The cost of electricity from renewable energy is now comparable to that from fossil fuels, says energy expert Frank Peter. As a result, coal and gas power stations in Germany are losing economic viability.
DW: Mr Peter, you compare power station technologies and calculate their electricity costs. What were the findings of your recently published study of Germany?
Frank Peter: There are regional differences. Wind energy in the north of Germany is the cheapest technique for producing electricity, costing less than six euro cents per kilowatt hour in the long term. For each of the technologies the review period is always 40 years. In the same region, electricity from a new coal-fired power station costs over eight euro cents, and from a very efficient gas turbine power station and a large solar power station just over nine euro cents per kilowatt hour.
In the south of Germany there are different environmental conditions - more sun, but less wind. Electricity from large solar farms is a lot cheaper there, costing around 7.5 euro cents per kilowatt hour in the long term, while wind energy is more expensive, costing on average nine euro cents per kilowatt hour. It's fair to say that looking at the situation today, energy from renewable technologies costs a similar amount to traditional, conventional technologies.
What does this mean for Germany's energy industry?
Energy from the wind and the sun is weather dependent. That is a shortcoming. The reserves cannot be controlled. Production and consumption have to be regulated accordingly. We need to solve this major challenge. The energy transition must be developed further around this issue.
The biggest energy companies in Germany profit through old technologies, coal and gas. How are they reacting to this study?
For the managers of conventional power stations, the study is nothing new. For energy companies, the competition for renewable energies is not the problem, it's the fact that the economic viability of conventional power stations is decreasing.
At the moment the market system is not yet established for development. There are huge amounts of wind and solar powered energy that fluctuate depending on the weather, but when there isn't enough sun or wind, a backup system is needed. A transformation process lies ahead. We need a suitable market design for the new conditions. In the future, gas power stations, partly also coal power stations, need to be able to be operated economically within this system. This is one of the main challenges that the German government needs to focus on.
You say the economic viability of conventional power stations is decreasing. Will we therefore see a stop to the planning and building of new coal and gas power stations?
Yes, that's right. Look at numerous plans for gas or coal power stations in the last few years: many of them have been delayed indefinitely. The current concern for conventional power stations is also making sure that the number of existing plants decommissioned due to decreasing economic viability is not disproportional.
Are coal and gas power stations still being planned in other EU countries?
Apart from niche projects or in connection with combined heat and power, I am not aware of any coal or gas power stations being planned or built in central Europe at the moment. Currently the trend in Europe is clear; this is not only a German phenomenon. It's also in other European countries, also in southern Europe, that you don't see investment in conventional technologies.
In southern Europe solar energy is much cheaper. Is it worth transporting this to central Europe?
In the south of Italy, southern Spain and Greece there is far more sun - the costs for solar energy in the long term are between five and six euro cents per kilowatt hour. However, transporting this energy to Germany would cost at least 2.5 to three euro cents on top of this. Transporting solar energy from southern Europe to central Europe therefore has no financial advantage compared to solar energy from power stations in central Europe.
DESERTEC is a global initiative based on the concept of exporting solar and wind energy from southern Europe and North Africa to central Europe. Is this kind of concept a thing of the past?
As costs for renewable technologies drop dramatically, long distance energy transportation makes less and less sense. However, it does make sense to connect the production of renewable energy over a large area. Conventional power stations can serve as a model for this. In this way, there is a higher probability that some kind of renewable source can produce energy at any given moment. The argument for a network connection is no longer to do with costs, but the fact that more renewable energy can be used.
The development of renewable energies is working in Germany. Will it work similarly in other countries?
No. That's a bit of a problem. We see this in Greece, for example. They have higher costs for planning, permission and power supply in comparison to Germany. Germany also has very cheap credit for financing renewable technologies. In southern Europe the interest rates are a lot higher.
In Germany, the Renewable Energy Act has enabled the boom in new technologies. Do we still need this law?
[The Act] is crucial to maintain the rate of development. It gives the investors security. Other models increase the risks for power station operators. This leads to increased risk premiums and makes the technology more expensive. For this reason, we should retain the foundations of the Renewable Energy Act and make only small adjustments.
Frank Peter is an engineer and expert on energy market simulation and projection with the Prognos group, which advises policy makers throughout Europe on economic and political issues. The study on the development of energy production costs in Germany was published in October 2013.