Insights from Germany s Energiewende

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1 Insights from Germany s Energiewende Fact and figures with a focus on the power sector transformation D. Pescia BRUXELLES,

2 Who we are Independent and non-partisan think tank, 18 Experts Mission: How do we make the Energiewende in Germany a success story? Project duration: Financed with 15 million Euro by the Mercator Foundation and the European Analyzing, assessing, understanding, discussing, Climate Foundation putting forward proposals 2

3 1. The Energiewende in a nutshell with a focus on the power sector

4 The Energiewende is a multi-sectorial transformation process, with clear mid-term and long-term objectives Climate (CO2 emissions reduction p/r 1990) Nuclear phase-out (end 2022) Competitivness Security of supply Political objectives -40% -55% -70% >-80% Renewable energies development 18% 30% 45% 60% (final energy consumption) Reduction of primary energy consumption -20% -50% Reduction of energy intensity by 2,1% p.a. Strategic objectives Renewable electricity >35% >50% >65% >80% Renewable heat Transport Power (consumption reduction) -10% -25% Cogeneration Heat (final energy consumption reduction) Transport final energy consumption reduction) -20% -20% -40% Reduction of building primary consumption Number of electric vehicles Sectorial targets Targets in % -80% Rate of thermal renovation 2% p.a. 1 M 6 M

The Energiewende implies a fundamental transformation of the power system Gross power production in 1990, 2014 and 2050 Greenhouse Gas Emissions Reduction of 40% by 2020 and 80% to 95% by 2050 below

5 The Energiewende implies a fundamental transformation of the power system Gross power production in 1990, 2014 and 2050 Greenhouse Gas Emissions Reduction of 40% by 2020 and 80% to 95% by 2050 below 1990 levels illustrative Nuclear Stepwise shut down of all power plants until 2022 Renewables Share in gross electricity consumption of 40-45% by 2025, 55-60% by 2035 and at least 80% by 2050 Efficiency Reduction of electricity demand by 10% by 2020 and 25% by 2050 below 2008 levels AG Energiebilanzen (1990, 2014); illustration based on current targets (2050) 5

6 2. The transformation of the German power system Where do we stand and where do we go?

Renewables are rising, nuclear is phasing out, coal is still dominant Share of energy sources in gross power production in 2014 Development of gross power production 1990-2014 in TWh 700 TWh 600 500

7 Renewables are rising, nuclear is phasing out, coal is still dominant Share of energy sources in gross power production in 2014 Development of gross power production in TWh 700 TWh * Renewables Nuclear Lignite Hard Coal Natural Gas Others AG Energiebilanzen (2014) AG Energiebilanzen (2014) 7

The nuclear energy act foresees the shut down of all nuclear power plants by 2022 with renewables more than replacing their generation Gross electricity production by nuclear and renewable sources

8 The nuclear energy act foresees the shut down of all nuclear power plants by 2022 with renewables more than replacing their generation Gross electricity production by nuclear and renewable sources in TWh Today Start of the Anti-Nuclear Movement Chernobyl 1. Nuclear Phase-Out Law Revision of phase-out law 2. Nuclear Phase-Out Law Fukushima AG Energiebilanzen ( ), BNetzA, own calculations ( ) 8

9 The key insight of the Energiewende: It s all about wind and solar! Gross electricity generation of renewable energies AG Energiebilanzen ( ); BNetzA, own calculations ( ) 9

Wind energy and solar PV fundamentally alter

Electricity Demand Photovoltaic Fossil Power

10 Wind energy and solar PV fundamentally alter the power system and power markets Electricity generation and demand in sample weeks of February, August and November 2023* Electricity Demand Photovoltaic Fossil Power Hydro Wind Onshore/Offshore Biomass Agora Energiewende (2013) 10

The new power system is characterized by flexibility and no more baseload (Residual) load in Central Western Europe (Week 32-2030) Important flexibility options Flexible fossil and biomass plants

11 The new power system is characterized by flexibility and no more baseload (Residual) load in Central Western Europe (Week ) Important flexibility options Flexible fossil and biomass plants (incl. CHP with heat storage & Power-to-Heat) Grids (domestic & cross-border) Demand Side Management Partial curtailment of wind and solar power Storage (Hydro; Batteries, Power-to-Gas) Agora Energiewende / Fraunhofer IWES (2015) Den Haag, 18 June 2015 Markus Steigenberger, Christian Redl 11

12 3. Focus on costs

13 The increase in households electricity prices have been suspended Composition of household electricity prices ct/kwh ,1 0,9 7,1 4,5 4,7 20,4 1,0 6,3 5,2 6,1 21,8 1,2 5,9 5,5 7,4 23,4 24,0 1,2 2,1 25,8 26,6 3,5 3,6 29,4 29,6 29,4 5,3 6,2 6,2 5,8 5,8 5,8 6,0 6,5 6,5 6,7 5,8 5,9 6,1 6,3 6,7 6,8 6,7 8,7 8,5 8,8 8,9 8,5 7,9 7, * Procure, distribution, margin Taxes Network charges EEG surcharge Concessions fees Other surcharges BDEW 2014, BNetzA 2014, own calculations; *own forecasts for

The solar years 2009-2012 led to a substantial increase in electricity prices, while bringing pv costs down the learning curve solar years 7 GW 7.5 GW 7.6 GW Ø 25 GW photovoltaic built in 4 years (!

