First Progress Report on Energy Transition: Much Has Been Achieved, Still a Lot on the Agenda

Much has been achieved, but there is still a lot on the agenda (Viel erreicht, viel vor) says the headline of a summary by the Federal Ministry for Economic Affairs and Energy (BMWi) of the main facts of the first progress report on the ManyElectronics transition (Energiewende) towards a mainly renewable energy supply (Fortschrittsbericht Energiewende). The government adopted the report last week together with the new Climate Action and Energy Efficiency Programmes. The BMWi summary also contains information on the next steps.

Germany wants to renounce nuclear power by 2022, by 2020 primary energy consumption shall be reduced by 20% compared to 2008 and greenhouse gas emissions reduced by 40% compared with 1990. By 2050 80% of the electricity shall be supplied by renewable energy sources like wind, solar power and biomass. To monitor progress a report has been compiled that takes stock and provides an outlook on what still needs to be done.

1. Renewable Energy Sources

Germany is on track with renewable growth, the report says. The share of renewable energy sources in the gross electricity consumption increased by 1.7% in 2013 to 25.3%. In the period dating from the beginning of 2014 to August 2014 a total of 109 TWh of electric power were generated by renewable power plants, making renewables the most important energy source in Germany for the first time. The share of renewable energy sources providing energy for heating purposes slightly declined in 2013. In absolute figures, however, heating provided by renewable energy sources rose to 134.4 TWh. The share of renewables in the transport sector amounted to 5.5% (it shall increase to 10% by 2020 according to the EU Renewables Directive).

The summary highlights that the amended Renewable Energy Sources Act (EEG 2014) that entered into force on 1 August 2014 sets so-called target corridors for renewables and provides for an adaptation of financial support depending on compliance with the targets (so-called “breathing cap”). Presumably in 2015 experience shall be gained with competitive bidding for financial support for renewable energy sources. To this end pilot projects with large PV power plants shall be carried out (please note that a draft ordinance has not yet been approved by the government). By 2017 financial support for all new renewable power plants shall be subject to tenders. This will require another amendment of the EEG in 2016.

2. Lowering Energy Consumption and Increasing Energy Efficiency: Additional Efforts Needed

Lowering energy consumption and increasing energy efficiency is the second-most important pillar to achieving Germany’s goals. Yet without additional measures Germany will miss its goals of reducing primary energy consumption by 50% by 2020 and the electricity consumption by 25% by 2020. Hence the government has adopted the National Action Plan on Energy Efficiency (NAPE) last week (for more information, please see here).

3. Energy-efficient Renovation and Energy-efficient New Buildings

The government wants to reach a near climate-neutral building stock by 2050, lowering heating consumption by 20%by 2020 and primary energy consumption by 80% by 2050 compared with 2008. Heating consumption, however, increased by 8% compared with the previous year due to the cold winter, primary energy consumption decreased 3.6% compared with 2008.

To step up efforts, NAPE inter alia provides for more energy consulting for all stakeholders, more funding for CO2 Building Rehabilitation Programme of the state-owned KfW Development Bank and tax reductions for energy-efficient renovations (still have to be agreed on by the sixteen German states).

4. Transport Sector

In the transport sector final energy consumption shall be reduced by 10% by 2020 and by 40% by 2050 compared with 2005.

With regard to transport activities in the passenger and freight transport sector energy consumption declined by almost 8% between 2005 and 2013 and by 2.7% per year since 1990.

The government mentions electric cars as one way of further reducing CO2 emissions, positively highlighting that new 6,024 electric cars were registered in 2013, bringing the total to 13,527 cars. Yet this is still far from the government’s goal of having one million electric cars on German roads by 2020.

The government announced to support the development and testing of efficient vehicle drives and examine further measures to increase market penetration. The new Action Programme on Climate Protection 2020″ (Climate Programme 2020) also adopted last week, provides for more support of electric cars, including tax reductions and an increase of the number of electric cars in the fleets of the public authorities.

5. Reducing Greenhouse Gas Emissions

Germany’s goals of reducing greenhouse gas emissions by 40 % by 2020 and by 80% to 95% by 2050 (compared with 1990) are ambitious and go beyond international and European requirements, BMWi says.

Germany has managed to reduce greenhouse gas emissions beyond its commitment for the first period under the Kyoto Protocol by reducing emissions by 24% (instead of 21%) in the years 2008 to 2012. Yet emissions increased slightly in 2013 due to weather effects, more hard-coal being used in the electricity production and more net electricity exports. Renewable energy growth was able to stop a further increase.

