Germany's Energy Poverty: How Electricity Became a Luxury Good
Part 3: Incentives for Pollution
More and more wind turbines are turning in Germany, and solar panels are basking in the sun, yet the amount of pollutants and greenhouse gases emitted by smokestacks increased last year. This dramatic turn of events is especially evident in small town of Grosskotzenburg, just east of Frankfurt.
Germany's largest energy provider, Düsseldorf-based E.on AG, has been operating a large coal-fired power plant in Grosskotzenburg for many years. The oldest of the five units at the Staudinger plant was built in 1965 and operates at a ridiculous 32-percent efficiency level. Even at E.on, the Staudinger plant is now seen as "completely unacceptable, both economically and environmentally."
State-of-the-art gas-fired power plants, like the one in the Bavarian town of Irsching, operate at almost double the efficiency levels of coal plants, or about 60 percent. They are also more flexible and emit far less carbon dioxide. This may explain why E.on officials were not particularly upset when the operating license for the oldest of Staudinger's five units expired on Jan. 1 of this year.
"To be on the safe side, we informed the relevant authorities several times that we are shutting down the unit," says E.on CEO Johannes Teyssen. When regulators did not object, the company began in May to dismantle key components of the power plant and transfer employees to other sites. E.on had planned to complete the work by the end of the year and remove what was left of the ancient plant.
But the situation suddenly changed on June 30, when E.on received a letter from the grid operator associated with the plant, Tennet, and the regulatory agency. The unit, the letter read, was needed to maintain grid stability, and E.on was to reestablish the coal plant's operational readiness without delay.
This is one of the most curious developments in the story of German energy reform. The country's most heavily polluting plants are now also its most profitable: old and irrelevant brown coal power stations. Many of the plants are now running at full capacity.
This leaves a dirty stain on Germany's environmental statistics. While the amount of electricity from renewable energy rose by 10.2 percent in 2012, the first year of the new energy policy, the amount of electricity generated in hard coal and brown coal plants also increased by 5 percent each. As a result, German CO2 emissions actually increased by 2 percent in 2012. Environment Minister Altmaier was clearly upset, saying: "This development cannot become a tendency."
But experts expect Altmaier will be humiliated once again at the end of the year, if he's still in office. A study released last week by the Federal Network Agency shows that energy generated with brown coal will remain virtually stabile, at 148 terawatt-hours, until 2022. It reached the depressing conclusion that brown coal's competitive position will be "hardly diminished by an increasing share of renewable energy in the mix."
Sometimes the best ideas are borne of necessity. At least that's how Gustav Ebenå sees it when he looks back on the turn of the millennium, when Sweden entered the age of green energy. His country was suffering from the effects of a painful economic crisis at the time. "One thing was clear," the expert with Sweden's energy agency recalls. "Renewable forms of energy had to be developed as cost-effectively as possible."
Sweden developed a system based on government-mandated quotas for green energy and a market for certificates. "In a sense, our model at the time was the opposite of the German subsidy scheme," says Ebenå, who lived in Germany for many years and is well informed about Germany's energy reforms.
The Swedish model has prevailed among the competing concepts. Under the model, a kilowatt-hour of clean power costs only 10 percent more than conventional electricity. "This means that our consumers pay only a fraction of what Germans are spending to enter the renewable energy era," Ebenå says.
Still, Sweden is moving forward briskly with its expansion of green energy. The country already derives about 45 percent of its electricity from hydroelectric power plants. As a result of the subsidy system, biomass and wind turbines have contributed about 10 percent to the energy mix in recent years. Norway implemented the Swedish system last year. But can the model be applied to Germany?
The members of the commission appointed by the German government believe it can, and are due to submit a detailed plan to Economy Minister Philipp Rösler on Thursday. The plan was developed by economist Justus Haucap and legal expert Jürgen Kühling, and is supported by the economic think tank RWI and the German Academy of Science and Engineering (Acatech).
The experts propose that the government impose a green energy quota on energy providers, and gradually increase this quota in accordance with their targets for renewable energy production. The cutoff date would be Jan. 1, 2015. In the ensuing 12 months, 27.5 percent of electricity would have to come from renewable energy, followed by 29 percent in 2016 and, finally, 35 percent in 2020.
