How Germany's powerful renewables advocacy coalition is transforming the German (and European) energy market

German energy policy is increasingly being dominated by a diverse and growing group of renewable energy supporters, who enjoy broad political and public support. These forces have convinced the Merkel government to transform the nuclear and fossil-fueldominated energy system into one based predominantly on renewable energy sources: the "Energiewende". Germany's nuclear sector has been the first victim, but pressure on the coal sector is growing as well. The German renewables advocacy coalition will likely be able to continue to use their clout to tilt the energy playing field in their favour. Their biggest challenge will be to convince neighbouring countries of the merits of the Energiewende.

Protests in Germany against cuts in solar power feed-in tariffs (photo: KACO New Energy )

The German government's rapid decision to exit from nuclear power after the Fukushima disaster on 11 March 2011, raised eyebrows across the globe. It was generally viewed as overly hasty. It means that Germany will be one of the few industrial countries to do entirely without nuclear power.

However, even before the Atomausstieg, in 2010 the German government had taken another momentous decision, namely to transform the German energy system from one based predominantly on nuclear and fossil fuels to one based primarily on renewables. This is called the Energiewende (Energy Transition). The Atomausstieg-decision should be seen in the context of the Energiewende. It is made possible by the successful growth of the renewable energy sector and the growing influence of its supporters. Understanding this context helps to make sense of the seemingly radical recent decisions and to be able to anticipate Germany's future energy policy, with its potentially large impact on neighbouring countries and the EU as a whole.

Energy Concept

The "Energiekonzept" (Energy Concept) which sets out the direction for the Energiewende was published in September 2010 (coinciding with the Merkel's government controversial decision to reverse Germany's first nuclear exit decided on in 2002). Its main goal is that: 'Germany should become one of the most energy efficient and environmentally friendly economies of the world'. Furthermore,'with the Energiekonzept the federal government describes the way into the renewable energy era'.

This vision has been translated into binding goals for 2050 (cut back CO2-emissions 80-95% compared to 1990, 60% of primary energy consumption and 80% of electricity consumption to be supplied by renewables and energy efficiency to be improved 2% per year). It also includes binding intermediate targets for 2020 (35% of electricity consumption from renewables), 2030 (50%) and 2040 (65%).

The German Ministry of Economic Affairs had asked a consortium of research institutes to make scenarios for the Energiekonzept which came out in August 2010. They focused on the economic effects of the Energiewende. In August 2011, the consortium updated the work to include the Atomausstieg. The scenarios drawn up before and after this decision are depicted below.

 

Development of German energy production, comparing scenarios before (LZV:
Laufzeitverlängerung) and after the nuclear exit (Ausstieg). Negative imports mean net exports. Source: Prognos, EWI, GWS, Energieszenarien 2011, August 2011

 

Both scenarios project that the contribution of conventional power plants will decrease over time. Furthermore, it is presumed that renewables will gradually replace conventional sources and eventually become the dominant source of electricity. Existing conventional capacity is expected to be used more intensively in the short run, to fill the gap left in the wake of the nuclear exit. In the updated scenario more investment in coal-firedpower plants than the capacity currently under construction is deemed unrealistic before 2020, while in the longer run coal with CCS could play a role, albeit a minor one. Contrary to coal, natural-gas-fired plants could see an increase from 2015 on, according to the most recent scenario. Hence, in this scenario it is presumed that natural gas will fill most of the gap left by the Atomausstieg. Nevertheless, Germany is expected to remain a net exporter of electricity until 2020.

The Environmental Ministry, too, had research carried out by a consortium of research institutes led by the German Aerospace Centre. This study, called The Leitstudie, deviates from Prognos' scenarios primarily in that the share of renewables increases faster and will be larger overall. The Leitstudie shows the role of natural gas as increasing only marginally. Both studies formed important input into the formulation of the Energiekonzept and the Energiewende.

Renewables Advocacy Coalition

So what makes German energy policy so much more "progressive" than in most other countries? The explanation lies in the success of an influential coalition of renewable energy supporters, who have managed to convince a majority of the public and the political classes that an energy system based on decentralised, renewable energy sources is feasible and indeed in many ways beneficial to the environment as well as to the economy.

