German energy policy: Its impact nationally and across Europe Presentation at the Sanea Lecture in Rosebank, Johannesburg, 24 February 2015

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1 German energy policy: Its impact nationally and across Europe Presentation at the Sanea Lecture in Rosebank, Johannesburg, 24 February 2015 Dr. Hans-Wilhelm Schiffer Executive Chair, World Energy Resources, World Energy Council, London Consultant and Advisor to the Executive Board of RWE AG, Essen World Energy Council 2013

2 Ten key data for South Africa and Germany Parameter Unit South Africa Germany Size of the country 1,000 square 1, kilometres Population million Energy consumption in 2013 Mtoe there of coal consumption Mtoe CO 2 emissions in 2013 Mt Power generation in 2013 TWh Share of coal in power generation % Energy consumption per capita toe Power generation per capita kwh 4,830 7,827 CO 2 emissions per capita t Source: BP Statistical Review of Word Energy, June 2014 World Energy Council /001 gkl 2

3 Centres of energy production in Germany Position: February 2015 Source: H.-W. Schiffer, Energiemarkt Deutschland World Energy Council /001 gkl 3

4 Germany's dependency on energy imports in 2014 Mtce Mtce Net imports Domestic production Mtce % 88% 56.2Mtce 53.6Mtce 49.8Mtce 36.1Mtce 86% 100% 100% 100% 2% 12% 14% Oil Natural gas Hard coal Lignite Renewables Nuclear energy Source: AGEB 2/2015 (other energy sources: 3.3Mtce; total primary energy consumption: 446.3Mtce) World Energy Council /001 gkl 4

5 Energy feedstock suppliers in Figures for Germany in Mtce Crude oil Natural gas Hard coal Russia Norway Nether- UK Nigeria Kazakhstan USA Colombia Australia South lands Africa Source: H.-W. Schiffer (ascertained on the basis of BAFA) World Energy Council /001 gkl 5

6 Energy mix in 2014 power production Gross power production 614mMWh Including renewables 161mMWh 17.8% Hard coal 5.3% Other 7.0% Biomass 25.4% Lignite Nuclear 15.8% 26.2% Renewables Natural gas 9.5% 9.1% Wind Kernenergie 14 % Hydro 3.4% Photovoltaics 5.7% 1.0% Waste and other Source: BDEW, 02/2015 World Energy Council /001 gkl 6

7 Power generation capacity (31/12/2014) and net electricity generation in 2014 in Germany Share of various energy sources in % Capacity 194 GW (net) Wind Hard coal Lignite Nuclear energy Power generation 579bn kwh (net) Source: BDEW, Position: February 2015 World Energy Council /001 gkl 7

8 Short history of German Energy Policy since the 1990s Until the 1990s Main characteristics and key events Regulated energy markets and monopolies; few efficiency gains Meeting ever-growing demand with nuclear and fossil 1991 in Germany: first law regulating feed-in of RES 1 into the grid 1996/1998 Deregulation begins: first EU directive and national law introducing competition for electricity : German Renewable Energy Act (EEG) truly kick-starts development of new RES with high feed-in prices and priority access rights Multiple policy turnarounds concerning nuclear energy: 2001: Nuclear phase-out plan (until early 2020s) 2010: Energy concept of the federal government with lifetime extension to build a bridge to a low-carbon economy (+12 years for nuclear fleet on average; until mid-2030s) Strong growth of RES continues 2011 Energiewende 2 launched after Fukushima 2011: Immediate phase-out of 8.5 GW (pre-1980s plants) and expedited phase-out until 2022 Nov July 2014 Coalition agreement of the new conservative-socialist government (phasing-out decision confirmed) Reform of Renewable Energy Act (EEG) Introduction of binding direct marketing for new installations Determined corridor for wind, PV and biomass expansion Starting with auctioning in 2017 in order to determine the market premium for renewables 1) RES = renewables 2) Energiewende = energy transition World Energy Council /001 gkl 8