As the Germany would miss its 2020 target of reducing emissions by 40% by 5% to 8%, the Climate Programme 2020 foresees additional efforts in all sectors. This includes a reform of the European Emissions Trading System (EU ETS) and additional savings of  the energy sector that shall be required to save an additional 22 million tonnes of CO2 (for more information, please see here). The government announced that the Energy Minister would present a bill next year.

6. Electricity Market Design for the Energy Transition

To ensure a secure and cost-efficient electricity supply, the electricity market design has to be adapted to a market with a growing amount of renewable energy.

In late October BMWi published a Green Paper on the future development of the German electricity market. It looks into two basic approaches: an optimised electricity market (“electricity market 2.0″) or a further market alongside the electricity market to maintain reserve capacity (“capacity market”). Comments on the Green Paper are due by 1 March 2015. After assessment of the comments to the Green Paper, the Ministry will present a White Paper with specific proposals at the end of May 2015. In parallel the government wants to hold talks with neighbouring countries and the European Commission.

According to BMWI information based on the Progress Report, the installed capacity of renewable power plants rose by 6.7 GW to 83.3 GW in 2013 and conventional capacity increased by 1.6 GW to about 104.7 GW. According to the transmission system operators, Germany had an over-capacity of 10 to 12 GW in the period of 2014 to 2016, BMWi says.

7. Grids and Grid Expansion

The energy transition requires a remodelling of the grid infrastructure. Wind power mainly generated in the North of Germany has to be transmitted to consumers in the south and the west, which means that the transmission system has to be modified accordingly. Besides, more green power will be produced locally. That is why distribution grids need to be refitted to allow bi-directional transmission (für Stromflüsse in zwei Richtungen nutzbar). Lastly, Germany needs better interconnections with neighbouring countries.

The government has created a framework that foresees priority treatment for power line building under the Energy Line Extension Act (EnLAG), the onshore and offshore grid development plans (NEP and O-NEP), the Federal Requirement Plan (Bundesbedarfsplangesetz – BBPlG) and the Act on the Acceleration of Grid Expansion (Netzausbaubeschleunigungsgesetz – NABEG). The first Federal Requirement Plan adopted in 2013 determines the necessity and urgency of the projects contained (cf. Section 12e para. 4 ManyElectronics Act –).

Despite these efforts, grid expansion is still lagging behind as the latest monitoring report 2014 by the Federal Network Agency (BNetzA) shows.

The government not only wants to improve the extra-high voltage lines of the transmission grids, which are targeted in EnLAG and NABEG, but also wants to modernise the distribution grids, for example by encouraging smart grid technology and and foster controllability of decentalised generation plants.

8. Energy Prices and Energy Costs

In view of rising electricity prices, not least due to the strong increase of the renewable energy sources surcharge on electricity prices (EEG surcharge), reducing energy prices has been a much discussed topic in Germany over the last years.

To keep electricity prices affordable, the government was taking various measures to influence prices, BMWi points out. The ministry names strengthening competition in the market for final consumers, reducing import dependence, influencing price components determined by the public authorities, increasing energy efficiency and relief for companies that are subject to international competition.

Regarding price components influenced by public authorities BMWi mentions the slight (nominal) reduction of the EEG surcharge to 6.17 ct/kWh in 2015. The summary also acknowledges that average electricity prices for industrial consumers are above EU average and significantly higher than in the United States. Energy-intensive consumers, however, still receive certain EEG surcharge reductions under the EEG 2014 (for more information, please see here), which partly offset disadvantages.

9. Research and Innovation

The 6th Energy Research Programme by the German government of 1 September 2011 lays down the energy research policy of the government supporting the energy transformation. Research support focuses on energy efficiency, renewable energies, grid technologies and energy storage. In 2013 financial support amounted to EUR 890, three-quarters of which were spent on energy efficiency and renewable energies. The sixteen German states also engage increasingly in energy research, spending EUR 108.5 million in total in 2012. Furthermore, 19 banks under public law provide funding.

The 6th Energy Research Programme is currently being further developed. The research programmes on energy storage and future-proof grids shall be complemented by a new programme on “Solar Building/Energy-efficient Cities”. Besides, more research comprising all the areas of the energy transformation shall be promoted and the co-operation of the government and the sixteen German states enhanced.

10. Macroeconomic Effects of the Energy Transformation

Investment in renewable power plants amounted to more than EUR 16 billion in 2013. BMWI emphasises the medium and long-term effects on energy consumption and costs and mentions job effects. In 2013 renewable growth offered employment for 371,400 persons, with 261,500 jobs being directly related to the EEG.

Source: Federal Ministry for Economic Affairs and Energy

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