Environmental interest groups were the first to argue that renewables offer an environmentally and economically friendly alternative to conventional energy sources. They argue that if external costs are included, the deployment of renewable energies is cheaper than conventional forms of energy and leads to domestic innovation and employment. With the gradual development of renewable energy, industry associations such as the Bundesverband Solarwirtschaft, Bundesverband Wind Energie and the umbrella organization Bundesverband

'Due to the Energiewende, the conflict between ecology and economy has finally been resolved'
Erneuerbare Energien came to play an increasingly important role in the policy-making process. Also the Verband Deutscher Maschinen- und Anlagenbau (German Engineering Federation), originally not a 'green' outfit, joined this coalition in 1997 when it realized that developing renewables would mean a lot of work for its members. In September 2011, Siemens, the German engineering giant, joined as well. After the Fukushima nuclear disaster it announced thatit would pull out of the nuclear energy business: 'the chapter is closed', Siemens CEO Peter Löschersaid. The company will expand its renewable energy activities instead. The renewable industry associations argue that their sector employs a lot of people (370,000 in 2010) and has large potential for growth. In 2010 investments in renewables in Germany amounted to €26.6 billion. The associations therefore represent an increasingly important pillar of the German economy.

In addition to universities and research institutes, many of which are also involved in research into renewable energy, new agencies affiliated with the Germangovernment have been founded which support further development of renewable energy. For example, the Renewable Energies Agency, which is funded by the Ministries of the Environment and Agriculture and the renewables industry, argues that renewables lead to value creation for local communities, mostly because of avoided expenditures on fossil fuel imports. The Umwelt Bundes Amt, the executive branch of the German government regarding environmental law, also provides the government with advice regarding energy issues. It provides scientific support for an energy supply fully based on renewables.

Together, these actors cover a broad range of German society and because of their growing importance and influence, a more decentralized energy system based predominantly on renewable energy sources is increasingly viewed as a viable alternative to the current centralized conventional energy system by the general public as well as amongst decision makers.

Within the government, the leading role in the Energiewende is played by the Ministry for the Environment, which is responsible for renewable energy and nuclear safety. Environment Minister Röttgen (CDU), forexample, said: 'Due to the Energiewende, the conflict between ecology and economy has finally been resolved'. Also: 'In future, the energy supply will become more decentralized, structured around the middle class, and technologically more challenging than today. It will be better tuned towards the end user, more efficient and based on local value creation.'The Ministry of Economics and Technology, responsible for energy efficiency, energy markets and infrastructure and headed byMinister Rösler (FDP) is somewhat reluctantly following the Environment Ministry's lead.

Harmonization

The strength of the renewables advocacy coalition may be gauged from the struggle that broke out at the end of 2009 over the Renewable Energy Sources Act (RESA or EEG – Erneuerbare Energien Gesetz), and in particular the support for solar power. The then newly installed Merkel government announced plans to revise support for solar energy, possibly introducing a cap on total installed capacity. Newly installed solar capacity had grown from 42 MW in 2000 to 3,800 MW in 2009 thanks to the RESA support. It then grew to 7,400 MW in 2010. As a result of the generous support, the RESA-Umlage (the premium end users have to pay on their energy bills to cover the costs of developing renewables) had been rising steadily – from 0.2 ct/kWh in 2000 to 3.530 ct/kWh in 2011 (about €10 per household per month). Conservative powers within the governing coalition wanted to limit these costs. Therefore, a thorough revision of the RESA instrument was put on the agenda.

In response, the German solar industry started a massive campaign. Solar firms went on strike and advertisements were placed across the country to raise awareness about the planned cutbacks. Although the solar lobby had to concede some points, its campaign was largely successful. In

'Photovoltaic power in Germany makes as much sense as growing pineapples in Alaska'
a compromise reached in February 2011, it was decided to increase the frequency and extent of the "degressions", the periodic reduction of feed-in tariffs, but not to put a cap on installations. After new record installations in 2011 of 7,500 MW, renewed plans for a1,000 MW cap were announced by Economics Minister Rösler. Again, the renewables coalition managed to avert a cap, although in a deal struck in mid-February by Rösler and Röttgen, cuts in feed-in tariffs of up to 30% were agreed upon.

Moreover the initially announced revision of the RESA, which would have led to fundamental changes in the principles of the support scheme - such as cancelling the preference of renewable electricity overconventional power on the grid - did not come through. Actually, with the draft RESA for 2012, which was agreed upon after the Fukushima disaster, the Merkel government reaffirmed the basic principles of German feed-in policy, namely continued preference for renewable energy sources, an obligation to connect all renewable electricity producers to the grid and paying them a favourableprice per unit of electricity for a long time period, mostly around 20 years.

