The German Energiewende: drying up or moving forward?

The expected change in the German government in late 2013 has marked a turning point in the country’s Energiewende – the plans to phase out nuclear energy by the year 2021 while continuing to reduce energy-related greenhouse gas emissions and to derive at least 80% share of Germany’s electricity from renewable energies in 2050. Putting a grand coalition into power could be translated as a voters’ voice to gain without pain. And that’s exactly the challenge.

The new Minister: Sigmar Gabriel

The newly appointed Minister, SPD Chairman Sigmar Gabriel, has moved the topic away from the Ministry for the Environment and merged it within his portfolio of Economy and Energy. In doing so, he faces at least two tough challenges:

• External competition: Energy prices have risen for industry and private households in Germany and the EU, while the new supply of unconventional fuels in Northern America has led to more favorable energy prices in the US. Therefore, it is no wonder that energy-intensive industries are speculating about relocation. Green industry also causes concerns: German solar cell producers (along with others) face stiff international competition, and significant scrutiny that has been exacerbated by a recent financial scandal within Prokon, a giant German wind farm planning firm.
• Internal burden sharing: The previous government was generous in relieving industry from paying its share, with some 1,900 companies being declared ‘energy intensive’ and therefore exempt from the “Energieumlage“, a surcharge paid by German electricity consumers for clean energy  production. The publication of details related to these exemptions created a public outcry during the election campaign in late summer 2013. At the same time, the European Commission has started a complaint against Germany under the suspicion of unbalanced state aid.

These concerns over affordability and fairness culminated in a statement in late 2013 made by Hannelore Kraft (SPD), the powerful Prime Minister of Northrhine-Westfalia, arguing in favor of competitiveness and a cap on expanding renewable energy production (REN). This statement came in parallel with findings about an uneven fee distribution within Germany, according to which Bavarian users (governed by the CSU) receive high shares of the surcharge revenues while Northrhine Westphalian users pay high levels of fees. The social underpinnings of this imbalance are potentially disruptive: wealthy citizens put photovoltaic cells on their posh houses and receive support, while poor citizens struggle to pay their electricity bills in rented homes.

Two tough Energiewende guys: Rainer Baake and Jochen Flasbarth

No wonder that the Coalition Treaty of the new German government has been quite reluctant to pave the way forward. However the appointment of two Secretaries of State – Rainer and Baake and Jochen Flasbarth – has communicated a tougher message about the future. Baake, who is a renowned supporter of REN and former secretary of state under the Green Minister for the Environment Jürgen Trittin, has taken over this position under Sigmar Gabriel. Flasbarth is a former President of the Environment Protection Agency and has been appointed Secretary of State at the Ministry for the Environment. Both are seen as strong administrative leaders with strategic capacities to accomplish the German Energiewende. Main competencies (economy, energy, housing, environment) are now ruled by Socialdemocrats, which should facilitate policy coordination.

It’s the energy economy, stupid

Will this trio be able to rock the country and push the Energiewende forward? The political challenges for 2014 are enormous and cast some doubt on this possibility. In particular:

• The renewable energies law (EEG) is going to be revised by Summer 2014. According to a proposal made by Sigmar Gabriel in January 2014, a more focused support, direct sales, new capacity mechanisms, and competitive bidding should make deployment more cost effective. Both the steep rise in the energy surcharge from 3.59 Eurocent/KWh in 2012 to 6.24 Eurocent/KWh in 2014 and the state aid complaint raised by the European Commission will challenge the Minister to cut back the industry exemptions. However, one of the biggest beneficiaries, the German Rail, has announced ticket price increases if such cuts will become reality.
• Investments into a better power grid, including some 8,300 km (5,171 miles) of new transmission lines to connect northern renewable energy generation with southern demand centers, still need to be planned and will raise local NIMBY resistance; Bavarian Prime Minister Horst Seehofer (CSU) currently fuels the fire of any objections with an eye on his local elections in March 2014.

But, despite these challenges, there are promising trends too. Existing policies have pushed technologies and innovation systems. In 2013, 23.4 percent of electricity in Germany was generated by renewable energy sources. The country could mark a new record in exporting power. Foreign observers note that no major interruptions have occured; the system continues to be reliable. Programs on resource efficiency help manufacturing industries to cope with high commodity prices. And there is citizens’ support: Germans are busy renovating their homes to make them more energy efficient. Energy cooperatives are on the rise. More than 100 municipalities intend to become “100% renewable”.

The Energiewende happens in the EU

But, Energiewende is NOT merely a national game. Ongoing consultations with EU neighbors about transmission technologies and trade are a key. The European Commission is active in carbon emissions reductions (- 40% by 2030!), delivering the internal electricity market and facilitating investments in smart grids. The proposed European Commission text for the revised state aid guidelines in the field of energy and the environment (currently in public consultation) leaves the door open for financing renewable energy support; albeit details are likely to remain controversial.

Over time, the EU aims to harmonize national REN support schemes and facilitate renewable energy integration into a fully European energy market. Neighbors such as Iceland and Norway are already large producers of REN, and the Western Balkans may become REN exporters. The European Energy Charter and partnerships with Russia, Ukraine, Turkey, Central Asia, as well as the EU neighborhood policy with Northern Africa offer further perspectives. The new German government can be expected to play a more active role in any such foreign energy policy.

Outlook: competition and coalitions for international relations

Who is going to win the race for new energy strategies? Analysts expect electricity costs to increase by 2020, and potentially decrease slightly after this point due to replacement of fossil fuels with REN and a decline in wholesale electricity prices. The US, on the other hand, is now reaping benefits from its abundant unconventional fuel supply, but it may have difficulties in the long run if the boom comes to an end and infrastructure isn’t modernised. Besides a lot of political rhetoric, there should be an active joint interest of many states in REN, international energy security, and access to the raw materials necessary to maintain the energy systems and manufacturing industries.

Blog by Professor Raimund Bleischwitz, BHP Billiton Chair in Sustainable Global Resources at UCL ISR. View Raimund’s profile.