition, is always the go-to source for factual reporting on the Energiewende, and for debunking Der Spiegel's latest calumnies. He set the record straight:

"In fact, the age of wind began in 1991 with the Feed-in Act, followed by the Renewable Energy Act of 2000; solar, however, did not really get started until that Act was amended in 2004. Likewise, the nuclear phaseout began in 2002 under Chancellor Schroeder. Chancellor Merkel simply reversed that policy in 2010 and then did an about-face in the wake of the disaster at Fukushima."

Myth: Germany is building more coal plants because of its nuclear phaseout.

Fact: The count of coal plants under construction has actually fallen by six since Germany began its nuclear phaseout in 2011.

Morris set that record straight in April:

"For instance, Datteln starts in 01/2007 (January 2007) and the latest date for the beginning of a plant’s status is 07/2009 for Neckerau Block 9.

The two plants that went online last fall received permits way back in 2005 (Grevenbroich) and 2006 (Boxberg). The eight others soon to be completed were all underway by 2009 at the latest. Go down further into the list of “abandoned” projects ... and you’ll see that six of those 20 projects have been abandoned since the nuclear phaseout. The only positive changes for coal since March 2011 concern two plants currently “planned” ... and here nothing is currently being built.

As a reaction to the nuclear phaseout, Germany has thus started building zero coal plants but stepped away from six. At current power prices, all conventional projects are on hold, and coal power may soon be unprofitable in Germany."

Myth: Germany is burning more coal because of its nuclear phaseout.

Fact: The increase was temporary, and is now reversing.

Germany's recent uptick in coal consumption has been a temporary situation, primarily driven by high natural gas prices which made coal power cheaper. It's simply incorrect to lay that at the feet of the nuclear power phaseout or the Energiewende.

Bloomberg reports:

"Coal is more profitable to burn than natural gas at power stations, according to Bloomberg data. The fuel will be used first by grid operators to meet demand, which gives it an influence in setting the price of electricity. Generators can earn 14.08 euros a megawatt-hour from burning coal next month compared with a 14.67 euro loss by using gas, according to data compiled by Bloomberg. […] The German next-year clean-spark spread, a measure of the profitability at plants burning natural gas, has been negative since January last year and will stay below zero until 2016."

But even coal is now looking at a declining market in Germany. This week Morris noted that German coal giant RWE is considering closing the Garzweiler brown coal field (one of the largest in the world), due to falling expectations for coal demand. Why? Because Germany's massive build-out of solar and wind capacity is destroying the economics of conventional "baseload" power generation. Now 26 coal and gas-fired power plants are slated for closure.

Load factors (how much of the time a power plant runs) for conventional power in Europe have been falling steadily under the pressure of solar and wind production, which has an effective marginal cost of zero. In 2006, conventional power plants had an average load factor of 51 percent. In 2012, that had fallen to about 45 percent.

Myth: Germany is the only European country opposed to nuclear power and overreacted to Fukushima.

Fact: Germany isn't alone, nor even the most anti-nuclear country in Europe.

As a 2012 Paul Hockenos paper [PDF] for a Heinrich Böll Stiftung foundation series on Energiewende explains, popular German opposition to nuclear power began in the 1970s, and is not unique to Germany.

"Of the many misconceptions that cloud the perception of Germany's energy stands, one is that Germany is somehow on its own in Europe, on the fringe of the continent's mainstream. In fact, Ireland, Austria and Norway dismissed the nuclear option years ago. Greece, Portugal, Italy and Denmark don't and never will have atomic power plants. Like Germany, Sweden, Switzerland, the Netherlands and Belgium are in the process of phasing out nuclear power. Spain has banned the construction of new reactors.

In terms of popular opinion, more than 80 percent of Germans oppose nuclear energy, a figure that climbed higher in the wake of Fukushima and is comparatively high in Europe. But 90 percent of Austrians object to the nuclear option, and Austria even has no-nukes enshrined in its constitution. In 2011, 94 percent of Italians voted against nuclear power in a popular referendum."

