German Electricity Rates held down by the impact of renewable energy
In 2015 Germany enacted a law whose short title is the Renewable Energy Sources Act of 2014 (Erneuerbare-Energien-Gesetz, or EEG 2014). EEG 2014 formalizes the fundamental shift in energy policy in Germany, the Energiewende, from a coal and nuclear system to one which requires the mix of electricity generation in Germany to reach 40% – 45% renewable sources by 2025 and 55% – 60% renewable sources by 2035.
This is to be encouraged by feed in tariffs that guarantee prices for new renewable entrants while requiring grid operators to receive and purchase electricity from these sources. As expected, EEG 2014 met with some criticism, primarily a claim that it would be too expensive.
Agora Energiewende, an energy policy group, commissioned the Oeko Institute e.V. to model the effects of EEG 2014 specifically on its likely impact on consumer electricity rates. The report concluded that:
The cost of electricity to consumers increases through to 2023 by between one and two cents per kwh, but then declines at a rate of between two and four cents/kwh until 2035. In 2035 rates are forecast to be the same as 2015 – 8 to 10 cents/kwh.
By 2035 60 percent of German electricity will come from renewable energy sources, from about 28% today.
As the real costs for renewable generation decline, the primary drivers to the incremental costs of the German Energy Plan become the actual demand levels and the extent to which energy intensive industries are subsidized.
Investments in renewable energy increase through 2023 and then decline, however renewable energy’s share of the generation mix continues to rise.
The assumed generation mix that was used in the reference case for this study is presented in the figure below:
This translates to the following projected share of the overall electricity source mix for renewables:
EEG 2014 provides for the following feed in tariffs, cents/kWh:
Source: Agora Energiewende
Note that the system average feed in tariff declines over time. Nonetheless, these tariffs are significantly higher than wholesale power costs from conventional sources. Under EEG 2014, transmission system operators (TSOs) are permitted to charge electric utilities an “EEG Levy” to compensate them for paying these feed in tariffs and the utilities pass these charges on to consumers.
The EEG Levy assumed in this analysis, along with the base cost of electricity, is shown in the following graphic.
Based on the assumptions inherent in this analysis, the overall cost of electricity to the consumer rises a few cents in the early 2020’s and then declines to rates comparable to rates experienced in 2010.
The Big Loophole
Not all consumers are subject to the EEG Levy, however. Many electricity intensive industrial and commercial end users have received exemptions from the EEG Levy, a point of considerable controversy in the country. Some 58 TWh are totally exempted and 110 Twh are partially exempted.
Most notably residential customers pay full freight. Were there less exemptions, the EEG Levy would be much lower, as shown in the figure below. No exemptions for any customer basically cuts the levy in half.
The EEG Levy cannot be viewed in isolation, however. No doubt, applying the levy to all industries would have some concomitant effect on the economy and some exempting is necessary. That said, however, even with loopholes, maintaining a relatively flat trajectory on consumer rates while radically increasing the renewable energy mix in electricity generation to over 60% will be quite an achievement.
Gerry Runte is Managing Director of Worthington Sawtelle LLC a consulting and research firm which provides a full portfolio of business planning and strategy services to both new and existing participants in emerging energy markets.
Recent engagements include market assessments, policy analysis and development; business strategy; go-to-market planning and launch; product commercialization strategies; feasibility studies; and due diligence on behalf of investors.
Gerry has 38 years of experience in the energy industry, much of which at the executive level. He holds a B.S. and M.Eng in Nuclear Engineering from Pennsylvania State University. Contact firstname.lastname@example.org; tel: +1 (207) 361-7143; skype: gerry.runte
Britain’s fleet of onshore and offshore wind turbines met 22% of electricity demand on Sunday, setting a new record and outperforming coal, which met just 13% of demand.
Across the Channel, Spain has reported high levels of summer clean energy output with over 55% of electricity generation coming from zero emission sources during July. And Germany has announced that it generated more than a third of its energy from renewable sources in the first half of this year, while energy from fossil fuel plants – gas and coal – declined.
“Wind has become an absolutely fundamental component in this country’s energy mix,” RenewableUK Director of External Affairs Jennifer Webber said today in an e-mailed statement. “Wind is a dependable and reliable source of power in every month of year including high summer.” — Bloomberg
These figures are the latest clear signals that renewables are increasingly stealing the limelight from outdated fossil fuels. Earlier this year, onshore wind was revealed as the cheapest form of new electricity generation in Denmark and wind met over half of the country’s power demand last December. Renewable energy is also becoming cost competitive elsewhere with solar power reaching grid parity in Italy, Spain and Germany. This trend clearly indicates to European getting ready to agree a climate and energy framework to 2030 that the transition from fossil fuels to renewables is happening and here to stay. For more on this story click here.
