German energy transition – 2016 update (part 2)

Since September 2012, consultancy McKinsey has regularly published the document“Energy Transition Index”, which, based on an assessment of fifteen measurable parameters, clearly illustrates the current state of this complex transformation process and assesses the feasibility of meeting the political, environmental, economic and technical targets defined by the federal government by 2020.

The assessment of area (I), Environmental and climate protection, was presented in the previous article(see part 1).

In today’s instalment, we will examine the results of the assessment of area (II), Security of energy supply, which is specified in greater detail by the following five parameters:

Area (II): Security of energy supply

• Electricity supply outages [min./year]
• Costs of grid measures [eur/MWh]
• Provision of capacity reserve [%]
• Transmission grid construction [km]
• Delays in connecting offshore wind power [-]

Assessment of area II: Security of energy supply

This parameter summarises electricity supply outages for households lasting more than 3 minutes over the course of a year. The target value for 2020 was based on the requirement to maintain the 2008 baseline of 17 minutes/year.

The statistical duration of interruptions per customer fell to 12,3 min./year, significantly below the required value of 17 min./year.

The German electricity system is among the most reliable in the world, and the results to date merely confirm the high-quality work of German grid operators and distribution companies, even amid the sustained and dynamic growth in installed capacity of sources with variable generation dependent on current weather conditions (typically PV and wind power). Another cited factor is the low number of extreme weather events during the period assessed.

In view of the conclusions discussed, achieving the target value for 2020 was unequivocally assessed as “feasible” (F).

This parameter summarises the costs of operational interventions by grid operators caused by fluctuating PV and wind power generation (so-called redispatching and countertrading), as documented by the Federal Network Agency (Bundesnetzagentur). The target value for 2020 was based on the requirement to maintain the 2008 baseline value, i.e. 1,0 eur/MWh.

As noted above, German grid operators and distribution companies ensure high reliability of electricity supply even as the share of only partly predictable sources grows, albeit at the cost of rising related expenditure. In the first half of 2015 alone, costs of grid measures (i.e. redispatching and countertrading) of EUR 250 million were reported, compared with EUR 187 million for the whole of 2014. Analysts estimate that costs could exceed EUR 1 billion in 2020. Despite record-high wind and PV generation (and thus the potential to spread grid costs across a larger volume of generation), current costs are consistently calculated at 2,0 eur/MWh.

Achieving the target value for 2020 was unequivocally assessed as “not feasible” (N).

This parameter characterises the extent of deliberately managed overcapacity in the form of a so-called “strategic reserve”, designed outside the framework of the standard energy market. It is expressed as a percentage of the system’s highest annual load. The target value for 2020 is essentially based on the recommendations of the European association of transmission system operators, ENTSO-E, and German grid operators.

Given the growing economic difficulties faced by conventional generation in the electricity market, due to continually rising generation from renewables with priority dispatch and non-market financing, sufficient sources are available and the capacity reserve is therefore sized with substantial margins. In extraordinary situations, grid operators can use up to 9,6 GW of reserve capacity, i.e. 11,9% of the installed capacity of all domestic sources, more than twice the required value. Maintaining the target value for 2020 is therefore assessed as “feasible” (F).

In this case, however, I cannot resist making a technical observation. The stated parameter summarises the capacity reserve at national level. Yet grid operators need to control generation sources at specific connection points to the transmission system, or in specific locations. In other words, a satisfactory value nationwide is far from meaning that all technical requirements of regional operators are met. The problematic situation in terms of grid construction and the availability of potential reserve sources persists, particularly in southern Germany.

The target value for transmission grid construction was defined in the first edition of the Index in September 2012, based on the then update of investment plans listed in the 2009 Transmission Line Construction Act (EnLAG). At the time, this involved 24 lines totalling 1834 km, scheduled for completion by 2018. In early 2014, the plan was reassessed on the basis of unsatisfactory progress, and it is currently formulated as 1887 km to be completed by 2020. It should be added that the list of projects under EnLAG represents a technical minimum. A minimum so necessary that a special law had to be passed to facilitate the process for grid operators of settling property rights during construction project preparation.

In general, transmission grid construction faces serious problems, particularly in the initial stages of preparing infrastructure projects. The actual construction of tens of kilometres of extra-high or ultra-high-voltage lines is already regarded as the least demanding part of the projects. Among the problems, particular attention must be drawn to fierce public protests. On the one hand, the public supports the government’s plan to phase out nuclear power plants, but on the other, it actively protests against the construction of transmission lines that would bring electricity from renewable sources—especially offshore wind farms built along the North Sea coast—to southern Germany. In total, 558 km had been built by the end of 2015, whereas at least 635 km had been planned.

The complicated situation surrounding project discussions and permitting, and the associated public protests, is to be accelerated by redesigning the most controversial sections of lines from overhead to underground cable routes. The format of a weekend blog allows me to add a personal comment: for an electrical engineer aware of the technical aspects of constructing and maintaining underground cable lines, this proposed solution is rather absurd; moreover, it creates even more conflicts with landowners than the overhead option. It also means an increase in costs of roughly EUR 8 billion, according to estimates by the Federal Ministry for Economic Affairs.

Nevertheless, setting aside personal remarks, McKinsey analysts assess achieving the target extent of line construction in 2020 as “not feasible” (N).

This parameter essentially only supplements the parameter “(2) Progress in offshore wind power construction”(see part 1)and indicates the number of projects with announced delays in connection to the transmission system.

As noted in the previous instalment, during 2015 investors, in cooperation with grid operators, caught up with delays in offshore wind power construction. New sources are being connected according to the set schedule, and there are currently no indicated delays for any project. This means a final assessment of “feasible” (F).

Overall, this parameter has improved considerably compared with September 2014, when delays in connection to the transmission grid were indicated for a total of 11 wind farms.

Interim conclusion for area (II): Security of energy supply

There have been no major changes compared with the conclusions of September 2014. German grid operators and distribution companies have so far been successfully addressing the technical problems associated with integrating the dynamically growing renewable energy segment (primarily wind power and PV) into the electricity sector. This is evidenced by the achievement of interim energy transition targets in terms of electricity supply outage duration, the provision of capacity reserves and the connection of new offshore wind farms. However, it is clear that the increasing share of sources with weather-dependent generation makes the entire electricity system more sensitive to weather influences and to their sufficiently reliable and timely forecasting. At the same time, the requirements for the flexibility and expertise of transmission and distribution grid management are rising continuously and significantly. Yet only long-term operational experience can provide a “stress test” for German grid operators; I mean, for example, a combination of unforecast adverse weather conditions and technical failures.

A persistent situation also prevails regarding unsatisfactory interim results in the area of grid measure costs, demonstrating the significant initial underestimation of the economic aspects of integrating variable renewable generation. Moreover, no improvement is expected in this respect in the coming years; according to analysts, the trend is more likely to be the opposite.

The situation also remains highly complicated in transmission grid construction, where the established interim targets are not being met. Furthermore, the “political solution” of redesigning the most controversial sections of new lines as underground cable routes will bring further major technical complications, with significant impacts on the schedules of individual sub-projects, and of course a substantial increase in costs. Moreover, the construction plan for transmission lines itself is a political compromise between the original technical requirements of grid operators, put forward on the basis of mathematical modelling results, and the real possibilities of a democratic state in preparing linear infrastructure projects.

Overall, however, the analysts’ data show satisfactory results in the area of “Security of energy supply”.

To be continued in the next instalment: Assessment of area (III): Economic efficiency