Myth: Large amounts of renewable power are putting Germany's grid at risk of blackouts.

Fact: Germany has the most reliable grid in Europe.

As I detailed one year ago, Germany's grid is now the most reliable in Europe, thanks to good grid planning and management designed to accommodate variable renewable power. The real problems with integrating renewables into the grid are human, not technological.

Myth: Opposition to renewables is rising in Germany.

Fact: The vast majority of Germans fully support the Energiewende. Citizens are now wresting control of the grid away from private utilities.

Polls show Germans overwhelmingly support the energy transition. A roundup of the results by Morris stated:

"The most recent poll found that a whopping 93 percent of those surveyed believe that further growth of renewables is "important" for "exceptionally important."

Indeed, some 65 percent of the renewable power generated in Germany comes from small, privately owned producers (citizens, farmers and the like) not from major utilities. This has engendered a sense of public pride and ownership. The Energy Transition blog notes that "municipal utilities own only about 6 percent of Germany’s clean-energy capacity."

But citizens are still frustrated at the slow pace of transition by the utilities, so now German municipalities such as Hamburg are taking control of their grids:

"50.9 percent of the population voted to re-communalize electricity, gas and district heating networks which are currently in the hands of multinational energy companies Vattenfall and Eon.

The motivation for Hamburg citizens? That energy supply is a basic public service that should not serve profit motives. They concluded that Vattenfall and Eon -- the current grid operators -- don’t act in the best interest of the people and are delaying Germany’s shift to renewable energy. […]

Other initiatives similar to the one in Hamburg have stepped forward, e.g. in Berlin where the referendum takes place this November. Indeed, since 2007 there have been about 170 municipalities which bought back the grid from private companies. Cities that have chosen to not privatize  -- like Frankfurt and Munich -- are now showing that it’s worth keeping energy supply in municipal hands. Both major German cities have a 100 percent renewable energy target."

Myth: Wind and solar are laughably small contributors to German grid power.

Fact: Wind and solar are rapidly taking over power production in Germany.

Renewables now provide 25 percent of Germany's total grid power.

On particularly windy and sunny days, the renewable share is much higher. At noon on Oct. 3, 2013, wind and solar contributed 60 percent of the grid power in Germany. Over the course of the entire day, they made up 36.4 percent of the power supply, enough to drive the price of power on the European electricity price index (ELIX) at 2 PM -- the peak demand part of the day -- down to the same level as it was at the 6 AM demand trough.

The all-time daily record for renewable production in Germany is 46 percent, which occurred on Dec. 31, 2012.

World solar photovoltaic capacity is now more than 102 gigawatts, of which 31 gigawatts was installed in 2012 alone. For perspective, that's roughly equal to the entire nuclear capacity of the United States, the world's top nuclear power user. (However, because nuclear plants run more of the time than solar plants, it's not equal to U.S. nuclear generation.) By the end of this year, Germany will have 36 gigawatts of capacity, making it by far the world leader in solar.

Myth: The Energiewende is driving up German grid power prices.

Fact: Not really.

Merely noting that Germany's retail grid power prices, which are heavily influenced by high taxes and high natural gas prices, are the highest in Europe misses the point that renewables are driving wholesale grid prices down. As Bloomberg reported last week: "Wholesale costs have declined almost 60 percent after peaking in 2008 above 90 euros as a boom in renewable energy in Germany boosted supplies at the same time as the financial crisis last year cut demand to its lowest level since 2009."

As Morris painstakingly detailed last month, the main driver of rising German grid power prices has been falling wholesale prices. This counter-intuitive result owes to the structure of the surcharge that pays for the feed-in tariff that has driven solar growth:

"A study published Aug. 21 by energy analysts at Energy Brainpool (PDF in German) found that 52 percent of an increase in the renewable surcharge to 6.1 cents would be the direct result of these lower wholesale prices. It may sound ironic for lower wholesale prices to increase another price component -- in this case, the renewable surcharge -- but in fact, the calculation makes sense.