14 The solar years led to a substantial increase in electricity prices, while bringing pv costs down the learning curve solar years 7 GW 7.5 GW 7.6 GW Ø 25 GW photovoltaic built in 4 years (!) when feed-in tariff was very high 4.5 GW Ø race between investors and policy makers. The markets moved faster Ø 180 Mds paid by German consumers for pv. Under current FIT, this sum would reach only about 60 to 80 Mds (*) overnight costs Feed-In Tariff Source: SFV (2014), AGEE (2014), Fraunhofer ISE (2014) (*) estimation to be refined

15 Wind Energy has become a mature technology, with windmills of 2-3 MW being standard Size development of wind turbines (onshore) x 20 Fraunhofer IWES 15

16 Cost breakthrough in solar PV reduced cost by ~70% since 2006 Average system price for new roof-mounted PV in EUR/kWp ~70% BSW Solar (2014), own calculations * only Q

17 Today, wind and solar are cost competitive with newly built conventional energy sources Range of levelized cost of electricity (LCOE) in 2015 in EUR/MWh * * Hinkley Point Agora Energiewende (2015) 17

18 Cost of large scale PV will continue to decrease up to 2050 Current costs for conventional energy sources

Taking into account overall system costs, a wind and pv system could be only 10-15% more expensive than one based on fossil-fuels 0% wind + PV 45% wind + PV Ø Future system costs depend on the

19 Taking into account overall system costs, a wind and pv system could be only 10-15% more expensive than one based on fossil-fuels 0% wind + PV 45% wind + PV Ø Future system costs depend on the flexibility of the entire system Ø Integration is not simply about adding wind and pv on top of business as usual. We need to transform the system as a whole to do this cost-effectively. Ø In the long run, high shares of variable renewable energy (v-res) may come at zero additional costs (IEA 2014) Source: own, based on IAE (2014)

20 Energy intensive industries are largely exempt from taxes and levies to safeguard their competitiveness Average electricity prices for energy intensive industrial consumers in 2013 in ct/kwh BMWi (2014) Rotterdam, 12 June 2015 Christian Redl *Assuming annual consumption of <20 MWh and partially exemptions from levies 20

21 4. Focus on decarbonization

22 Greenhouse gas emissions are currently at -26% compared to 1990 levels with the power sector being the largest emitter Greenhouse gas emissions by sector and 2020/2030 targets - 4.7% - 40% - 55% AG Energiebilanzen (2014), UBA (2014) *own forecast 22

EUR/t CO 2 Cumulated overallocation of CO 2 -certificates in Mio.

23 The key problem: The EU ETS faces huge overallocation, leading, unless fixed, to persistent low CO 2 prices Price development of CO 2 -certificates in EUR/t CO 2 Cumulated overallocation of CO 2 -certificates in Mio. ICE, BMWi (2014) EC, DIW (2014) Den Haag, 18 June 2015 Markus Steigenberger, Christian Redl 23

24 Rising exports of coal-fuelled electricity threatens German climate targets Gross electricity generation and consumption in TWh AG Energiebilanzen (2014) 24

25 A more ambitious political intervention at national level is necessary for solving the midterm coal issue in Germany Gross Electricity Production from Lignite, Hard Coal and Gas Power Plants TWh Lignite Hard coal Gas AG Energiebilanzen (2014) New fossil generation capacities, planned in 2007, went online in 2013/14. Current economic conditions are favorable for existing coal power plants but are unfavorable for any new investment decisions. A more ambitious political intervention must be undertaken to solve the coal problematic. Without such measures, Germany will miss its 2020 climate target (22 MtC02 too much would be emitted ) A structural change is nessecary on the basis of a «coal consens» 25

26 5. Energy security and new market design

A refined market design is needed to enhance flexibility, finance renewables and fossil-fuel backup power plants Wholesale electricity prices in EUR/MWh (1-year future) Power market is currently

27 A refined market design is needed to enhance flexibility, finance renewables and fossil-fuel backup power plants Wholesale electricity prices in EUR/MWh (1-year future) Power market is currently characterized by overcapacities ~40% Long term objectives : integrating RES in the power market and guaranteeing security of supply How to secure long-term investments? Political debate (Green book) : Energy only market (EOM) 2.0 vs capacity market EEX (2014) 27

System Average Interruption Duration Index (SAIDI)*

28 The current power system is reliable but Germany is facing slow developments on its North-South Grid System Average Interruption Duration Index (SAIDI)* in 2012 CEER (2013) * including exceptional events 28

29 5. Is Germany a special case?