Wind to power 50% of Denmark’s demand by 2020
While other countries debate whether to install wind turbines offshore or in remote areas, Denmark is building them right in its capital. Three windmills were recently inaugurated in a Copenhagen neighbourhood, and the city plans to add another 97.
“We’ve made a very ambitious commitment to make Copenhagen CO2-neutral by 2025,” Frank Jensen, the mayor, says. “But going green isn’t only a good thing. It’s a must.”
The city’s carbon-neutral plan, passed two years ago, will make Copenhagen the world’s first zero-carbon capital. With wind power making up 33% of Denmark’s energy supply, the country already features plenty of wind turbines.
Indeed, among the first sights greeting airborne visitors during the descent to Copenhagen’s Kastrup airport is a string of sea-based wind towers. By 2020, the windswept country plans to get 50% of its energy from wind power. — For more on this story visit Newsweek
Siemens receives Norwegian order for 67 wind turbines
Siemens has announced that it has received an order from Norwegian energy utilities Statoil and Statkraft for 67 wind turbines for the Dudgeon Offshore Wind Farm in the UK. The news comes just days after the UK installed their first 6 MW wind turbine at the burgeoning Westermost Rough offshore wind farm in the North Sea. Siemens will manufacture, deliver, install, and commission 67 of its direct-drive 6 MW wind turbines, each of which has a mammoth 154 meter rotor.
“We are proud to convince more and more customers about the advantages of our 6-megawatts-offshore machine”, said Dr. Markus Tacke, CEO of the Wind Power Division of Siemens Energy. “With Dudgeon we extend our project pipeline for this new turbine. This gives us the opportunity to further ramp up production capacity, which is a precondition to bring down the costs for offshore wind.”
The Dudgeon Offshore Wind Farm will begin construction in early 2017, and upon completion is expected to provide electricity to more than 410,000 UK households. For more on this story, head over to CleanTechnica
Vestas reports healthy profits and order for 32 – 8MW Wind Turbines
One of the world’s largest wind energy manufacturers, Vestas Wind, reported healthy second quarter earnings for 2014, and is now waiting on DONG Energy’s final investment in a UK offshore wind project which would require the Vestas 8 MW turbines. Vestas reported a strong turnaround from their second quarter earnings a year previously with a 13% increase to €1.34 billion. The company reported a net profit in the second quarter of €94 million ($125 million), compared to a €62 loss a year earlier
The news came just a day before Vestas confirmed that they had entered into a conditional agreement with DONG Energy for the upcoming Burbo Bank Extension in Liverpool Bay off northwest England. Vestas would provide 32 8 MW V164 turbines for the extension project, and are awaiting DONG Energy’s commitment to the project before the deal is sealed.
“Larger and more cost-efficient wind turbines are key elements in the realization of Dong Energy’s strategy towards reducing the cost of electricity from offshore wind,” said Samuel Leupold, an executive vice president at Dong. “Competition among the offshore wind turbine manufacturers will increase.”
Offshore construction of the Extension is expected to begin in 2016, and upon completion it is expected the project will be able to provide electricity for more than 230,000 UK homes. — Bloomberg
It may surprise you to know that the world’s oil companies see renewables as an unstoppable force. Some oil companies have issued landmark reports informing us that by 2100 at the latest the world will be getting 90% of its energy from renewable energy, indicating this could happen as early as 2060 under certain geopolitical conditions.
Although oil companies were initially hesitant to embrace renewable energy, in recent years their position has changed somewhat, as the many positive attributes of renewables began to convince senior oil executives that changes were on the horizon and their choice was to either embrace that change or accept an ever-declining energy market share. By their own admission only 10% of late-century energy will be met by petroleum.
In the final analysis, energy is energy after all, and it is the energy business that the oil companies are in.
So, rather than cede energy market share to up-and-coming renewable energy companies, big oil decided to become involved in renewables, first with biofuel, then solar, and later, wind. Some oil companies even purchased solar companies with their already installed and operating solar farms to gain experience in the new frontier.