And that's not all. The renewables coalition also managed to persuade the German government to reject European harmonization of renewable energy support schemes, which some people were advocating. The coalition feared that harmonization would mean the end of the RESA- scheme. The German government agreed. 'EU-harmonization would be the end of our Energiekonzept, we could throw it in the paper bin', said Environment Minister Röttgen. That marked the end of the EU-harmonization debate.

More progressive

The renewables coalition could not succeed without broad political as well as public support. It should be noted that the Atomausstieg and the Energiekonzept, which was written into law, are the products of a conservative government. The opposition in Germany is even more "progressive" when it comes to the Energiewende. This implies that within German politics consensus exists on the general direction of energy policy. Economics Minister Rösler, one of the most conservative forces on this dossier, confirms this: 'Our goal now is to exit from nuclear power faster than previously planned', he said. 'The pace is crucially dependent on how fast we can develop alternative sources of energy. The decision to exit from nuclear power was not satisfying in itself; we therefore initiated or changed 16 laws inorder to also safeguard our entrance into renewable energies and ensure a reliable energy supply.'

The German public, too, agrees on the desirability of the Energiewende. A recent poll by TNS Infratest shows that the public broadly supports the Energiewende and is even willing to pay for it: 94% is in favour of an accelerated development of renewable energy and 80% thinks the costs,which currently amount to around €10 per household per month, are 'adequate' or even 'too low'.

Large groups of people are even willing to take to the streets over energy issues, e.g. to prevent nuclear waste transports or to protest the lowering of feed-in tariffs. Energy issues directly influence people's voting behavior. Extending the lifetimes of nuclear plants proved detrimental to the federal government's approval rates and especially after Fukushima led to defeats in state elections. Most noticeably, the populous and economically important state of Baden-Württemberg, which used to be a CDU stronghold, was lost to the Greens.

An important consequence of the development of renewable energy, which may not be sufficiently appreciated outside Germany, is that the RESA has stimulated many households, farmers and small businesses to become energy producers themselves. This means that an increasing number of private people take on an active role in the Energiewende. Fullyover 50% of current installed renewable capacity is owned by private citizens or farmers, compared to less than 10% by the four largest utilities. In addition, many regions are taking steps to become "energy autonomous". This trend constitutes a fundamental change in the organization of the energy system.

Criticism

Clearly the Energiewende and the Atomausstieg also have their critics in Germany, but they are unlikely to be able to turn the tide. Hit hardest are the four large utilities operating in Germany, namely Eon, RWE, Vattenfall and EnBW. These are still heavily dependent on nuclear and coal power and have trouble reaping benefits

Some critics say that importing nuclear power is hypocritical
from a policy that favours decentralized renewable energy systems. It will require huge effort and investments by these companies, which serve close to 90% of the German market, to change their business models and become more active in the energy transition.
Some feel downright threatened by the Energiewende. For example, Jürgen Grossmann, CEO of RWE, commented on the record PV-installations in 2011 by saying that 'Photovoltaic power in Germany makes as much sense as growing pineapples in Alaska'. This comment is understandable from Grossmann's point of view. To make a profit on coal-fired and nuclear power plants, they need to run as much as possible, generally 80 - 95% of the time. However, with an increasing share of variable renewable energy, which has priority in the German grid, conventional power plants need to be operated more flexibly which results in a lower capacity factor and therefore lower returns.

Furthermore, solarPV generally produces energy at times of high demand, which used to be lucrative for utilities as energy prices were also high at these times. Because they have negligible running costs, wind and solar power push down electricity prices at the power exchanges. This means that every kW of wind and solar that is installed, worsens the business case for inflexible conventional power plants.From an end user perspective, however installing solar-PV makes perfect sense, because due to technological innovations and economies of scale, the costs of solar electricity are rapidly approaching the general consumer price level for electricity.

There are also critics who argue that the Energiewende will lead to much higher costs. Energy-intensive industries in particular are concerned. They depend largely on cheap and reliable baseloadpower and will have to find an alternative. Predictions are that energy prices will rise because of the Atomausstieg by as much as 20% by 2030, and that this will mostly affect energy-intensive industries, since a large part of their energy comes from bilateral contracts with nuclear power plant operators.

The renewable advocacy coalition concedes that in the short run, the price of energy will probably increase, but it points out that a distinction should be made between the price and the real cost of energy. At this moment only part of the actual energy costs are included in the kWh-price born by consumers, the rest is passed on to the public in the form of environmental damage. When accounting for these costs, most renewable sources are already cheaper than conventional energy sources.