9 No nuclear power plant is going to generate electricity in Germany from 2023 onwards Timeline of scheduled nuclear phase-out in Germany Development of installed capacity of nuclear power in Germany (MW) 20,490 7% of electricity generation (2010) 12,068 (-8,422) 10,793 (-1,275) 9,509 (-1,284) 8,107 (-1,402) 4,049 (-4,058) 23% of electricity generation (2010) Source: BDEW World Energy Council /001 gkl 9

10 Central elements of the German Energiewende Reduction in GHG emissions by 40% by 2020 and 80 to 95% by 2050 compared with 1990 level (2014: reduction of 25% compared to 1990) Increase in the share of renewable energy in total energy consumption to 30 % in 2030 and 60 % in 2050 (share in 2014: 11 %). Increase in the share of renewable energy in total power consumption to 50% in 2030 and 80% in 2050 (share in 2014: 28%) Complete nuclear phase-out by the end of 2022 Improved energy efficiency: Halving the primary energy consumption by 2050 compared with 2008 level The project is based on the assumption that a highly industrialised society can be securely and competitively supplied by a generation system based predominantly on RES World Energy Council /001 gkl 10

11 Promotion of green electricity by Renewable Energy Sources Act (EEG) Guaranteed feed-in payments for green electricity for 20 years after commissioning the plant concerned Grid operators are obliged to immediately and as a priority purchase the entire quantity of green electricity offered The plant operator is paid the EEG feed-in tariff by the local grid company; the four German transmission system operators are in charge of selling this electricity at the (usually lower) market price via the power exchange The trading companies pass on the deficit (feed-in tariff minus market price) to consumers by imposing an EEG reallocation charge World Energy Council /001 gkl 11

12 Installed capacity for power generation in Germany on the basis of renewables GW Source: AGEE-Stat und BDEW, February 2015 World Energy Council /001 gkl Solar PV Wind Biomass Hydro

13 Costs and revenues of PV plants in Germany [2006 = 100] Revenues Costs 10-kW-plant margin 4% World Energy Council 2013

14 Share of renewables in meeting electricity demand and total volume of EEG reallocation charge Promotional charge in bn 24 EEG reallocation charge in bn 20 Share of renewables in % Share of RES in % %-point increase over 1999 funding provided to this end by electricity consumers between 2000 and 2014: approx. 112bn World Energy Council /001 gkl 14

15 Development of wholesale prices for electricity in Germany and EEG reallocation charge EUR/MWh Wholesale electricity prices (base load) EEG reallocation charge Position: February 2015 Source: Transmission system operators' transparency platform World Energy Council /001 gkl 15

16 Electricity prices, 2 nd quarter 2014 Figures in USD/MWh Industry Private households Germany Japan Norway* USA OECD total * Available only for the first quarter 2014 Germany Japan Norway USA OECD total Source: IEA, Energy Prices and Taxes, third quarter 2014, Paris 2014, p. 241 and 342 World Energy Council /001 gkl 16

17 The price decline in electricity wholesaling affects all conventional power plants in Germany /MWh 140 Mid-2008 Hard coal price CIF-NWE: US$210/t CO 2 price: 29/EUA Solar power capacity in GER: ~8GW End of 2014 Hard coal price CIF NWE: US$72.5/t CO 2 price: 7.30/EUA Solar power capacity in GER: ~38GW Peak load power: Forward price for the year that follows Base load power: Forward price for the year that follows World Energy Council 2013

18 Price setting for electricity on the wholesale market principle Euro/MWh Demand (load) Market price p old Natural gas was the price setting fuel Market price p new with extended use of renewables Hard coal sets the price Renewable energy Nuclear energy Lignite Hard coal Natural gas Oil MW World Energy Council /001 gkl 18