The Oil Industry: Early Oil
In the early 20th century it was all about the oil, but in the later 20th century it was all about refining it into diverse products and the oil industry then morphed into a much larger entity named the petrochemical industry which created billions of tons of plastics, fertilizers, liquids, products and even medicines every year. The petrochemical sector includes the natural gas segment and thousands of miles of pipelines exist on every continent except Antarctica to move methane from gas wells to processing facilities and then forward it as usable natural gas to the end users.
A much larger industry had sprung up out of the original oil industry, one that was far larger than the one that had merely pulled oil out of the ground and refined it for transportation use.
The High Cost of Oil
Almost all countries heavily subsidize their oil and natural gas industries, and the United States is a great example. Oil companies there get over $4 billion dollars per year (yes, every year) to ensure stable petroleum supplies, compliance with regulations even in difficult drilling locations, and to help levelize gasoline prices across the country.
It is commonly reported that the petroleum industry (worldwide) receives over $500 billion dollars worth of subsidies and tax breaks every year. The worldwide oil and gas subsidy reported by the EIA for 2012 was $550 billion dollars and 2013 will have a similar subsidy figure attached to it.
Besides the massive taxpayer funded subsidy scheme for oil and gas are the externalities associated with the burning of all those long dead and liquefied dinosaurs. For each ton of gasoline burned, 4.5 tons of CO2 are created. If you add up all the billions of tons of gasoline that have been burned since the first Model T Ford rolled off the assembly line on August 12, 1908, it totals an incredible amount of CO2. Not to mention the billions of tons of non-CO2 airborne emissions created by our petroleum burning transportation sector since that date.
All this burning has a significant healthcare cost for nations (look at China, for example) and pollution-related damages will continue to affect the agriculture sector and cause damage (spalling) to concrete structures like buildings, bridges and some roads.
Although an excellent source of energy for motive power with high output per unit, the necessary high subsidies and unfortunate climate-changing externalities have conspired to considerably shorten the age of oil.
Natural Gas, the ‘Bridge Fuel’ to a Renewables Future
The oil companies are ahead of regulators on this one. Knowing that emission regulations were getting stricter every decade, petroleum companies knew that they had to pull a rabbit out of a hat, as gasoline and diesel can burn only so cleanly without prohibitively expensive technology. This is why we hear every day about ‘Natural Gas the Bridge Fuel to the Future’ and how natural gas will revolutionize our power generation segment and transportation sector.
Convincing regulators, utility companies, and automakers to switch to natural gas became the new mantra of oil company executives in order to meet increasingly stringent emission targets in developed and emerging nations.
The ‘Bridge Fuel’ will peak between 2040 and 2045 in most published oil company scenarios and somewhere between 2060 and 2100 natural gas itself will be almost completely replaced by renewables.
Although natural gas is hundreds of times cleaner burning than other fuels, it still emits plenty of CO2, but emits only minute quantities of toxic gases — and, importantly, no airborne soot or particulates.
By mid-century or 2100 at the latest, cleaner burning natural gas will be replaced in order to meet emission targets, and natural gas would lose out to renewable energy anyway — even without emission regulations — for the simple reason that solar and wind have zero fuel cost associated with their operation, while natural gas will always have a fuel cost and a separate delivery cost per gigajoule.
Imagine all of the costs involved in prospecting for and siting natural gas fields, purchasing the land, drilling, installing pipelines, processing methane into natural gas and adding even more pipelines to deliver natural gas to the end user. It all adds up, and even the most efficient gas producers/processors/pipeliners must cover their overhead.
There are no comparable ongoing fuel or distribution overheads with renewable energy.
What will we miss in the Clean Energy Future?
Once a solar or wind power plant hits completion all it needs is for the Sun to rise or the wind to blow. No drilling, no processing, no pipelines, no supertanker spills or pollution, and no CO2 sequestration required. Just plenty of clean renewable energy.
For all the right reasons, renewables are making progress. Economics, human health and our environment are the factors driving this energy change-up.
Let’s hope in our energy future that oil companies and gas companies, simply yet profoundly, morph themselves into energy companies— and upon actualizing it, become renewable energy companies in the process.
Even amid policy uncertainty in major wind power markets, wind developers still managed to set a new record for installations in 2012–with 44,000 megawatts of new wind capacity worldwide. With total capacity exceeding 280,000 megawatts, wind farms generate carbon-free electricity in more than 80 countries, 24 of which have at least 1,000 megawatts. At the European level of consumption, the world’s operating wind turbines could satisfy the residential electricity needs of 450 million people. Image courtesy of the Earth Policy Institute.