Germany's energy transition will face the challenges from the upcoming federal election in 2017, since the results of election would directly affect the future direction of the German energy transition. Current German political parties have different attitudes toward energy policy, meaning that Germany, the country has practiced national energy transition strategies for many years, is facing uncertainties regarding where the future energy policy need to go.

This blog post will review the decision-making process of German energy transition policy, which will help the audience understand the background of current energy reform debate in the German federal election.

Road to EEG 2.0: A Golden Era for Renewables Development

Germany has always attempted to build a renewable energy-based system since the 1990s. To achieve this target, the main framework is the ‘Renewable Energy Resources Act’ (Erneuerbare-Energie-Gesetz, or EEG), which aims to increase the adoption of renewable energy in its power mix. Since 2000, despite its achievements, EEG has experienced various challenges[1] and adjustments. The latest major changes to EEG just took effect in the beginning of 2017. The new version, which is called EEG 2.0[2], is expected to solve current major issues[3]. To get a holistic view of the EEG, this article will review the policy processes of EEG and further analyze the working model of EEG 2.0.

The EEG mainly introduced a new system of financial aid for renewable energy sources, namely a fixed feed-in tariff for renewables[4], which has become the model for legislation in 97 countries worldwide[5]. Since 2000, the EEG has undergone 5 major amendments till the EEG 2017, with increased renewables targets. The goal in the EEG 2000 was to double the share of renewable energy sources in total energy consumption by 2010[6], while the EEG 2017 aims to make the renewables occupy 40-45% of the total electricity consumption by 2025, 55-60% by 2035; minimum 80% by 2050.

There are several important factors boosting the development of the EEG. First, due to technology development, the annual feed-in tariff has decreased. Second, German’s ambitions in climate goals inevitably require the increasing share of renewables to be in parallel with the climate target. Third, German governments have very strong political wills on EEG, which could not be easily impeded by large energy corporations[7]. Last, through the lobby of the electricity-intensive industries, more price privileges for large industrial electricity consumers have been introduced since the EEG 2004.

On the other side, EEG 1.0 has faced several major challenges. To begin with, due to geographical diversities, the wind power development in Germany is imbalanced. Wind industries developed much better in the north and east than the south. Second, the costs for renewable remuneration, especially the inefficient PV subsidization, has caused repeated impacts on households’ budgets. For instance, from 2010 to 2015, PV had accounted for nearly a third of the total cost for renewables funding, while supplying only around 10% of renewable electricity production in 2010, and close to 20% in 2015 (Figure 1) [8]. Thirdly, the use of bioenergy under EEG tends to be unsustainable and inefficient, which has caused issues such as overuse of arable land, food crops as feedstock, monocultural cultivation of corn for biogas, problematic imports of biomass feedstocks from rainforest areas and more.

Figure 1: Percentage of renewable energy in net electricity consumption for Germany 2005-2015

Source: Recent Facts about Photovoltaics in Germany, Fraunhofer ISE.

EEG 2.0: How to Achieve a More Cost-efficient and Flexible Renewable Energy System?

It seems to be positive that the expenditure on EEG surcharge may be reduced. According to Agora Energiewende and Oeko-Institut, the average feed-in tariffs for new renewable energy installations are expected to decline as the technology costs continue to decrease (Figure 2). Also, the newly introduced auction-based system will increase the competition among bidders and also will contribute to the overall cost reduction^[9].

Figure 2: Costs for funding renewable energy (2010–2035)

Source: Energiewende: What do the new laws mean? Agora Energiewende

To increase the flexibility of renewable power sales, direct power marketing was introduced, acting as an incentive to buffer the risks in direct power marketing. The market premium will help to offset the price difference between the EEG remuneration and the market price. For decentralized power, EEG 2017 also encourages the diversity of the renewables mix, such as citizen-owned renewable energy facilities.

However, there are still a handful of challenges awaiting the EEG 2.0 to address. Firstly, the EEG 2.0 might lead to Germany’s failure in meeting its climate target. To be specific, EEG 2.0 specifies technology-specific deployment corridors, mainly for solar PV and on shore wind, which puts limits on the new renewable energy installations. These corridors are deemed as insufficient to meet Germany's climate protection goal. Secondly, from the governmental perspective, the design of the auctioning system will favour the big players and limit he smaller players. For instance, the reduction of the bidding price in solar PV auctions by 40% after six rounds of pilot PV auctions from 9.17 ct/kWh in April 2015 to 5.38 ct/kWh in November 2016 will make the involvement of smaller players more difficult because they usually cannot provide competitive prices. Thirdly, there is also a fairness issue. Companies in the energy-intensive industries are exempted from paying the full EEG-surcharge. But these exemptions were paid by the non-privileged consumers such as non-energy-intensive consumers and ordinary households[10]. Forth, the political support for EEG faces uncertainties, with the rise of the far-right party Alternative for Germany (AfD), which is against Germany's clean energy policies.

References

[1]Understanding the Energiewende, Agora Energiewende. Link: https://www.agora-energiewende.de/fileadmin/Projekte/2015/Understanding_the_EW/Agora_Understanding_the_Energiewende.pdf.

[2]Overview Renewable Energy Sources Act, Link: http://www.germanenergyblog.de/?page_id=283.

[3]2014 Renewable Energy Sources Act: Plannable. Affordable. Efficient. Link: http://www.bmwi.de/EN/Topics/Energy/Renewable-Energy/2014-renewable-energy-sources-act.html.

[4]Renewable Energy Act. Link: https://www.iea.org/policiesandmeasures/pams/germany/name-21295-en.php.

[5]Renewables 2016 Global Status Report, REN21. Link: http://www.ren21.net/status-of-renewables/global-status-report/.

[6]Act on Granting Priority to Renewable Energy Sources (Renewable Energy Sources Act). Link: http://www.bmub.bund.de/fileadmin/bmu-import/files/pdfs/allgemein/application/pdf/res-act.pdf.

[7]What drives the Energiewende? Dissertation by Wolfgang Gründinger. Link: http://www.wolfgang-gruendinger.de/what-drives-the-energiewende/.

[8]Recent Facts about Photovoltaics in Germany, Fraunhofer ISE. Link: https://ise.fraunhofer.de/en/publications/veroeffentlichungen-pdf-dateien-en/studien-und-konzeptpapiere/recent-facts-about-photovoltaics-in-germany.pdf.

[9]Germany revamps renewables law as it adapts to future with green power, Clean Energy Wire. Link: https://www.cleanenergywire.org/dossiers/eeg-20-new-legal-framework-german-energy-transition-0#End.

[10]Defining features of the Renewable Energy Act (EEG), Clean Energy Wire. Link:https://www.cleanenergywire.org/factsheets/defining-features-renewable-energy-act-eeg.

Author :Lin Jiaqiao