19 Clean Dark and Clean Spark Spread (Margins of gas- and hard coal-fired power plants) Assumed efficiency rate for baseload 36 % and for peakload power plants % CSS [ /MWh_el] CDS [ /MWh_el] CSS= clean spark spread (peak load electricity price minus cost of natural gas and CO 2 determined for the year that follows) CDS= clean dark spread (base load electricity price minus cost of hard coal and CO 2 determined for the year that follows) World Energy Council /001 gkl 19

20 M-shaped electricity price curve on sunny days Example: 20 February 2012 /MWh Gigawatt Electricity price, EEX single-hour contract (Phelix) (left-hand axis) Electricity feed-in from photovoltaics (right-hand axis) World Energy Council 2013 Sources: EEX, RWE Supply & Trading 15/001 gkl 20

21 Renewable generation [GWh] Load factor [%] Feed-in from renewables (16/03/2012) and example illustration of hard-coal and gas-fired power 4 plants' flexibility during regular operation % 18 90% % 70% Hours Photovoltaics Photovoltaik Wind GuD-Neubau* CCPP new-build Steinkohle-Neubau Hard coal new-build Steinkohle-Bestansanlage Existing hard coal, optimised (optimiert) 60% 50% 40% 30% 20% 10% 0% * Regular operation of two gas turbines and one steam turbine Source: World Energy Council /001 gkl 21

22 Situation on 24 March 2013 Thursday, 21/03/2013 Friday, 22/03/2013 Saturday, 23/03/2013 Sunday, 24/03/2013 Monday, 25/03/2013 Photovoltaics Electricity consumption Temperature (daily mean) Spot price [ /MWh] Sources: Transmission system operators, EEX, DWD, BDEW (own calculations) Source: BDEW (German Association of Energy and Water Industries) World Energy Council /001 gkl 22

23 Example flexibility parameters for coal- and gasfired power plants Parameter Unit Natural gas Hard coal Lignite Hard coal CCPP New-build New-build Exist. plant new-build 1) (optimised) Capacity MW , Minimum-load point/ % ~ 60 ~ 25 to 40 ~ 25 2) to 40 ~ 20 rated-load point (P Min /P Rated ) Mean %/min. ~ 3.5 ~ 3 3) ~ 3 ~ 3 load change rate 4) 1) Regular operation of two gas turbines and one steam turbine 2) Thanks to the "BoA-Plus" design (lignite-fired power plant with optimised plant technology plus upstream coal drying) a minimum-load point of 25% is possible today but has not been implemented yet 3) In the lower load range (25 to 40%) the operating gradient differs from this value 4) With respect to rated load Source: RWE World Energy Council /001 gkl 23

24 Comparison of load flexibility of new-build gasand lignite-fired power plants LOAD FLEXIBILITY OF A COMBINED-CYCLE POWER PLANT LINGEN CCPP Maximum capacity: = 2x440MW Minimum capacity: = 520/260MW Maximum load change rate: +/- 32MW/min LOAD FLEXIBLITY OF SELECTED POWER PLANTS IN THE RHINELAND BOA 1 3 Maximum capacity: = 1,000MW Minimum capacity: = 500MW Maximum load change rate: +/- 30MW/min BOAPLUS Maximum capacity: = 2x550MW Minimum capacity: = 350/175MW Maximum load change rate: +/- 30MW/min 2-boiler operation 1-boiler operation 2-boiler operation 1-boiler operation World Energy Council /001 gkl 24

25 Electricity generation and consumption Electricity demand in Germany and electricity produced by coal-fired power plants in November 2014 Electricity consumption Hard coal Lignite Source: Agora Energiewende, position: 12/12/2014 World Energy Council /001 gkl 25