Furthermore, the renewables advocates argue that the costs of most conventional energy sources will probably go up in future, either through the need of increased safety measures in the case of nuclear power, or by the increasing challenges in extracting fossil fuels, whereas the costs of most renewable technologies will go down, as they still have large potential for innovation and cost reduction. Studies, such as the 'Energy Concept 2050 for Germany with an European and Global Perspective' by a consortium of seven renown research institutes, including the Fraunhofer Institute for Wind Energy and Energy System Technology, show that in the long run an energy system based fully on renewables is achievable and will in the end prove cheaper than continuing business as usual, even when the costs of grid expansion and electricity storage are included.

Dogmatic focus

Some critics point out that Germany still needs to import nuclear power sometimes, which they argue is hypocritical. But the renewable energy supporters counter that a dogmaticfocus on national markets is outdated anyway. After all, France also regularly buys wind and solar power from Germany when conditions favour such purchases, for example, during the recent cold spell in Europe, when France's nuclear power plants could not produce enough electricity for the country's largely electric heating systems.

Then there are experts who say that the Atomausstieg and Energiewende pose technical risks to the electricity system. Gridoperators and the Bundesnetzagentur, the German Federal Network Agency, warned of the possibility of black-outs and marked the winters of 2012 and 2013 as critical. Idle capacity has been made available and Austria has been found willing to provide reserve capacity, if necessary, tostabilize the German grid. With these measures in place and great efforts from the Transmission System Operators (TSOs), the situation is 'manageable', according to the Bundesnetzagentur.

Finally, with regard to the Atomausstieg, defenders of nuclear power point out that it will make it more difficult for Germany to reach its CO2-reduction targets. Prognos expects that emissions will go up by 30

One strategy is to introduce legislation to correct "market failures" in the current energy system, for example putting a price tag on "pollution"
to 50Mt CO2 as a result of the Atomausstieg. However, it adds that these emissions fall under the European emission trading scheme (EU-ETS) and that higher emissions in Germany will lead to higher CO2-prices (around €1 to 2 increase), which will then improve conditions for new investments in low-carbon technology. On this basis, Prognos concludes that the Atomausstieg will not lead to higher CO2-emissions EU-wide. Whether this holds true depends largely on the proper functioning of the EU-ETS.

Redefining the rules

So what can we expect of future developments in Germany? The renewables advocacy coalition is still primarily focused on cementing the status of the RESA, as we saw before. But it is also taking other actions, for example, agitating against coal-fired power.

Most vocal on this front is BUND (Friends of the Earth Germany), which leads a campaign against construction of new coal-fired power plants under the slogan 'climate killer coal'. They say their actions have led to the prohibition or cancellation of sixteen coalfired power plants so far, of which eleven in the last three years.

The negative trend for coal-fired power is confirmed by the Prognos scenario studies mentioned earlier. The first scenario study in August 2010 showed new coal-fired power plants with a total capacity of around 14 GW planned and/or under construction. However, in the updated scenario published only one year later, they lowered their estimate for new coal fired power plants to less than 11 GW. They also said that investment in new coal-fired power plants are not likely before 2020.

The renewables coalition may also be expected to use their new-found power to redefine the rules of the energy game, increasingly tilting the playing field in favour of renewables. At this moment, the energy market is still configured in a way that favours centralized conventional sources of energy. The renewables advocates may be expected to lobby for legislation to correct market failures in the current energy system, for example by putting a price tag on pollution. This would enhance the competitiveness of renewables compared to fossil fuels. Favourable planning procedures for renewable generation capacity and the necessary (grid) infrastructure are being pushed as well.

The largest question mark for the future is probably the international dimension of the Energiewende. The German renewables coalition is quite focused on domestic issues and policies. This carries risks in the increasingly integrated European energy market.

Instead of alienating their neighbouring countries with unilateral decisions and fighting harmonization of support schemes, Germany and its powerful renewables advocacy coalition might do well to channel their power to aligning its European partners in the energytransition. Strengthening cross-border interconnections of the electricity grid could reduce the costs of the transition. In addition, increased cooperation will result in the opening up of markets for Germany's leading cleantech firms.

If on the other hand, Germany will not be able to convince its neighbouring countries of the merits of the Energiewende, the tensions and inefficiencies in the European market would greatly intensify, even to the extent that they could put the success of the Energiewende at risk.

 

About the author

Rick Bosman is MSc-student Renewable Energy Management at the Albert-Ludwigs Universität Freiburg and founder of the Energy Transition Blog. Rick on Twitter: @r_bosman. This article is based on a paper published by the Clingendael International Energy Programme on 16 February: "Germany's Energiewende: Redefining the Rules of the Energy Game".