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German Energiewende: Delivering on tough promises [free access]

January 10, 2019

As Germany is working on delivering on its promise of energy transition (the Energiewende), the pressure is building. At the latest UN climate summit, the COP24 (Conference of the Parties) held in Katowice, Poland, from December 3 to 14, 2018, Germany went into the negotiations without a final date for coal exit or an emissions reduction proposal for the transport sector—both of which will now be decided in 2019. These are two sensitive areas (coal exit and mobility transition) that put Germany, which has so far been considered a champion in climate protection, in a relatively weaker spot in the global climate change negotiations. Partly due to these sectors, the country may fail to meet its 2020 target of reducing CO2 emissions by 40 per cent from the 1990 levels, though it will still manage to achieve a 32 per cent reduction. For 2030, the target continues to be a 55 per cent emissions cut. To ensure this, the government is committed to introducing a climate action law in 2019, which will make sectoral climate targets legally binding.


In the electricity sector, Germany’s decision to completely phase out carbon-free nuclear by 2022 (after the Fukushima disaster) has led to increased reliance on carbon emitting coal-based generation, thereby putting it in a spot in terms of meeting its climate goals as well as the Energiewende (which aims at meeting 80 per cent of the country’s total power consumption from renewables and reducing carbon emissions by 80-95 per cent from the 1990 levels by 2050). As per the coalition agreement of the current federal government finalised in March 2018, the coal commission was supposed to decide on the plan to completely phase out coal generation by 2018. However, it is now expected to release its report in early 2019.


The phaseout of coal-based generation will be essential to alleviate stress on the electricity grid. The compensation payments from network operators to renewable operators are increasing due to insufficient grid capacity to transmit green energy generated by the latter. According to Bundesnetzagentur (BNetzA), during the first quarter of 2018, compensation claims increased to EUR228 million, which was 60 per cent higher than the EUR142 million in the corresponding period of 2017. In 2017, the amount was EUR610 million as compared to EUR373 million in 2016. About 3 per cent of renewable electricity was curtailed during 2017.


Notwithstanding the curtailment of renewable energy due to network bottlenecks, renewable generation is on the rise. According to BNetzA’s 2018 monitoring report, renewable generation accounted for 205 TWh or 36 per cent of total production during 2017, up from 180 TWh or 29 per cent in 2016. The share of renewable generation is forecast to further increase to 38 per cent during 2018. Also, the installed renewable capacity surpassed that of conventional capacity (105.1 GW) for the first time during 2017 to reach 112.5 GW.


Some of the grid constraints are expected to be eased with the commissioning of long-distance high voltage direct current (HVDC) cables, the first of which is expected to come online in 2025. Grid expansion must be accelerated if the country’s target of increasing the share of renewable energy in the power mix to 65 per cent by 2030 is to be achieved. Realising this, in December 2018, Germany’s cabinet approved the draft legislation to accelerate the expansion of the grid to better integrate renewables. The draft bill aims to simplify and accelerate the approval procedures for new construction, reinforce and optimise high voltage power lines through appropriate amendments to the Network Expansion Acceleration Act (NABEG) and accompanying changes in other laws, particularly the Energy Law Act (EnWG) (explained in detail subsequently).


Recent sector developments


The government has reiterated its commitment to increase renewable capacity and phase out coal-based generation.


Additional renewable capacity auctions: Keeping its promise in the coalition agreement, in November 2018, the government approved supplemental tenders for 8 GW of onshore wind and solar power over the next three years. The special auctions will be in addition to the already approved auctions of 2.8 GW of onshore wind in 2019 and 2.9 GW in 2020 under the Renewable Energy Sources Act (EEG) 2017. The government will hold auctions to procure 1 GW each of onshore wind and solar energy in 2019, which will be increased to 1.4 GW for each in 2020 and further to 1.6 GW for each in 2021. This development is expected to help the country partially meet the 2030 renewable electricity target (of 65 per cent) and as such has been welcomed by the industry. However, the industry has cautioned the government regarding the need for speedy resolution of wind planning and permitting issues for the plans to fructify in a timely manner. No additional auctions have been announced for offshore wind.


Coal commission delays report on coal exit date: In May 2018, the government constituted the coal commission (Commission on Growth, Structural Economic Change and Employment) to manage the country’s phaseout of coal-based generation. The commission has been meeting various stakeholders including labour unions and industry to debate and discuss the future course of action. The commission reportedly submitted an initial proposal in October 2018 on the economic consequences and alternatives for coal mining regions once the country phases out coal-based generation. It suggested that lignite mining regions could be given preferential treatment in infrastructure and innovation projects. So far, the commission has not indicated any cost estimates, but industry estimates suggest that it may run into billions of euros and that it will be much higher than the EUR1.5 billion earmarked in the current federal budget.


While the environmental lobbyists are pitching for 5-7 GW of coal-based generation to be retired by 2020 and a complete exit by 2030, the coal mining states want the end-date to coincide with the current mining permissions, which would be around 2045. In early December 2018, the anti-coal protests gained steam in Berlin and Cologne where the protesters called for the speedy phasing out of coal and for saving the Hambach forest, where trees are being cleared for lignite mining by RWE. Meanwhile, in line with the country’s decision to stop domestic mining of hard coal by the end of 2018 in favour of cheaper imports and to end state subsidies to keep struggling mines running, Germany’s last black coal mine at Prosper-Haniel in Ruhr was to be shut in December 2018.


