On a recent Saturday afternoon, a couple of engineers working the weekend shift were monitoring the regional electricity grid in the heart of Potsdam, a city south of Berlin. The control room was largely quiet as the technicians bent over their workstations, scrutinizing the flow of power through the system.
Ralf Doering, a network manager for E.dis AG, the grid operator, pointed to a screen, where an innocuous-looking red line on a chart had just dropped to zero. The line measured how much electricity the grid drew from conventional sources of energy.
As of a few minutes earlier, a swath of northeastern Germany from the Baltic Sea to the Polish border, an area roughly the size of Switzerland, was being powered entirely by energy from the wind and the sun. A group of visitors looked around the room – at the lights, the computers, the equipment – and mentally multiplied the scene across the entire region. “Solar and wind are now enough,” Mr. Doering said matter-of-factly.
If Germany continues on its current course, such moments will become commonplace. The country has embarked on the most ambitious energy revolution anywhere in the industrialized world. Last year, 26 per cent of Germany’s power supply came from renewable sources. By 2050, the figure is targeted to rise to 80 per cent. The shift, Foreign Minister Frank-Walter Steinmeier said last month, is Germany’s “man on the moon” project.
As Germany has discovered, however, a project with sky-high aims can carry a huge price tag. The initiative, which began in 2000 and is a top priority for Chancellor Angela Merkel, has pushed electricity prices for German consumers to the second-highest level in the European Union, behind Denmark. German businesses also pay some of the highest prices for power in the region, with exceptions for certain energy-intensive industries.
German business groups complain that the country’s energy policy hurts their ability to compete and plan long-term investments. They’re especially galled by Ms. Merkel’s decision, in the wake of the Fukushima disaster in 2011, to commit to closing of all of Germany’s nuclear power plants by 2022.
More recently, the energy policy – which is aimed squarely at reducing Germany’s contribution to climate change – witnessed a disturbing paradox. Between 2009 and 2013, carbon dioxide emissions from Germany’s power sector actually rose, despite the growing share of electricity produced by wind, solar, hydro and biomass. That’s because power companies were increasing their use of cheap but carbon-laden energy sources like lignite and hard coal compared to previous years. Those sources became more attractive for two reasons, experts say: the higher price of natural gas and the low cost of carbon-emissions permits in the European trading system.
Alarmed by that development and by the upward march of electricity prices, Ms. Merkel’s government introduced revised energy legislation last year that moved to rein in the surcharges for renewable energy. The government is also looking at placing new restrictions on coal producers to bring down emissions. Experts estimate that emissions in 2014 from Germany’s power sector fell to their lowest point since 2009.
Despite the hurdles, Germany is plunging full-speed ahead in what is known here as the “Energiewende,” or energy transition. But its leaders acknowledge that unless Germany can prove that the policy works for businesses too, it risks being deemed a failure.
“We need to show that in a country like Germany and a continent like Europe, it is possible to have a high level of industrialization” in combination with policies to mitigate climate change, Sigmar Gabriel, the Economy and Energy Minister, said last month. Only then, he said, “will we find that other countries follow us. Only then will we persuade people.”
Unintended consequences
In late March, policy makers from more than 50 countries gathered in Berlin for a conference to discuss the challenges of transforming a country’s energy supply. Some were from oil-rich nations such as Kuwait and Algeria; others were from smaller European nations that already generate much of their electricity from renewable sources. In Portugal, for instance, the figure is more than 60 per cent.
What Germany is attempting, however, is far more complicated. It is the world’s fourth-biggest economy, with a large industrial sector. Other major economies such as France and the United Kingdom have less lofty targets for renewable energy and aren’t phasing out nuclear power.
At the conference, Jan Mladek, the Czech Minister of Trade and Iindustry, told a story that pointed to some of the difficulties Germany faces. On a visit last year to Berlin, Mr. Mladek said, he met with federal officials who urged him to speed up the Czech Republic’s adoption of renewable energy. Then, later that same day, he met with the Premier of the state of Saxony, which borders the Czech Republic. The Premier urged Mr. Mladek not to build wind farms near the border, fearing it would destroy Saxony’s tourism industry.
The story epitomizes how each step Germany has taken toward greater use of renewables has created new and sometimes unforeseen challenges – in electricity prices, in carbon emissions and in power distribution.
In Germany, consumers paid an average of nearly 30 euro cents (41 cents) per kilowatt-hour for electricity last year. In Ontario, by contrast, the peak price is currently 14 cents; the average price for consumers in the United States is similar.
Here’s what happened to prices. To hasten the adoption of renewable energy, Germany guaranteed long-term price contracts to such producers – a technique also common elsewhere in the world. The difference between those guaranteed prices and the price of power sold on the wholesale market gets passed on to consumers.
In Germany, that difference is known as the renewable energy surcharge. The surcharge has jumped from 1 euro cent per kilowatt-hour in 2009 to more than 6 euro cents currently. The increase is due to a rapid growth in the installation of green power, which has also helped to drive the market price down.
