Energy Revolution Interruptus Germany Stalled on the Expressway to a Green Future


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Part 2: 'Made in Germany' Problems

Within eight years, some 2,000 wind turbines are supposed to be up and running in German territorial waters in the North Sea and Baltic Sea. At the moment, there are exactly 52 turbines in operation. But timid investors are not the only reason construction on the high seas is so far behind schedule.

There is also a shortage of special ships, trained workers and, most of all, experience in pulling off such projects under adverse weather conditions. The German electronics and engineering giant Siemens recently announced delays in the completion of transformer platforms in the North Sea that it is building for TenneT, the Netherlands' state-owned grid operator. Siemens CEO Peter Löscher admits that the company underestimated the challenges.

But lawmakers are also making things especially difficult for the engineers. German regulations require offshore wind farms to be situated far from the coast, at depths of 30 meters (98 feet) or more. So, it's hardly surprising that potential backers prefer to invest in places where construction isn't quite so complicated. Half of all offshore wind turbines in Europe are in British waters, usually in close proximity to the coast, followed by Denmark and the Netherlands.

Another problem in Germany is that TenneT lacks the financial means to connect all wind farms to the grid. The Dutch company has already invested about €5 billion, but it needs another €15 billion. Since TenneT is unable to drum up enough capital on its own, it wants support from Germany's state-owned KfW development bank. In other words, German taxpayers are once again supposed to be put on the financial hook.

But connecting the offshore wind farms to the grid isn't the only problem. It is proving to be just as difficult to expand power-transmission lines to where most of the electricity is needed: in the densely populated areas and industrial zones of the western state of North Rhine-Westphalia and the southern states of Baden-Württemberg and Bavaria. Until now, the demand for energy in these areas has been met by coal-fired and nuclear power plants.

Already before the energy turnaround, grid planners had estimated that roughly 2,000 kilometers (1,250 miles) of additional transmission lines would be needed. Today, they expect that figure to be closer to 4,500 kilometers. In the last six years, grid operators have completed only 200 kilometers of these new transmission lines.

Connection Issues

Jochen Homann, the head of Germany's Federal Network Agency, says that there is reason to be concerned that not all projects can be completed within the targeted timeframe

A law enacted last year to accelerate grid expansion is unlikely to change that. On the contrary, power plants and grids are being planned in parallel and without mutual coordination in the various states. Completed wind farms are not being connected to the grid because the power lines haven't been installed yet.

Nevertheless, consumers are still being asked to pay a portion of the costs -- even though the electricity is not available to them yet -- because the turbine operators are entitled to compensation.

Such effects drive up grid and electricity costs. The Federal Network Agency estimates that power grid charges will increase to between 5 and 7 percent of the price of electricity in the coming years owing to costs associated with expanding power-transmission lines.

Storage Troubles

The expansion of energy-storage facilities in Germany will also be extremely costly. They play a key role because of their ability to integrate the fluctuating amounts of renewable energy -- which are incalculable due to the unpredictability of wind and sunshine -- into the system. The storage facilities offset fluctuations and stabilize the power supply.

One of Germany's largest energy-storage facilities is on the southern edge of the Black Forest. When electricity is cheap, the Schluchsee plant pumps tens of thousands of liters of water 400 meters up and into a reservoir at the top of a mountain. When the demand for electricity increases and prices go up, plant operators allow the water to shoot back down through a pipe and, with the help of a turbine, generate electricity and then sell it. The direction of flow changes about once every nine minutes, and the operators derive their profit from the spread in electricity prices.

If these so-called pumped-storage hydroelectric power plants were deliberately used as a tool in the energy turnaround, it would conflict with the current business model. In that case, energy would no longer be stored for minutes or hours, but for days or even weeks at a time. That's how long a period of no wind, for example, can drag on. But without moving the water, the operators make no money.

Under these circumstances, there is little incentive to invest in such power plants. The same thing applies to other storage solutions: compressed air reservoirs, which store energy in the form of compressed air in underground caverns, and batteries, which already offer a relatively modest energy density compared to fossil fuels.

Absent suitable storage systems, suppliers will still have to generate a large portion of energy from fossil sources, with natural gas playing a key role. The advantage of natural gas is that it is capable of meeting base load requirements. In other words, it is quickly available and can be used at any time, day or night, whether the weather is stormy or calm, sunny or overcast.

The need for gas-fired power plants is growing even faster than anticipated because, according to the energy industry calculations, the shutdown of Germany's nuclear power plants will soon create a dangerous energy gap. By 2022, the base load could face a shortfall of about 15 gigawatts, roughly equivalent to the output of 15 large gas-fired power plants.

Especially in southern Germany, where the energy industry operates a relatively large number of nuclear power plants, alternative energy sources are urgently needed. But construction of gas-fired plants is no longer profitable for the industry.

Balancing Profits and Targets

Ironically, the culprit behind this is legislation that gives priority to solar and wind energy.

The more green energy is fed into the grid, the sooner providers must decommission conventional power plants. The number of operating hours during which they generate and sell electricity is constantly declining. As the Essen-based energy utility RWE has put it, it doesn't pay to invest "billions in new plants."

Even operating existing gas-fired power plants hardly seems lucrative anymore. A few days ago, RWE competitor E.on informed the Federal Network Agency that it would have to decommission three gas-fired turbines unless it received financial compensation for their continued operation.

"Without additional incentives for the construction of new gas-fired power plants, the security of supply along the core energy phase-out path cannot be guaranteed," Bavarian Economics Minister Martin Zeil has written to Federal Economics Minister Philipp Rösler, a fellow member of the FDP. In other words, he wants the federal government to step in. Although he takes a "critical view" of fresh subsidies, Zeil wrote that they are needed in this case "to avert substantial losses." Once again, taxpayers are being asked to pony up.

The idea is already being fleshed out. Officials at the Federal Ministry of Economics, the Federal Network Agency and the Chancellery are discussing the creation of a so-called capacity market. The idea is to pay companies for keeping power plant capacity available even if they aren't generating any electricity. However, it is still unclear exactly how this system would work and who would regulate the new market.

Chancellor Angela Merkel knows how critical it is to create the right incentives for the expansion of renewable energy -- and what the hidden risks are. We have to be careful, Merkel warned at a conference in early May, "that we aren't ultimately just generating subsidized energy, but that we also taking profitability into account."

Making a Fresh Start

Indeed, there will be plenty to discuss at Merkel's meeting with the governors on Wednesday. The states with SPD-led governments have come up with their own to-do list specifically for the meeting.

But the success of the energy revolution doesn't just depend on how the Berlin meeting goes. What is far more important is whether Röttgen's successor, Peter Altmaier, proves to be a skilled moderator and facilitator between those championing different strategies. At any rate, his appointment most likely means that the idea of creating the position of energy coordinator at the Chancellery is off the table for now. Matthias Kurth, the former head of the Federal Network Agency, was under consideration for the job.

Now it will be up to Altmaier to make a fresh start with the energy turnaround while at the same time settling the annoying, ongoing conflict with FDP Economics Minister Rösler. What's more, unlike his predecessor, Röttgen, Altmaier will refrain from touting the advantages of forming an alliance between the CDU/CSU and the Green Party on a weekly basis.

Translated from the German by Christopher Sultan


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