But it would be left up to the individual energy companies and municipal utilities to choose their respective sources of clean energy. The commission believes energy providers should decide how to spend their money on wind, solar or biomass. The municipal utilities would seek the lowest possible price for their clean electricity. This would encourage competition between offshore and terrestrial wind power, as well as between solar and biomass, and prices would fall, benefiting customers.
Keeping the System Honest
In Sweden, the system ensures that the electric utilities' investments automatically flow into the technology they see as the most cost-effective. This doesn't always have to be the cheapest technology at a given time. But like any normal company, the Swedish utilities have an interest in maximizing their return on investment. This is different in Germany, where the most inefficient technology at a given time is the most heavily subsidized, based on the bizarre logic that it has to be brought into the market over a particularly lengthy period of time.
To prevent energy providers from cheating the quota model, Sweden requires them to submit a certain number of green energy certificates. Each certificate represents one megawatt-hour of clean electricity. Those that cannot prove they have met their quotas are slapped with a hefty fine.
The rest is left up to supply and demand, based on the usual rules of the market economy. When the amount of green energy being generated is low, there are fewer certificates on the market and their price increases. This, in turn, gives investors an incentive to build additional wind turbines or solar arrays. They can also invest their money in storage systems, which make energy production more efficient. Or they can invest in technologies that play no role in Germany today but are being studied elsewhere in the world.
For Swedish Energy Minister Anna-Karin Hatt, the greatest benefit of the quota model is that it contains few bureaucratic restrictions. The government defines the objective, but not the method. In contrast to the German system, the government is not forced to constantly adjust subsidy rates for wind, solar and biomass. "As a result, the energy market doesn't depend on new political decisions every year," says Hatt. "Investors in renewable energy greatly value this predictability."
In heavily forested Sweden, energy providers initially focused on biomass in the form of wood and paper industry waste. They used this material to fuel conventional power plants, which generate electricity and supply long-distance heating to households. But this potential is now largely exhausted, which is why the industry has shifted to building or modernizing wind farms -- mostly those on land, says Ebenå, "because offshore turbines are still very costly."
Election Liabilities Silence Debate
In Germany, a quota model would also likely lead to more wind turbines being built on land. The government's expansion targets for offshore wind power would no longer be feasible -- and with good reason. Due to the challenging environment, the technology is prone to failure, and the cost of construction far away from the coast is very high. To make matters worse, the electricity also has to be transported hundreds of kilometers across the country.
It is clear that the next German government will have to plan a shift in energy policy. But the price of electricity is a toxic issue in the campaign, given the bad prognoses and broken promises. In a government statement in June 2011, Chancellor Merkel had promised to keep prices stable. "The renewable energy surcharge should not exceed current levels," Merkel said in the Bundestag. Economy Minister Rösler claimed there might even be room for energy tax cuts. When prices increased, Rösler and then Environment Minister Norbert Röttgen shifted blame instead of coming up with a solution.
None of the parties has a coherent concept of how to approach the problem after the parliamentary election on Sept. 22. The few current proposals are disturbingly simplistic. Altmaier and the CDU are considering paying for next year's green energy subsidies with borrowed funds, so as to delay the next electricity price increase by a few months.
Gerda Hasselfeldt, a member of the CDU's Bavarian sister party, the Christian Social Union (CSU), favors saddling the next generation with at least some of the costs. Under her proposal, the government-owned KfW development bank would assume some of the costs of solar panels and wind turbines. The amount could then be repaid over the course of the next 40 years.
The proposals being floated by the SPD, the Greens and the FDP amount to reducing the electricity tax or the value-added tax. But that wouldn't solve the structural problems, which would require the sort of radical reform the government commission. The problem is that the next government would have to be willing to tangle with the electricity industry's powerful interest groups.
Until the issue comes up in the next legislative period, Environment Minister Altmaier prefers to send consumers on their way with some money-saving tips: "When I cook, I try to keep the lid on the pot."
BY FRANK DOHMEN, MICHAEL FRÖHLINGSDORF, ALEXANDER NEUBACHER, TOBIAS SCHULZE AND GERALD TRAUFETTER
Translated from the German by Christopher Sultan
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