GERMANY: A WORLD LEADER IN THE MIGRATION TO A GREEN
ECONOMY
The New Economic
Paradigm: Impressive Emissions Reductions and Economic Performance
When Prime Minister
Harper is challenged on his environmental record, one of his standard replies
is that between economic development and sustainable development, he must give
priority to the economy. While it suits
Harper's ideological agenda to imply that economic and environmental objectives
are opposing forces, the facts suggest otherwise. Indeed, as indicated in my previous Common
Sense Canadian articles, the clean technology sectors are among the world's
fastest growing and highest job creation sectors of our times. Unfortunately, each year of the Conservative
rule represents a rapidly expanding green jobs gap between Canada and its
competitors.
Among nation-specific
models that disprove the Harper economic paradigm to the effect that a natural
resources based economy is the best vehicle for prosperity, Germany is a case
in point. That is, Germany, while rising
to become one of the globe's strongest national economies, reduced its
emissions 25% below 1990 levels by 2012 thus exceeding its Kyoto Protocol
commitment to reduce its emissions by 21% below 1990 levels for the 2008 to
2012 period. This is an especially remarkable
achievement in light of the economic troubles in much of Europe and in the
world at-large.
Components of the German Success Story
This German success story
is a result of numerous factors, one might say a holistic approach.
One of the important pillars
of this success story is the 2001 German Renewable Energy Act, which introduced
the concept of a Feed-in-tariff (FIT) and right to connect (RTC) formula to the
world, a concept entailing 1) the paying of a technology-specific guaranteed premium
remuneration above market rates for renewable energy sources over a specified time
period, combined with 2) a requirement that all sources of renewable energy
production within a given utility's region must be connected to, and given
priority within, the network.
This concept makes
sense economically in that all new sources of energy cost more than existing sources
that were developed some time ago and may be fully paid for. Over time, the plan calls for a reduction of FIT
rates for new renewable power entries on the grid, thus providing incentives
for manufactures to invest in innovation to lower costs.
Testimony to the
success of the formula is the fact that the German model has since been emulated
by 19 of the 27 EU states and 40 jurisdictions around the globe, including
China. Up until recently, Ontario
offered such a system.
The success synergies
resulting from the aforementioned FIT/RTC model and the rapid take up of renewables
also comprise attractive terms of engagement for community and individual
ownership of renewable energy production.
To this effect, in 2013, 50% of the entire Germany production of
renewables is owned by individuals, communities and cooperatives with the
sources ranging from home roof top solar panels to wind power and biogas
production on agricultural land. With
regard to the latter point, farmers account for 11% of total German renewables
production.
http://www.ilsr.org/half-germanys-53000-megawatts-renewable-energy-locally-owned/
In effect, the individual
homeowner take-up has been so successful than a March 2013 survey showed that 60%
of homeowners are considering adding rooftop solar for heating or electricity
generation.
An equally significant
symptom of success, in May 2013, a €50m ($66.5M) program was introduced for
power-storage systems for owners of small and medium-sized PV solar installations
in order to kick-start the storage sector and take pressure off grids. This became necessary because grids are
increasingly struggling with rising amounts of home-made renewable energy
flooding the system at midday, creating an imbalance in supply and demand and
having a distorting effect on the market.
As for the role of the
utilities in the clean energy high local ownership landscape, only 13.5% of the
nation's renewable power is produced by Germany's 4 major utilities and
regional and municipal utilities.
Few countries have
outdone Germany on this score other than Denmark where 83% of the renewable
power sources are owned by individuals and communities.
Perhaps the most
significant bottom line pointing to the success of the German holistic approach
is the job numbers, once more demonstrating that the Harper economic paradigm
is dated. In 2011, there were 372,000
working in the nation's clean energy sectors and the projections are such that
these numbers are expected to be in the 400,000 to 500,000 range by 2020.
Fukushima and Energiewende
(The Energy Transition): Accelerating the Migration to Renewables
A major acceleration
to the German migration to a green economy occurred by way of the German
response to the Fukushima melt down in 2011, -- the German Energiewende (the energy
transition) --which 1) saw 8 of its oldest nuclear power plants shut down
immediately after the disaster struck and 2) includes plans for the shutting
down of the remaining 9 plants by 2022.
Contributing to the assessment
of options to compensate for these shutdowns, a BEW study concluded that
onshore wind could replace all nuclear plants with backup from other renewable
sources.
Accordingly, among
other things, the new Energiewende package comprised 1) an increase in the
Feed-in-Tariff (FIT) -- a price add on --
for offshore wind 2) a commitment from kfw, the state development bank,
for $7.2B of investments in offshore wind development and 3) a plan to cut
electricity consumption by 10% by 2020.
To be eligible for the
premium for offshore wind, originally Energiewende projects were to be
completed by 2017, but given delays in the construction of the underwater
offshore TenneT cable and 30 year project lifecycles, the offshore wind industry's
lobbying efforts were rewarded by the newly re-elected Merkel-led government with
a November 2013 decision to extend the completion date requirement to the end
of 2019.
On longer term Energiewende
objectives, the 2050 goal is ambitious, calling for a reduction of emissions by
80% with 80% of its electricity derived from renewable sources by then. Not bad considering that only 23% of the
nation's electricity was attributable to renewables in 2012. Interim renewable electricity targets are set
at 35% by 2020 and 50% by 2030.
