Sun, wind and more
The energy sector has a key role in achieving climate objectives. As part of decarbonising energy supply, a number of countries and companies are preparing to take a step back from coal. For example, Finland has announced that it will prohibit the use of coal in generating energy from 2029. Members of eurelectric, the European umbrella association for the electricity industry, intend to no longer build coal power plants from as soon as 2020. This has been recommended by the association’s Board of Directors.
Video: Do we need to worry about the 'dark doldrums'? Dr Christoph Fischer, head of Global Structured & Trade Finance at BayernLB, on the opportunities and limits of renewable energies.
Closing gaps with renewable energies
Many countries are faced with the challenge of closing the gaps created by the elimination of coal. After the nuclear phaseout, Germany, for its part, is relying primarily on renewable energies:
- German energy generation of “green electricity” should grow from a third today to two thirds by 2030.
- By 2050, the share of “green electricity” in the gross energy consumption should increase to 60%.
The conversion of energy generation in Germany will be mainly driven by the “Renewable Energy Sources Act” (EEG), which favours “green electricity” over electricity generated using conventional means. For sustainable heat generation, there are special support programmes for expanding district heating and simultaneously generating electricity and heat (integrated energy).
Energy “trilemma” – magic triangle of energy supply
The major challenge in converting the energy supply is keeping in mind three reference points that form a target triangle:
- Environmental sustainability
- Supply security
- Competitive electricity prices
In Section 1 of the EEG, the three points of the triangle are stated as the goals of the German federal government’s energy policy.
1. Energy prices – ensuring Germany’s competitiveness
Renewable energies will become more affordable than fossil fuels over the next ten years. The “Renewables Global Futures Report 2017” study came to this conclusion with regard to energy prices. It is especially with offshore wind projects that grid parity – the point at which renewable and conventional energy costs the same amount to produce – can be achieved as soon as the near future. This is hugely significant because offshore wind farms are generally considered to be a base load electric power, meaning that they can provide energy for long periods without interruption.
2. Supply security – concerns about the dark doldrums?
By dark doldrums is meant a situation in which simultaneous occurrence of darkness and lack of winds mean that solar and wind energy sources can produce barely any energy at that time. Sometimes, the share of renewables in the energy mix falls from an average of 35% to below 10%. This is typically the case in the winter months and guarantees concerns that an excessively reduced power plant park of conventional and nuclear power plants cannot produce sufficient balancing energy.
However, figures from the German Federal Network Agency show that Germany also produced surpluses during a dark doldrums in the past and continued to be a net exporter of electricity to neighbouring countries. In addition, the average supply disruption per connected end consumer in 2016 was almost 13 minutes and was therefore lower than the average for the last 10 years.
Extensive investments required
The fundamental conversion to a sustainable energy supply requires a lot of investments. The total costs of the energy transformation accrued until 2015 are around €150 billion, according to calculations by the Düsseldorf Institute for Competition Economics (DICE). At 83%, promoting renewable energies through the EEG accounts for the majority of the costs.
Further costs of approximately €370 billion are estimated by 2025.
- The EEG surcharge continues to produce the largest cost item with €283 billion. The high level of expansion for new green electricity plants means the annual EEG subsidies will peak at €30 billion in 2023.
- Indirect costs of around €87 billion can also be added to the direct production costs. In addition to grid expansion costs (around €56 billion), by 2025, production costs for combined heat and power (around €18 billion), as well as grid stabilisation costs and costs for unscheduled depreciation of conventional power plants (a total of around €14 billion) will have been estimated.
Strengthening European emissions trading could reduce the costs of the energy transformation
Abolishing the EEG sponsorship for new plants and focussing on rapid strengthening of the European emissions trading system (EU ETS) would advance a reform to low-CO2 energy production. Higher prices for CO2 production would function as a market mechanism. Therefore, operators of renewable energy plants are clearly more interested in demand and price-optimised electricity sales, as well as the demand for electricity storage systems.
Provided that it succeeds in expanding the grid infrastructure more quickly, the existing renewable energy plant can be used considerably more efficiently than it has to date:
- The necessary addition of new renewable energy plants is reduced
- The costs for grid stabilisation fall
- The forecast costs of the energy transformation fall