Recent developments in electricity transmission



Slow progress in grid expansion: The slow pace of grid expansion has been a critical issue hampering the realisation of Germany’s energy transition. According to BNetzA’s 2018 monitoring report, there has been dismal progress on the ongoing transmission projects, which receive priority treatment under the Energy Line Extension Act (EnLAG) of 2009, and Bundesbedarfsplangesetz or the Federal Requirement Plan Law (BBPIG) of 2013. As of the third quarter of 2018, only 2.5 per cent (or 150 km) of the 5,900 km of planned new lines under BBPIG and 44.4 per cent (or 800 km) of the 1,800-km-long new network under EnLAG had been completed. Long-drawn permitting processes and public resistance to overhead power line construction have led to project delays. The capital expenditure made by Germany’s four transmission system operators (TSOs) has also been declining, dropping from EUR2,298 million in 2016 to EUR1,972 million in 2017. Given that not much progress was made during the first three quarters of 2018 in terms of commissioning new EnLAG or BBPIG projects, this decreasing trend may continue in 2018.


Meanwhile, for the first time in September 2018, the TSOs submitted the Implementation Report, which they have been obliged to do since 2016 for the years when they do not submit a national development plan (NDP/NEP). The report, which provides information on the state of implementation of the NEP2030 and O-NEP2030 (offshore NEP) confirmed in December 2017, was open to public consultation until December 9, 2018. BNetzA will publish the public comments. While many of the onshore projects involve no changes in the implementation status, the report indicates that many others are facing delays on account of varied reasons including delays in planning approval (particularly environmental), allocation of building and construction obligations and construction processes, besides delays due to lawsuits. Meanwhile, most of the offshore projects involve no changes as compared to the second draft of O-NEP (2017).


It may be pointed here that the Erdkabelgesetz or the underground cable law requiring new HVDC lines to be laid underground was passed in 2015 to allay public fears related to overhead lines. However, this further delayed the proposed HVDC corridors as new planning and approval procedures need to be followed. That said, some municipalities are opting for overhead lines due to concerns over the impact of underground cables on agricultural land.


Draft Bill NABEG/EnWG amendment: The proposed NABEG amendment, approved by the cabinet in December 2018 is expected to hasten grid development by resolving long-pending issues. The amendment includes measures such as fast notification procedures for small network reinforcement measures instead of approval procedures; a waiver of federal planning where an existing route is used; limiting the state governments’ right to propose time-consuming alternative planning; and allowing the construction of the first part of a new line before the approval of the final stretch of the entire route.


The amendment calls for greater coordination and cooperation between the federal and state governments. The bill creates a reliable and nationwide uniform legal framework for compensation of land owners impacted by network expansion. For certain urgent expansion projects, farmers will be eligible to receive an additional acceleration surcharge if they agree with the grid operators within eight weeks.


A contentious issue relating to electricity grids is the creation of a uniform regime for redispatch optimisation through amendments in EnWG. The hitherto different regimes according to which the grid operators accessed renewable energy and combined heat and power (CHP) plants (feed-in management) and conventional power plants (redispatch) in case of network congestion will be merged into a single redispatch regime. This will enable TSOs to gain more access rights in the distribution network as most of the renewable and CHP systems are connected to the distribution grids. The German Association of Municipal Utilities or Verband kommunaler Unternehmen e.V.(VKU) has criticised this provision. It argues that there is no room left for distribution network operators to optimally coordinate their power generation and consumption in their own supply area, and that this could have an impact on grid stability.


Next round of transmission planning initiated: Meanwhile, the process for the sixth round of grid planning has been initiated with BNetzA’s approval of the Scenario Framework 2019-2030 in June 2018. This framework includes probable development of generation capacities and consumption for target years 2030 and 2035 across five scenarios, including an intermediate scenario for 2025. This takes into account the policy goals in the government’s coalition agreement. Importantly, BNetzA has indicated that the grid can be safely operated if coal capacities are halved by 2030, provided that grid expansion progresses as planned and new gas-based capacities are built. Further, special attention has been paid to flexibility and storage options in the scenarios including making consumption more flexible and linking the electricity sector to other sectors such as transport and heating.


As part of the fifth planning round, between 2017 and 2030, Germany is estimated to invest over EUR32-34 billion on the expansion of the onshore grid network and another EUR17 billion for the offshore grid. For this, the TSOs are implementing the projects approved by BNetzA under the NDP2030 (in December 2017). This includes 2,650 km of new lines, 3,400 km of network reinforcements, and 300 km of alternating current (AC)/direct current (DC) conversion lines. The new lines include 400 km of AC network and the remaining in DC network spread across HVDC corridors coming up in the country as well as cross-border interconnections. Overall, 96 projects have been planned across voltages in the confirmed NEP 2017–30. BNetzA also approved the Offshore Grid Development Plan (O-NEP 2030), which includes five connections in the Baltic Sea and three in the North Sea together with the lines confirmed in the previous O-NEPs. Importantly, this would be the last O-NEP. This is in line with the Offshore Wind Act (Wind-auf-See-Gesetz) 2017, whereby a central model (where projects will be tendered only in areas with pre-examined land development plans) will be followed for projects to be tendered after 2025 to ensure synchronised expansion of wind energy capacity and offshore connection lines.


Way forward


The country is under pressure to deliver on its climate goals as the world is closely watching its next moves, particularly its plans for coal exit and the transport sector. It has been acknowledged time and again that the expansion of the electrical grid is critical for achieving Germany’s energy transition goals and needs to be expedited. While the government is taking various steps to align and sychronise grid expansion with the growth of renewable capacity and is also implementing measures to simplify the grid planning and approval process, things have to quickly translate into progress on the ground as time is running out.