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Sea change to Germany's energy transition

Dave KeatingJuly 14, 2016

Germany's controversial reform of its renewable energy law was designed to better match up to the systems of other European countries. But how will it play out for development of renewables, in Germany and across Europe?

Demonstration gegen Energiereform in Berlin
Image: picture-alliance/nurPhoto/M. Heine

Ask any German what they think about the Energiewende, a decades-long program to shift power generation to renewable sources, and they will likely beam with pride.

The Energiewende has succeeded in massively scaling up the country's share of renewable power, from just 6 percent in 2000 to more than a third today.

This has made Germany a world leader in the field. The German government foresees the proportion of renewables to increase, to 45 percent by 2025 - and by mid-century, Germany aims to source 80 percent of its power from renewables.

Energy mix in Germany 2015

The scheme has worked by paying an inflated price, fixed for 20 years, to people and companies who generate renewable energy and feed it into the power grid. These "feed-in tariffs" have spurred a considerable growth in both large- and small-scale wind, solar and biomass installations.

Opinion polls put support of the Energiewende at around 90 percent among the German public. Yet despite this, last month the German parliament approved a root-and-branch reform of the program, which fundamentally changes how it works.

Instead of automatically receiving subsidies, renewable energy installations will now have to compete on the open market. Energy providers will have to bid for subsidies through an auction-based system. In addition, there will now be caps on the amount of green power eligible for subsidies.

The German Green Party is furious about the changes, with party leader Simone Peter calling it a "knock-out punch" to Germany's energy transition. The German media reaction has been equally scathing, and Berlin has been rocked by protests against the reform. Germany's renewable energy association BEE said the changes could result in a 10 percent cut in future renewable energy capacity.

So if the Energiewende was so popular, why did the German government decide to change it? The answer has its roots in a decree from the European Union.

German Vice-Chancellor Sigmar Gabriel holding a booklet of agreed-upon renewable energy law reforms (Photo: picture-alliance/dpa/K. Nietfeld)
Vice-Chancellor Sigmar Gabriel trumpeted the reform, although critics think it could reverse the EnergiewendeImage: picture-alliance/dpa/K. Nietfeld

Complaints from neighbors

Although Germans accepted and in time came to appreciate the subsidy system, it was significantly less popular with neighbors - particularly Poland, the Czech Republic and the Netherlands.

The European Union has a connected energy market, and they said German-subsidized renewable power was flooding their electricity grids and wreaking havoc.

"There was increasing concern and anxiety from our electricity neighbors about the effect outside of Germany," says Matthias Buck, an analyst with the Berlin-based energy think tank Agora Energiewende. "So they went to Brussels to complain about it. They said, 'Germany didn't consult us before they did this.'"

Frustration with Germany's unilateral approach to its enormously important power market at the heart of Europe boiled over in 2011 when, after the Fukushima disaster in Japan, Angela Merkel, backed by broad public support, made an abrupt u-turn on atomic energy, and decided to rapidly phase-out nuclear power in Germany.

The European Commission, the executive branch of the EU, was sympathetic to complaints from Germany's smaller neighbors. Although the EU does not have authority over national energy market choices, it does have authority over state aid used by EU countries to benefit their own industries.

And so in 2014, the commission came out with a new set of rules for state aid to the energy sector.

Wind turbines in a sea of yellow rapeseed flowers (Photo: picture-alliance/dpa/S. Sauer)
The Energiewende resulted in a large increase in renewable energy installations across Germany since the late 90sImage: picture-alliance/dpa/S. Sauer

No more free ride

From 2017 on, aid for renewable energy can no longer used for fixed-rate feed-in tariffs. They must instead use market-responsive auctioning, known as "feed-in premiums." This means the end of automatic support for renewables.

Germany wasn't the only country in the cross-hairs of this new rule - it applies to all 28 EU member states. The Spanish government had also caused frustration with its sudden policy lurches on feed-in subsidies, which was causing electricity market disruptions.

The commission isn't only concerned about the negative economic impacts on neighboring countries caused by unilateral energy decisions. Its regulatory efforts are trying to create a more harmonized energy policy in the bloc through the so-called the Energy Union, designed to stop energy waste and make the EU more energy independent.

German over-correction

Since the commission guidance from 2014, EU countries have changed their national renewable subsidy regimes. And Germany is among them - but some say Germany over-corrected.

Rooftop PV installation in Germany (Photo: DW/Gero Rueter)
The feed-in tariff provided a massive push for buildout of rooftop solar in GermanyImage: DW/G.Rueter

Dörte Fouquet, director of the Brussels-based European Renewable Energy Federation, says the German adjustments were not all legally required by the EU, and have gone much further than was asked.

For instance, the German government has chosen to exempt installations with capacity under 750 kilowatts for solar, even though this threshold could have been set higher, at 1 megawatt, under the EU rules.

The German government says its threshold will exempt 20 percent of the country's renewable installations from the new auctioning rules. But Fouquet says that this inflexible focus on making renewables subject to the market will decimate the industry, and jeopardize Germany's ability to meet its climate and energy targets for 2020 and 2030.

"Germany is losing momentum, it is losing leadership," she says. "Last year's monitoring of progress toward emissions reduction targets showed its going to be tight for Germany to meet its goals."

From leader to follower?

Dolf Gielen, director for innovation and technology at the Abu Dhabi-based international energy think tank Irena, disagrees. "The reform clearly puts Germany in line with a general global trend that we see going from feed-in tariffs to auctioning systems," he told DW. "In that sense, Germany is more a follower than a leader now."

Gielen says that while fixed feed-in tariffs have been very successful in increasing deployment of renewables, they have not been successful in controlling costs. Germany's Fraunhofer Institute has projected the total cost of the Energiewende to be around 1.1 trillion euros.

Berliners demonstrate agains the energy law reform in Berlin (Photo: picture-alliance/nurPhoto/M. Heine)
Protestors believe the reforms will decimate the renewable energy sector in GermanyImage: picture-alliance/nurPhoto/M. Heine

The argument is that a glut in renewable power due to excess production has caused hardship for industry and uncertainty for energy providers.

"Overall, renewables development is more predictable with this new system," says Gielen. "Germany can control how many gigawatts are being added, which will help it in planning the remainder of the power supply."

Buck says that the change should give more certainty to the European power market as a whole. He also says that moving renewables into a market-based system will end the perception that they are getting an unfair deal.

"There's a lot of rhetoric against renewables distorting power markets, reducing the income of other power generators, being too costly, and not playing by market rules," he says. "In my mind, moving to a competitive system will do away with this notion that renewables are too costly."

"Because now, we will have a market that is helping us to find the best price."