In an interview with RenewEconomy in Abu Dhabi last week, special minister of state Rainer Baake said the task now for Germany was to focus on integration, “digitising” the electricity grid, and on storage, efficiency, and other energy uses such as transport and building and industrial heat.
“So far nobody else has supplied the industrial economy with secure and price-effective electricity from solar panels and wind turbines. I am confident we can succeed and that we will have a superior energy system.”
Germany created its renewable energy support scheme in 2000, and Baake says the purpose has been about testing technologies. And it is clear which technologies are the winners.
Hydro had risen incrementally from 4 per cent to 4.1 per cent, and showed no possibility of further increase; geothermal did not work; and while biomass worked, its expansion has other environmental and food production issues.
“So there are two clear winners, and they are wind and solar,” Baake said. “We have learned how to produce electricity with wind and large-scale solar at the same cost level as new coal or gas generators.
“The question about the Energiewende is not a question about technology anymore. We have them.
“It is not a question about costs, because these new technologies produce at same costs as the last ones (technologies). And, I should point out, they are much cheaper than nuclear.
“The question now is whether we will be able to reinvent the power system so it can operate efficiently at reasonable cost and security with growing penetration of wind and solar.
“We want this Energiewende to be economically efficient – not just an ecological success story, also an economic success story.
“If it is not an economic success story, then nobody will follow us and we will lose support in Germany.”
There is no doubt that the Energiewende has had its critics. Most, unsurprisingly, are associated with the fossil fuel and nuclear industries who have so much to lose if Germany succeeds. And most of this criticism, as Craig Morris has so patiently documented on the Energy Transition and Renewable International web-sites, does not stand up to scrutiny.
Otherwise, Baake says the Energiewende still enjoys strong political and public support.
“There is a strong national consensus. There is not one party in parliament that opposes the goals of the Energiewende. Of course we have debates over how to do that. But that is healthy, because there are always alternatives.
“Yes, some people in business community and media and say the old world with nuclear and lignite (brown coal generators) was much nicer. But that is our democracy.
“We know that the public wants the Energiewende. Recent polling shows 87 per cent want their electricity to from solar, and 78 per cent want their electricity to be from wind. 8 per cent want their electricity from nuclear.
“That is very clear. I personally believe that the process is irreversible. But there is a lot of potential to make mistakes. That is why we need careful political decision making and deciding on the smartest options.”
Baake’s own decisions have also come under scrutiny, particularly his push to replace the feed-in tariff regime which had been the basis of the Energiewende since 2000, with reverse auctions.
Baake argues this will help reduce costs and ensure the cheaper prices. Others are not convinced, and are concerned that the auction mechanism will make it difficult, if not impossible, for small and community-based projects to compete.
Baake seems unfazed by these criticisms. His focus is on digitisation and on new market mechanisms to ensure that the variable output from wind and solar can be incorporated into the grid and underpin a major industrial economy
Digitisation is critical for the communication and software that will drive the integration of renewable energy, storage and the emergence of new business models – only about 10 per cent of which have become clear.
The German government is looking to define a legal framework and industry standards for digitisation, and to address “public sensitivities” around the issue of data security.
“The roll-out of smart meters has failed in some countries because it wasn’t properly addressed. We will have highest standard that I know.”
These standards will enable focus on storage, interconnection, aggregation and trading.
“Once we have these new standards, there will be many new business opportunities,” Baake said. “Right now we might only see 10 per cent of the business models that will gain from that. I am confident that will be game changer for the future.”
Another focus is on flexibility, and designed a market structure that rewards scarcity. Baake is not in favour of price caps on the wholesale market, nor is he in favour of so-called “capacity” mechanisms.
“You have to reward flexibility. If someone has capacity needed only few times in the year, we have to be able to cash in on that scarcity. We have to remove price caps.
“And we decided against capacity market. The theory behind capacity markets is wrong. The assumption is there is market failure, that only kilowatt-hours are traded rather than kilowatts. But when you take a closer look, they asking for subsidies.
“If I deliver electricity to you it is in a contract in kilowatt-hours (kWh). I can only deliver that if I have the capacity (and flexibility) to produce it. The only one (market failure) we found was lack of price caps.
This approach is being taken on to the European market, where the EU singed a common paper last June that agreed for no intervention in the market even in times of scarcity.
Scarcity is not something that Baake expects to see in fossil fuels. The implied carbon budget from the recent Paris climate change agreement means that nearly all fossil fuel reserves will have to be left in the ground.
“We won’t see peak oil, we will see very cheap fossil fuels. So we need an exit strategy (from brown coal) otherwise the good intentions from Paris are not going to work.
“My own country has got to discuss the exit from lignite, while other countries have got to look at oil or hard coal resources.” Australia might be included in the latter.
Baake says it is increasingly clear that big business is getting on board. The country’s two biggest utilities, RWE and E.ON, have chosen to split their businesses, and separate the “old energy world” from the new one.
That may have been driven by a desire to duck looming bills to finish the nuclear age – primarily the high cost of dealing with waste and other issues, but Bakke says the government has put a stop to that.
“The business community has understood that new business models have emerged and you have to be in it. There is no going back.”