26 01. Aug 02. Aug 03. Aug 04. Aug 05. Aug 06. Aug 07. Aug 08. Aug 09. Aug 10. Aug 11. Aug 12. Aug 13. Aug 14. Aug 15. Aug 16. Aug 17. Aug 18. Aug 19. Aug 20. Aug 21. Aug 22. Aug 23. Aug 24. Aug 25. Aug 26. Aug 27. Aug 28. Aug 29. Aug 30. Aug 31. Aug The biggest drawback of renewables: Their availability is not in our hands Gigawatt At times, wind and solar power meet more than three-quarters of electricity demand while at others they all but vanish from the scene Solar Wind Conventional power plants are needed to ensure security of supply But the expansion of renewables leads to conventional power plants becoming increasingly unprofitable World Energy Council /001 gkl 26

27 Power generation capacity in Germany GW (net) Renewable energy Conventional power plants Source: BDEW 02/2015 and 2014 Electricity Grid Development Plan, scenario B World Energy Council /001 gkl 27

28 More than one-third of additional renewable generation in 2022 will merely contribute to the increase in the German export surplus Photovoltaics Net replacement of conventionally generated electricity Overview: Selected expected electricity flows in 2022 (target scenario) > Generation and load in Germany will diverge > Hours of high feed-in of renewables and low demand create market incentives to export electricity abroad > In 2022, only about two-thirds of the electricity generated from renewables can be integrated into the German electricity market The energy turnaround is a European challenge and thus has to be approached at the European level. Source: EWI World Energy Council /001 gkl 28

29 Heavily subsidised photovoltaic power drives down prices on the energy exchange around midday and is exported to neighbouring European countries Germany's hourly power export balance on 17 April 2012 GW EXPORT h IMPORT The single European market for electricity is working and systematically exploiting national solo runs that are out of touch with the market World Energy Council /001 gkl 29

30 Photovoltaic power produced in Germany significantly influences peak-load power prices in Europe Power prices for hourly contracts traded on European energy exchanges (in /MWh (left-hand axis)) and German PV power production (in GW (right-hand axis)); 8 May 2012* France Switzerland Germany German PV production :00 22:00 21:00 20:00 19:00 18:00 17:00 16:00 15:00 14:00 13:00 12:00 11:00 10:00 09:00 08:00 07:00 06:00 05:00 04:00 03:00 02:00 01:00 00:00 * Source: EEX; RWE Supply&Trading. World Energy Council /001 gkl 30

31 Energiewende is not a solely German trend: EU sets ambitious targets for 2030 Renewable energy 27% 20% 14% > Renewable targets in % of total energy consumption GHG emission reduction 19% 20% 40% > GHG emission reduction in % compared with 1990 emission levels Energy efficiency 20% Source: EU Commission 27% > Energy efficiency in % reduction in energy consumption compared with the reference projection of 2007 Current Targets for 2020 Targets for 2030 World Energy Council /001 gkl 31

32 2030 framework for the European power sector Climate target GHG emission reduction by 40% compared with 1990 emission levels Emission reduction of 43% by 2030 compared with 2005 emission levels for sectors which are part of the ETS (power sector and industry) Emission reduction of 30% by 2030 compared with 2005 emission levels for sectors which are not part of the ETS (households, traffic) ETS = Emission Trading Scheme Expectation for the power sector Increase in the share of renewable energy in power generation from 21% in 2012 to 45% in 2030 World Energy Council /001 gkl 32

33 Conclusion The central targets of energy policy are security of supply, competitive and affordable prices and environmental protection. These targets have the same rank. There should be one instrument for each target. To keep energy affordable and competitive we should support renewables via auctioning systems and give them market responsibility. As far as conventional energy sources are concerned, we should rely on least cost solutions. Whether preference is given to coal or to nuclear energy should be a rational decision. CCS is technically feasible the risks involved are very limited. CCS contributes to employment within the country. For energy security: discrimination of cost-efficient domestic energy sources is to be avoided. World Energy Council /001 gkl 33

34 wp-content/uploads/2014/10/ Global-Energy-Transitions- 2014_EfG2014-mit-AT-Kearney.pdf World Energy Council /001 gkl 34