With there being a
strong renewables lobby in the country -- unlike Canada where the fossil fuel
industry plays a dominant role among energy lobbies -- German renewables
industry is exercising its clout to suggest a 47% renewables target for 2020.
In this regard, the
results of the September 2013 German federal elections may in fact mean that
the interim goals could become more stringent because 1) at the time of the
writing of this article in November 2013, Merkel Christian Democrats (CDU) were
still in negotiations with the Social Democrats (SPD) regarding the formation
of a coalition government and 2) the SPD had campaigned for a 40-45% target for
renewable electricity sources by 2020 and 75% for 2030. The SPD campaign also
included a 25% target by 2020 for co-generation, the combining of heat and
power generation.
Whatever the final
outcome of the CDU-SPD negotiations, it is clear that the Energiewende will be
high on the political agenda because it was a component of the Merkel election
platform.
Notwithstanding the
impressive speed of the energy transition away from nuclear, for much of the
German public, the abandoning of nuclear power is not going fast enough. A March 2013 poll by Infratest Dimap showed that 57% of Germans believe
the shift away from nuclear is going too slowly while only 30% feel it’s
advancing too fast.
This same poll also illustrated
another big difference between the energy and climate change debates in Germany
versus Canada. The poll had 39% indicating
that environmental protection should be among the main criteria for political
decisions.
Lastly, consistent
with the Energiewende goals, Germany will be building 4400km of new
transmission lines by 2022, the year of the shutdown of all of the remaining
nuclear plants. This includes connecting
offshore wind resources in the North and Baltic Seas.
Clean Energy versus
Fossil Fuels for Electrical Power: The Economics
Contrary to
appearances, the premium rate for renewables does not involve subsidies as the
costs are passed on to consumers. As one
would expect, the German fossil fuel industry has complained that the surcharge
to consumers for renewables gives renewables an unfair competitive advantage in
the marketplace.
But a Greenpeace study
showed that the exact opposite is true.
Specifically while renewables received €17B ($22.7B) in aid via the
surcharge in 2012, the fossil and nuclear sectors actually represented a
staggering €40B ($54B) in hidden costs.
The hidden costs are composed of direct state aid and tax breaks as well
as external damage costs associated with climate change impacts and costs
resulting from nuclear accidents– all of which are borne by taxpayers. But --
unlike the renewables surcharge-- these costs don’t appear on electricity bills
and aren’t transparent. If these hidden
costs were slapped on electricity bills, consumers would be burdened with a
surcharge of €0.102/kWh (14₵/kWh).
Based on these
calculations, currently wind solar and hydro are the cheapest sources of
electricity supply. According to a Nov
2013 Fraunhofer ISE study, with innovation driving down production costs,
actual production costs for wind are now lower than coal and gas. Solar production costs are still higher than
fossil sources but the ratio is expected to favour solar by 2030.
More generally, the
impact of the German energy model on the German electricity energy mix has been
that of pushing of gas-fired plants out of the market, and the lowering of load
factors for both coal and gas-fired plants, expected to decline to 33% by 2015.
Taking into account
the popularity of the German model throughout Europe and the influence of the
European cap and trade scheme, The European Trading System (ETS)(cap and trade
system), E.ON, one of Germany's largest utilities, indicated it may close 11 GW
of fossil fuel capacity across Europe by 2015.
In July 2013, EnBW another German utility announced plans to mothball
668 MW of fossil fuel production involving 4 power facilities.
Germany; the European Cap
and Trade Experience; and Lessons for Canada
Germany's achievements
mean that Germany will one of the most, if not the most, important contributor
to achieving the EU-wide aggregated goal for a 20% reduction in GHG's by 2020. (Note, to achieve the EU goal, member states
have also taken on nation-specific targets related to national wealth for GHGs
not covered by the EU ETS such as the housing, agriculture, waste and transport
sectors, sectors representing 60% of total EU emissions.)
Particularly worthy of
attention with regard to the potential that Canada may adopt cap and trade
model at some future date concerns the ETS 1) being effective in putting EU
nations on track for meeting their respective Kyoto targets and 2) having more
recently become a less influential vector because of an excess of carbon
credits on the market that drove down the price of carbon. Indeed the price of carbon declined from
€13.09/tonne in 2010 to a new record low of €2.63/tonne in April 2013.
The European
Commission has recommended backloading 900 credits, that is temporarily
removing them from the market. In April
2013 the European Parliament narrowly voted against backloading but in a second
vote on the matter, in July 2013, the Parliament approved the measure. The measure now must be ratified by the
European Energy Ministers.
For Germany's part, the
backloading details will largely be a funtion of the outcome of the CDU and SPD
negotiations on a coalition government. The CDU wants backloading to be an
integral part of a long term plan, while the SPD wants a onetime one-of
solution.
Accordingly, the
lesson for Canada here is that any cap and trade system that Canada sets up
should include a mechanism for annual reviews of the supply and demand for
emission credits to ensure no oversupply occurs that can drive down the price
of credits.
As well, for select
sectors that may have difficulty in complying with Canada's cap and trade
scheme, a loan guarantee program,
maximum one-loan/firm, may be in order.
Had the uninquisitive journalist asked about the climate implications of all this gas, Mestrallet would doubtless have responded that burning gas creates fewer emissions than burning coal, which would have been true. But he would have omitted the worries about fugitive emissions of gas all the way from the well head to the home that cancel out the advantage of gas over coal. Big Energy bosses usually do. He would have dodged the issue of all the investment flowing to gas depressing the development of renewables. Big Energy bosses are good at that too.