*Lindsay Baxter, PEC Program Manager for Energy & Climate, recaps her second week studying energy policy in Germany as part of her three-week McCloy Fellowship in Environmental Policy through the American Council on Germany.*
Greetings from Cologne!
While my first week of research was spent focusing primarily on the Federal perspective while in Berlin, my second week has allowed an opportunity to meet with local governments, state agencies, and municipal electricity companies in two German states, Saxony and Bavaria.
In Dresden, the concept of being in “coal country” came up in several conversations. Sound familiar?
While there was significant public support of the German energiewende, even in a coal-producing region, there was also an understanding that fossil fuels will continue to be needed to supply reliable back up power until storage technologies are sufficiently developed to balance out the times when renewable energy isn’t being produced.
In part, this concern is also amplified in Germany due to the decision to phase out nuclear power by 2022, a decision that is nearly unanimously supported by all sectors of German society.
A key question to be answered is what should be the source of fossil fuel-based electricity? From a climate change perspective, efficient natural gas-fired turbines make far more sense than coal. They also provide a key advantage in that they can be quickly turned on or off, to provide the flexibility that will be crucial in the electricity system of the future, whereas coal plants take hours if not days to fully ramp-up and shut down.
However, in today’s market conditions, natural gas is not competitive in Germany with cheap coal. Because wind and solar have grid priority, meaning there is a legislative mandate that grid operators use these sources first, and because all generators are paid the same amount per megawatt hour as the cheapest sources in use, inexpensive renewables have made gas turbines uneconomical.
While some parties have expressed interest in using policy to make gas turbines feasible (for example, higher CO2 prices or legislation to phase out coal plants), this creates questions of energy security, because Germany, unlike the U.S. and especially Pennsylvania, lacks a domestic supply of natural gas and must import it, most often from Russia.
During the time since my last “postcard” update, I also had a meeting with the European Energy Exchange (EEX) in Leipzig. It has been argued by some of the people I’ve met with that the Exchange will benefit more than any other entity by the energy transition More and more distributed resources (like solar panels and small wind farms) as well as demand management-when a large electricity user curbs their use during times of peak demand-are being aggregated and bid onto the market. This is also creating new business opportunities for third party aggregators and software platforms. This week I’ll be meeting with one such business, Next Kraftwerke, which calls itself the “virtual power plant.”
I also had the opportunity this week to meet with someone from the investment arm of Munich RE, to learn about the major insurer’s investments in the energy sector, in Germany as well as in other countries across the globe. While state subsidies and grants are important to launching new technologies, private capital is crucial to be able to get to scale. Whatever policies related to energy that are developed in Pennsylvania and the U.S. must encourage, or at the least, not inhibit, the investment of private capital.
My third and final week in the country will focus primarily on the utility company perspective as well as the economic implications of the energiewende. I have meetings schedule with both RWE and E.On, the two largest electricity companies in Germany, as well as the Cologne Institute for Economic Research and RWI, an economic research and policy advisory center in Essen.
Final thought for the week– An overarching theme in my interviews has been that while there have been, and continue to be, challenges and bumps in the road, that is to be expected with any large scale transition. Right now the German energy sector is in the middle, or “no man’s land,” as one interview described it. There is a recognition that there have been aspects of the transition that could have been handled differently (most notably, changing the feed in tariff structure earlier, to limit escalation of electricity prices to individual consumers), but that Germany continues to move in the right direction and will overcome the hurdles it has encountered.