So consumers have paid more, even as the market price for German electricity has fallen considerably, because the surcharge must fill the gap. In its reforms last year, the government moved to curb further increases in the surcharge.
Despite the rising prices, support for the government’s energy policy remains strong, said Claudia Kempfert, an energy expert at the German Institute for Economic Research in Berlin. Electricity accounts for just 3 per cent of the average household’s budget, she noted, compared to heating and transportation, which takes up 30 per cent. A poll conducted last year found that 92 per cent of Germans favoured expanding renewable energy.
Businesses are far less sanguine than consumers about shouldering the costs of the transition. Electricity prices for industrial customers have risen more than 40 per cent since 2008 and companies say the policy has begun to affect their investment decisions.
The “huge costs for promoting renewable forms of energy restrict the competitiveness of our companies,” a spokesman for the German Association of the Automotive Industry said in a statement. “In the long run, that will damage employment at home.”
BASF, a chemicals giant, has said it will focus its new investments outside Germany as a result of energy costs. Last year, SGL Carbon SE and BMW Group said they would invest an additional $200-million (U.S.) in a carbon-fibre manufacturing facility in Washington state. A driving force behind the decision: the availability of cheap power.
BASF and SGL Carbon are among the roughly 2,300 large, energy-intensive German companies that are exempted from paying the renewable energy surcharge through at least 2017. But even some of these firms assert that the energy policy isn’t working.
Heribert Hauck, director of energy affairs at Trimet Aluminium SE, a large consumer of electricity, said the shifting policy terrain is making long-term investments impossible for his firm.
What’s more, he added, the volatility of renewable energy – the sun doesn’t always shine and the wind doesn’t always blow – makes it unsuitable to meet the burden of constant industrial demand.
Germany, like other countries, has not yet solved the dilemma of how to store the electricity produced by solar power and wind energy. And it has only begun to tackle the transportation of such energy, which is primarily produced in the north of the country, to the industrial heartland in the south. One major planned transmission route from north to south – the “Stromautobahn,” or electricity highway – has faced intense protest from those living in its path.
“We can implement the Energiewende up to a certain degree,” said Mr. Hauck of Trimet. But the government must leave a “supply of conventional, reliable, competitive power plants in the system. That’s what industry needs.”
Smaller companies have complaints too. Horst Linn runs a maker of industrial furnaces in Bavaria, typical of the thousands of so-called “Mittlestand” firms that form the backbone of the German manufacturing sector.
The government’s focus on renewables is wrong-headed, Mr. Linn said. Instead, it should have focused on energy-saving technology, he asserted.
Mr. Linn estimates that his company’s electricity costs have jumped 30 per cent in the past five years and fears that more increases lie ahead as the country phases out nuclear power. Yet he’s never seriously considered operating anywhere else because of the skilled labour and quality control required in his business.
“You have no chance with the product we make to go to Bulgaria,” he said.
Fingers crossed
In the middle of March, Germany’s solar industry faced a critical test. A partial eclipse for several hours on the morning of March 20 threatened to wreak havoc on the system: Grid operators faced an unprecedented fluctuation in electricity supply as sunlight disappeared with unusual speed, only to reappear with the same unusual alacrity. (Prior to the eclipse, representatives of the solar industry had asserted everything would be fine. But “really, we were like this,” said a spokesman for the industry, holding up crossed fingers on both hands).
The industry passed the test and hailed it as proof that renewable energies were now a mature and successful part of Germany’s electricity system. As the shift to renewable energy deepens, some power producers see the writing on the wall. E.on SE, a major German utility, announced in December that it would split its businesses into two.
The first will be composed of its conventional energy assets and the second will consist of its ventures in alternative energy and distribution. Some commentators likened the move to the manoeuvre deployed by some financial institutions in the wake of the 2008 crisis: dividing healthy and troubled assets into a “good” bank and a “bad” bank.
Germany’s Greens, the political party that helped kick off the energy revolution, tend to dismiss business concerns as so much bellyaching. In recent years, Germany has notched the strongest economic performance of any major European country at the same time as it has implemented the energy transition, proponents of the policy say. Norsk Hydro ASA, a Swedish company, is increasing its aluminum production in Germany, Baerbel Hoehn, a Greens member of the Bundestag, said in a recent statement.
For the Greens, the future looks a little like Feldheim, a small village of neat brick-and-stucco houses south of Berlin. On a ridge near the village, 47 wind turbines generate enough electricity to power the community’s needs 100 times over; the rest is sold to the regional grid.
The village also generates its own heat from a heavily subsidized biogas plant. Next up: a test project to create a lithium-ion battery storage facility for the renewable energy the village produces, the largest such installation in Europe.
Of course, there’s no industry whatsoever in Feldheim. Back in the grid control room in Potsdam, the electrical engineers note that the region they oversee has very few industrial concerns, which makes it easier to incorporate alternative energies.
Meanwhile, they’re plowing ahead with the many different facets of the Energiewende. “For us as engineers, it’s really challenging and exciting,” said Bernd Westphal, a regional manager at E.dis. “We’re not getting bored here.”
