Germany's energy transition – 2016 update (part 1)

I first introduced readers of my energy blog to the so-called Energy Transition Index in a three-part miniseries eighteen months ago, in September 2014 (here,here,here). McKinsey recently published a regular update of the document, which already incorporates preliminary results for last year. I therefore present new data to those interested in developments in the energy sector of our western neighbours. As last time, these will be structured into three separate articles devoted to the individual areas assessed, in order to keep the length of the text still manageable for readers of a weekend blog.

The document makes it possible, through an assessment of fifteen parameters, to gain a relatively quick and easy overview of how the complex and multi-layered process of the energy transition is being implemented, and to what extent the fulfilment of the political, environmental, economic and technical goals defined at its outset by the federal government for the period up to 2020 is realistic or not.

The analysts grouped the fundamental goals of the energy transition into three areas, each of which is further structured through five measurable and assessable parameters:

Area (I): Environmental and climate protection

• CO2 emissions [MtCO2eq]
• Offshore wind farm construction [GW]
• Solar PV plant construction [GW]
• Primary energy consumption [PJ]
• Electricity consumption [TWh]

Area (II): Security of energy supply

• Electricity supply interruptions [min./year]
• Costs of grid measures [EUR/MWh]
• Securing capacity reserves [%]
• Transmission grid construction [km]
• Delays in connecting offshore wind farms [-]

Area (III): Cost-effectiveness

• Household electricity prices (deviation in % from the EU average)
• Industrial electricity prices (deviation in % from the EU average)
• Renewables levy [ct/kWh]
• Jobs in the renewables sector [-]
• Jobs in energy-intensive industry [-]

Having repeated the necessary introductory information, we can now move on to the updated assessment of the individual areas.

Assessment of area (I): Environmental and climate protection

*previous editions stated a target level of 739 Mt, now 750 Mt, due to a subsequent adjustment of the 1990 baseline by the German Federal Ministry for Economic Affairs

The federal government set the energy transition the task of reducing emissions in 2020 by 40% compared with 1990, corresponding to a target value of 750* million tonnes of CO2eq. In the assessed period, the second half of 2015, emissions were provisionally put at 925 Mt, while under the projected (I stress, linearly designed) scenario they should have been only 827 Mt. One reason is increased electricity generation from coal. McKinsey analysts quantified interim progress towards the targets at 42%, and so achieving the target value in 2020 was assessed as “unrealistic” (U).

A not particularly optimistic outlook for meeting ambitious emissions targets can also be expected in the coming years, given the approved plan to shut down nuclear units in the power sector. If total nuclear electricity generation were to be fully replaced by coal-fired generation, this would mean an additional 80 Mt of emissions. This would of course not be a desirable development from the federal government's perspective; however, the growing deployment of renewables is increasingly encountering technical difficulties in grid management, while the use of gas, in turn, faces economic challenges.

Construction of offshore wind farms and associated technical infrastructure is currently proceeding according to plan. Installed capacity rose to 2,8 GW following the connection of several larger wind farms during 2015. Sixteen offshore parks are currently in operation; for example, the 400 MW Global Tech I project was officially commissioned in September, while the 288 MW Sandbank project is under construction. Analysts assessed the set target of 6,5 GW in 2020 as “realistic” (R).

Solar PV construction slowed significantly, with the 1,3 GW addition the lowest since 2007, while installed capacity stood at 39,1 GW at the end of 2015. Nevertheless, interim progress towards the targets is quantified at 121%, and achieving the target value of 51,8 GW in 2020 under the National Renewable Energy Action Plan (NREAP) was assessed as “realistic” (R).

The report briefly mentions a continuing decline in costs (without further specification), noting that solar PV is currently among the most cost-effective renewables, at costs of 8 ct/kWh.

The target value for 2020 was defined as a 20% saving compared with 2008, corresponding to 11 454 PJ.

Primary energy consumption fell slightly compared with the previous assessment period, to 13 242 PJ, i.e. by 1,8%. The decline was recorded specifically in oil and natural gas. However, the overall trend still does not match the ambitious objective, and achieving the target level for 2020 was assessed as “unrealistic” (U).

An interesting point is the continuation of the trend of decoupling the hitherto very close link between energy consumption and gross domestic product (GDP) growth. This fact is increasingly presented in environmental circles as an entirely unambiguous success of the energy transition, with the unspoken assumption that it will remain valid in the long term or even permanently. Personally, I lean towards the view that it is rather a manifestation of identifying the initial, most readily available reserves in the national economy, and perhaps also an indirect sign of energy-intensive production being “driven out” of advanced industrial countries and abroad. Globally, above all to developing countries, where energy consumption and GDP are instead growing very dynamically.

The target value for 2020 was defined as a 10% saving compared with 2008, corresponding to 553 TWh.

Electricity consumption in the assessed period rose from 579 TWh to 597 TWh. The main reasons cited are cold months during the heating season and summer heat, which led to increased use of air conditioning. As a result, interim progress on the indicator was quantified at 50% and fulfilment of the 2020 target was assessed as “unrealistic” (U). In the case of this particular indicator, it is worth noting that, given the relatively narrow target range (a requirement to reduce consumption by 10%), annual fluctuations in consumption have a significant impact on its assessment.

As regards electricity consumption, it is worth pointing out the federal government's “cautious” targets. In this case, when formulating the fundamental goals of the energy transition, it clearly did not heed the views of radical environmental movements, which have no problem forecasting or demanding reductions not only in primary energy consumption but also in electricity consumption by several tens of percent.

Interim conclusion for area (I): Environmental and climate protection

I believe that the assessment I presented in September 2014 still holds true. The analysts' data clearly show that the federal government's goals in the area of environmental and climate protection within the strategic framework of the energy transition were formulated primarily as a “political vision”, rather than from the perspective of technical feasibility.

Within the assessed area, the “simpler” quantitative goals are being met, i.e. solar PV construction plans, and during 2015 the delay in offshore wind construction was also made up. However, the results so far point to a highly probable failure to meet the set fundamental qualitative goals in terms of environmental and climate protection: reducing CO2 emissions, reducing primary energy consumption and reducing electricity consumption.

Nevertheless, it remains the case that the goals of Germany's energy transition are usually defined beyond the EU's approved energy strategy, for example 20-20-20, i.e. a 20% reduction in greenhouse gas emissions, increasing the overall share of renewables to 20% and increasing energy efficiency by 20% by 2020. This is therefore more a domestic German debate on the appropriate approach and the redistribution of taxpayers' funds collected through the renewables levy into the energy sector.

To be continued in the next planned instalments:

Assessment of area (II): Security of energy supply

Assessment of area (III): Cost-effectiveness

(Reproduced with the author's permission from nejedly.blog.idnes.cz)