Essentially, when this calculation was designed last decade, proponents of renewables realized that all of the green electricity that would be generated (and have to be purchased) would offset conventional power production, which would in turn reduce wholesale prices. The wholesale rate is therefore subtracted from the average feed-in tariff paid for renewable electricity, and as renewables make up an ever-greater share of the pie, there is less and less to subtract.

Renewables are not even the second biggest cause of the increased surcharge. That honor goes to the greatly expanded industry exemptions to the surcharge. The Social-Democrat/Green coalition under Chancellor Gerhard Schroeder wisely implemented exemptions for energy-industry players that face international competition, lest these firms be driven away from Germany. But the current coalition has expanded these exceptions to three times as many companies, many of which can hardly leave the country (such as municipal transportation services).

Because these exemptions would make up 25 percent of an increase to 6.1 cents, merely reducing the number of exempt firms by two-thirds to the original number could reduce that increase by more than the cost impact of new renewables. According to Energy Brainpool, new renewables would only make up 13 percent of the price hike to 6.1 cents."

Got that? The structure of the surcharge is the problem, not the direct cost of solar power. And industry is getting a free ride, pushing the entire surcharge onto retail customers. Higher electricity costs for households have mainly resulted from the rising cost of fossil fuels, not renewables.

(For a more technical discussion of the surcharge issue, see the German Energy Blog.)

A new report to be issued next month by The German Advisory Council on the Environment comes to the same conclusion.

It's also worth noting that thanks to its strong pro-solar policies, small residential solar systems in Germany cost half as much per watt as they do in the United States. Those policies can also be credited for driving down the cost of solar power globally.

Growing pains ahead

The reality of Germany's Energiewende is much better than you might have heard. But that doesn't mean it doesn't have problems to solve. The collapsing conventional power market could do what opponents always warned that renewables would do -- destabilize the grid -- particularly in winter. (That isn't just a German issue though; there are also concerns about the United Kingdom's grid power margin this winter.) And, as Morris wrote last week, some German municipal utilities with legacy gas-fired plants are suffering, caught between high gas prices and low grid power prices.

All of these issues could be, and were, expected. They are not proof that the Engeriewende was a bad idea, however. They are growing pains. Nobody ever said the transition to renewables would be easy, although Germany has done it a lot more smoothly than anyone predicted. And nobody ever said it would be cheap, although considering the trajectory of European gas prices, Germany's power prices would probably have been higher than they are now if they had not committed to transition.

We should continue to grapple with the important questions of changing utility business models, changing incentive structures, changing carbon policies, changing prices for fossil fuels and renewables, and changing grid architectures and technologies, particularly as smart grid technology and distributed storage on a large scale come into play. Those are all valid and important issues to discuss.

But let's do it from a factual basis, shall we?

Pro tip: For the straight dope on the Energiewende, follow @EnergiewendeGER and Craig Morris (@PPChef) on Twitter, and visit German Energy Transition and Renewables International.

Photo: From a March 2012 event in front of the Berlin Brandenburger Tor (Gate), supported by the Sozialdemokratische Partei Deutschlands (SPD), where people are demonstrating against cutting government spending for solar development. This sign is accusing the two fellows below the sign, 'Player 12' and 'Player 13,' of being fear-mongers for the energy companies named on the sign and working to derail solar efforts. (Thanks to Horst and Oliver Steinfels for translation.)

(Credit: Timm Steinborn Social Content/Flickr)

Chris Nelder

Columnist (Energy)

Chris Nelder is an energy analyst and consultant who has written about energy and investing for more than a decade. He is the author of two books on energy and investing, Profit from the Peak and Investing in Renewable Energy, and has appeared on BBC TV, Fox Business, CNN national radio, Australian Broadcasting Corp., CBS radio and France 24. He is based in California. Follow him on Twitter. Disclosure