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02/12/2016

German renewables sector urged to step up investments

Sustainable Dev.

German renewables sector urged to step up investments

Foto: Erich Westendarp / pixelio.de

Germany’s renewable energy sector must shoulder its market burden as it emerges from an era of comfortable subsidies, high-ranking policymaker Rainer Baake said on Thursday (11 September), as Berlin pushes for more private sector investment.

Production costs of green energy have already fallen to competitive levels, and now renewable operators must themselves market their power and face commercial risks such as dealing with supply curbs, lack of storage, and expensive trading costs.

Green operators will have to implement tougher demands by Berlin. Generous support in its start-up phase ceased in an August bill after public outcry over costs being passed on in higher bills.

“Wind and solar have managed a breakthrough. We can supply Germany as an industrial location with them in future,” Baake told an industry conference, referring to falling production costs and increased capacity that has allowed Germany to derive over a quarter of power supply from renewables in the first half of 2014.

“But new investors must think about creating value… they must assume an active role in the market.”

Baake’s comments were in tune with finance minister Wolfgang Schäuble’s calls for structural reforms with which he hopes to return Europe’s biggest economy to growth.

Baake as a state secretary is a number two to economy minister Sigmar Gabriel who together with Schäuble has been exploring ways to encourage more private sector spending.

In energy, for example, pension funds and insurers are expected to invest in network infrastructure after an investment hiatus, now that energy law reforms do away with inefficiencies and create secure legal frameworks for such spending.

So far, it’s been “produce and forget” for the green industries. The public and industry had to pay for all system costs while green operators took subsidies when the weather was advantageous, and when they could not produce were not held responsible for shortfalls.

European context

Germany’s move towards a planned reliance on renewable energy, rather than mostly imported fossil fuels – the Energiewende (U-turn) – will be aligned with neighbours, Baake said.

“The Energiewende was never meant to be a renationalisation of policy, I’m sorry if we gave that impression,” Baake said. “It must be implemented within a European context.”

“We will have millions of units to produce wind and solar power. It is adventurous to think the government could steer them. The market will be needed to arrive at efficiency,” Baake said.

Under the August reform, yet-to-be-detailed auctions will replace the current practice of guaranteed hand-outs in a subsidy system that has cut prices in the rival wholesale market and rendered many thermal power stations in the region unprofitable.

The reform curbs direct incentives for green power and sets caps on its expansion, but within a programme that will make them gradually contribute 40 to 45% of electricity by 2025, from currently 28.5%, and more later on.

In 2000, when Baake was already among policymakers drafting Germany’s nuclear long-term exit and renewable funding schemes, the share of renewables was just 6.6 percent.

Baake said Germany must align plans to support those conventional plants, whose steady production is needed to balance weather-driven renewables, with its European neighbours, who also struggle with weak prices and looming supply gaps.

Early-stage models for “capacity markets,” which reward steady available supply, will be published in November.

“I am not fixed on any idea for this, but the fundamental condition is this must not sustain overcapacities,” Baake said. “Otherwise you could lose a frightening amount of money.”

Background

As most renewable energies are still more expensive than fossil fuels, a variety of support schemes have been put in place to accelerate their uptake and meet the EU's goal of sourcing 20% of its energy from renewable sources by 2020.

>> Read our LinkdDossier: Supporting renewable energies: The 'transition' schemes

In Germany, the Renewable Energy Act (EEG) has introduced a price surcharge to finance the transition to a nuclear-free, green energy production system - the so-called 'Energiewende'.

Energy-intensive industries were exempted from the surcharge as part of efforts to keep down the cost of the transition for businesses and maintain the country's international competitiveness. Industry energy prices in Germany are roughly 19% above the EU average.

Bu the European Commission disputed the rebate, saying it should apply to all producers, not just German ones.

The two sides came to an agreement in July 2014. Higher energy costs are expected to result from the new German law, exceeding those planned in the government's original draft. But the extra burden for industry ended up much lower than anticipated.

>> Read: Brussels, Berlin bury hatchet over green energy rebates