Germany has put itself on the world map in the past decade as an early adopter of energy generation from renewable sources. In 2013, 25% of the country’s energy came from renewable sources – the highest percentage in the world. By 2050, as part of the country’s Energiewende (or “energy transition”), Germany expects this number to be at 80%. This is an incredibly ambitious goal, as Germans and the rest of the world will agree, but Germany is preparing now to make this happen.
As part of the Transatlantic Program hosted by the German American Chamber of Commerce, I had the incredible opportunity to meet with many of Germany’s energy influencers, and learn directly about how Germany is transitioning to carbon-free energy. It hasn’t been all smooth sailing, but there are key lessons that the U.S. and the rest of the world can learn both from Germany’s successes and plans for improvements.
Consistent Policy is Critical
The Bundesnetzagentur in Bonn is Germany’s Federal Network Agency for electricity, gas, telecommunications, post, and railway, and they had many insights to share about the reason for such high rates of renewable penetration to date. In particular, they attribute this adoption to policy, and more specifically, three aspects of the current renewable energy policy in Germany: guaranteed grid and market access for renewables, priority dispatch of renewables over conventional generators, and guaranteed financial support for 20 years through the feed in tariff. These three traits have provided great incentives for installers of renewable energy, paving the way in some cases for high profit as competition from solar producers caused panel prices to drop rapidly. This is a key lesson the U.S. can learn from Germany: consistent policy is critical for a similar large-scale transition to renewables, and it’s currently missing in our market.
Though policy incentives are often criticized, for a transition of this size predictability of expected returns throughout the expected life of renewable equipment is essential in the early years. With policies that are inconsistent or absent from state to state and year to year, individuals, businesses, and even utilities are hesitant about investment in newer technologies. Germany’s foresight on this front has resulted in solar capital costs that have reached grid parity – a great thing that much of the world can take advantage of as we follow suit.
Negative Pricing is a Double Edged Sword
Structure Incentives for Success
The transition to renewables has not been all smooth sailing for Germany. The sudden drop in solar prices was not anticipated, as the German market and German manufacturers were flooded by low-cost Chinese suppliers. The large influx of intermittent sources has made grid management difficult. Only 5% of the renewable capacity on the German market is owned by the primary utilities, with the rest being owned by individuals, communities, industry, and smaller utilities. The complexity of planning for these scattered sources (which are guaranteed access to the grid), and existing baseload plants like nuclear or coal that are difficult to shut down quickly, resulted in a “perfect storm,” with overproduction of supply and negative pricing on the spot market. This actually incentivized demand to increase in order to balance supply and demand on the grid, and stabilize the voltage and frequency output of the system.
Germany is now adjusting their incentive structure to adapt to these unforeseen effects. The feed in tariff will soon become a feed in premium, where eligible producers of renewable energy will need to bid their production into the market just like all other providers. They will then receive a bonus or premium price over the resulting market price. In this way, all generators have an incentive to curtail production when the market price and demand are low (thus avoiding negative pricing), and produce when the price (and subsequent demand) is high.
Though Germany went through some growth pains to arrive at this stronger footing, they have also paved the way for greater understanding and policy structures for other markets. As other nations look to implement a similar transition, we have a head start with Germany to thank, and can structure incentives that are implemented in a way that rewards responsible installation and management of clean technology projects.
Diverse and Rapid Innovations
Despite the challenges, Germany’s negative pricing phenomenon led to the need for very creative energy solutions. Germany has had unparalleled development and deployment of new and emerging energy technologies, many of which now have strong potential to scale. Our delegation met with many of these new companies and it was exciting to see what’s on the horizon:
- Researchers at EFZN in Goslar are evaluating the feasibility and economics of wind powered pumped water storage in abandoned mines in Germany. A storage capacity of 40 GWh is likely available in 100 existing mines at a current cost of €0.05-0.10 per kwh. When the market price of electricity drops below zero, grid electricity can be used to pump the stored water to a higher elevation. When the grid price is high, the potential energy in the water is used to generate electricity and sell it to the grid, and the economics of this solution start to become viable.
- A delegation tour of a hydrogen fuel production station revealed a similar economic concept, though the technology involved is significantly newer and still more expensive. Hydrogen technology has gotten much criticism for the high cost and safety concerns associated with producing, storing, and transporting compressed hydrogen gas, however, the hydrogen production and fueling station in Hamburg’s HafenCity, provided by Vattenfall, is proving that the technology is feasible. The plant was designed to produce hydrogen gas through electrolysis of filtered city tap water from renewable energy at low or negative cost, and sell the hydrogen to fuel the city’s fleet of hydrogen fuel cell city buses and personal cars.
- Many battery storage technologies are also undergoing research and demonstration for expanded uses in the transition. Lead acid batteries remain the most common technology for use with renewable energy systems due to their low cost and high availability. However, this solution is bulky, heavy, and limited to low power applications. The battery research center at MEET in Munster is conducting extensive testing with Lithium ion batteries, which provide many advantages in both mobile and stationary applications and performance as part of the energy transition. Better understanding of this technology coupled with industry partnerships at the research center will allow for greater adoption and lower costs.
- In another energy storage development, the delegation met with the Project Manager of the Smart Region Pellworm project, an island community that generates all of its energy plus some through renewable sources on the island. As part of this project they have installed a vanadium flow battery to help with response to grid demand for electricity and improve the economics of the renewable investment. This type of battery is new to the market, but has the potential for tremendous benefits and applications for community scale renewable microgrid systems which are larger than what is practical for traditional batteries. This installation was reported to have been very reliable so far, and is expected to have at least a 20 year life with only minor maintenance.
Though the technology and progress enabled by the Energiewende is incredible to behold, this still comes at a cost. The renewable feed in tariff is funded by rate payers, and many in Germany agree that its implementation created excessive windfalls for some. Though the rate of the FIT is declining for new installations, projects that are already operational are still reaping massive benefits. With all of its ups and downs along the way, Germany is leading the way in the energy transition, and we all have much to learn from their experience.
Katrina Prutzman leads the system design team at UGE, and recently returned from the Transatlantic Program for Young Technology Leaders, a delegation trip to Germany focused on smart grid and energy storage. UGE (TSX: UG.V) is a leading developer of distributed renewable energy solutions for business and government, with projects in over 90 countries, including several for Fortune 1,000 companies.
Article by Katrina Prutzman. A version of this article first appeared on GreenTech Media.