Wind power and solar PV become key pillars of the European power system RES-E share in the EU generation mix 2030 EU 2030 50% RES-E in the generation mix 30% Wind and PV in the generation mix Region

30 Wind power and solar PV become key pillars of the European power system RES-E share in the EU generation mix 2030 EU % RES-E in the generation mix 30% Wind and PV in the generation mix Region Pentalateral Energy Forum* % RES-E in the generation mix 34% Wind and PV in the generation mix Fraunhofer IWES (2015) on behalf of Agora Energiewende; Assumptions are based on national energy strategies and ENTSO-E scenarios in line with EU 2030 targets * AT, BE, CH, DE, FR, LU, NL Rotterdam, 12 June 2015 Christian Redl 30

31 Regional European power system integration mitigates flexibility needs, through smoothing effects Wind feed-in in 2030 at different aggretated levels Agora Energiewende / Fraunhofer IWES (2015) 31

32 Global investments in renewables have overtaken fossil investments Share in global capacity investments % 80% 81% 83% 77% 76% 69% 74% 72% 60% 61% 54% 59% 51% 50% 58% % 40% 39% 46% 41% 49% 50% 42% 20% 19% 17% 23% 24% 31% 26% 28% 0% Renewable Energies Conventional Energies IRENA (2014) 32

33 5. Conclusions

34 Conclusion - Key insights (I) Ø The German energy transition is a complex, long-term, industrial and societal transformation process, with clear mid-term and long-term objectives. Ø Photovoltaic and wind are the backbones of this transformation. This implies a paradigm shift towards system flexibility. Ø Inclusion of heating and transportation sectors will enhance the flexibility of the overall energy transformation. Ø Challenges of the transformation are numerous, but some of them, like the cost of RES-generation are about to be solved. Ø A reform of the energy market is necessary to trigger efficient dispatch and investment decision in flexible and low-carbon assets.

35 Conclusion - Key insights (II) Ø Reaching mid- and long-term decarbonization objectives may only be met through a new consensus on the question of coal. Ø The German energy transition is not an exception within the EU, but the tempo and magnitude of the transformation is unique. Ø The pace of the German transition can lead to spill-over effects in neighboring countries. These effects are nevertheless being solved bilaterally (e.g. phase-shifter DE-PL) Ø Stronger EU and regional cooperation, especially on RES support scheme and SoS, would bring overall benefits. Ø The Energy transition benefits from a strong support within the German society. But given the nature of the transformation, there will necessarily be winners and losers.

36 Agora Energiewende Rosenstraße Berlin T +49 (0) F +49 (0) Thank you for your attention! Questions or Comments? Feel free to contact me: dimitri.pescia@agora-energiewende.de Agora Energiewende is a joint initiative of the Mercator Foundation and the European Climate Foundation.

37 More information and studies available at our website 37

38 Back-up

2010-2014: Renewables offset nuclear decrease, switch from gas to coal (weak EU Emissions Trading Scheme!

39 : Renewables offset nuclear decrease, switch from gas to coal (weak EU Emissions Trading Scheme!), consumption reduction and net export increase Production and consumption changes in TWh AG Energiebilanzen 2014, own calculations Rotterdam, 12 June 2015 Christian Redl 39

40 Implementing a coherent efficiency strategy to consolidate declining trend in power demand Gross electricity consumption in TWh - 10% AG Energiebilanzen (2014) 40

41 Germany decoupled economic growth from energy consumption but there is still work to do to reach the 2020 efficiency targets Energy productivity and consumption and economic growth (Index, 1990=100) AG Energiebilanzen (2014), BMWi (2014) 41

42 The Energiewende does not seem to harm Germany s economic competitiveness Export surplus in Bln. EUR X Destatis Den Haag, 18 June 2015 Markus Steigenberger, Christian Redl 42

43 with average household expenditures on electricity having varied between 1.6% and 2.4% in the past 20 years. Share of electricity in average household spending Destatis (2014) Den Haag, 18 June 2015 Markus Steigenberger, Christian Redl 43

44 Because of lower consumption, annual power bills of households in Germany are still in the same region as in other OECD countries. Average household electricity bills in EUR/year World Energy Council, EIA, Eurostat, Energy Intenlligence, New Energy, own calculations Den Haag, 18 June 2015 Markus Steigenberger, Christian Redl 44

Insights from Germany s Energiewende

Insights from Germany s Energiewende State of affairs, trends and challenges Christian Redl BUDAPEST, 3 NOVEMBER 2016 Agora Energiewende Who are we Independent think tank with more than 20 energy policy