Friday, 7 March 2014

The German energy transition: Fast forward or back to square one?

By Wilfried Lütkenhorst and Anna Pegels
The US baseball hero Yogi Berra once famously said in an interview “When you come to a fork in the road, take it!” No doubt, the German energy transition has come to a fork. It has reached a critical stage in its evolution. Where will it go?

The German energy transition is one of the most fascinating real world experiments of ‘green industrial policy’. Its unique aim is no less than seeking to ensure a sustainable future for a mature industrial society without using nuclear energy. Clear political objectives put a premium on climate change mitigation, a nuclear phase-out and the massive expansion of renewable energy. The strategy has received strong social backing to date. Innovative and competitive industries are exporting German energy technologies to expanding global markets, providing a prime example of the new industrial revolution towards climate-friendly economic development that many are calling for. We seem to be witnessing a success story unfolding, a story of a visionary national ‘project’ propelled by forward-looking policy interventions.

However, vested interests – above all the fossil empire with its huge ‘stranded assets’ - are striking back with a vengeance. A cool head is needed now more than ever unless we want to end up throwing out the baby with the bathwater.

A new study by GDI: costs and benefits

A new study funded by IISD and conducted by Anna Pegels and myself from the German Development Institute/Deutsches Institut für Entwicklungspolitik (GDI), analyses a key area of the energy transition – the costs and benefits of scaling up solar power and wind energy. Without doubt, the cost of promoting these technologies is significant. This should be no surprise, given that we are dealing with a political commitment to provide kick-off funding for new technological pathways. The results are impressive too. Renewable energies accounted for around 24% of the electricity produced in Germany in 2013, with well over half of this amount generated by wind energy and solar power alone.

At the same time, a total of 206,000 jobs were created (2012) in the wind energy and solar power sector, most of them highly skilled, and the industry prevented over 56 million tons of CO2 emissions that would otherwise have damaged the atmosphere. Furthermore, competitive global players have emerged – above all in the wind energy sector - and the environmental balance sheet is highly favourable: wind energy and solar power incur greenhouse-gas and pollution costs of between 0.3 and 1.2 €ct/kWh, while the figure for black and brown coal is between 9 and 11 €ct/kWh.


A distorted debate

Credit: Green Growth Knowledge platform
The debate is currently dominated by two phenomena generating a backlash. The first is the severe crisis in the German solar industry. The market, politically designed with guaranteed feed-in tariffs, is increasingly being conquered by overseas producers, primarily from China. German producers are hit by a wave of insolvencies, jobs are lost and technological leadership is fading. While the main reasons are still vigorously debated, the lack of innovation and the simple continuation of production processes that by now are mature, surely play an important role. At the same time, the healthy state of the wind energy industry is often completely overlooked.

The second phenomenon sees the assessment of the energy transition at risk of being reduced to an (increasingly distorted) analysis of electricity prices. As a transparent element of energy bills, the electricity surcharge is an easy political target – whereas the enormous subsidies that are still being pumped into fossil fuels remain largely opaque.

Germany cannot go it alone

Germany's pioneering role in bringing about climate-friendly growth in an industrial society is the subject of immense global interest. Depending on where observers stand in the political spectrum of climate interests, they want the energy transition to either become a resounding success or to fail miserably. There is much at stake for all concerned. The limitations of a go-it-alone approach by Germany are also becoming increasingly apparent. The close interlinkage with the European emissions trading scheme calls for greater coherence and alignment between regional and national policies. Scaling up renewable energy generation against a backdrop of falling prices for carbon certificates is bound to fail.

Calculated risks are unavoidable

Clearly, key challenges remain unresolved. These include grid expansion and integration, the development of large-scale energy storage capacities as well as the excessive incentives for solar power, which failed to anticipate the precipitation in the price of PV modules. At the same time, the fact that solar power capacity per capita in Germany is currently three times higher than the EU average should give cause for reflection.

However, an industrial and energy policy geared towards sustainability and societal transformation must accept a certain degree of calculated risk and even setback while not losing sight of its long-term objectives. The costs of the energy transition can be immediately accounted for. The same is not true for the long-term benefits of being in the vanguard of establishing a sustainable energy system.

This is a guest blog from our collaborators at the German Development Institute/Deutsches Institut für Entwicklungspolitik (GDI). A previous version appeared on the blog of the Green Growth Knowledge Platform on 26 February 2014. Wilfried Lütkenhorst is an Associate Fellow and Anna Pegels is a Senior Researcher at GDI.


Anonymous said...

Germany produced 20.50% power from new reneables in 2013

reneable in power Germany, not 24%

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