BNEF grossly overstates cost of renewables in Germany
A recent article published this month at Bloomberg New Energy Finance (BNEF) makes predictions for energy markets this year, at the same time "celebrating what we got right and owning up to what we got wrong" in last year's predictions. One egregious error in this year's predictions is easy to clear up.
BNEF's CEO Michael Liebreich published his 10 predictions for the energy sector in 2013 – quite a daunting task, and one that is, to be fair, likely to prove wrong in a number of respects. After all, who can see the future 10 times out of 10?
But of course, the key to seeing the future is understanding the present. Liebreich seems to get practically everything right, and his predictions are generally easy to support, though BNEF continues to see renewables from the viewpoint of large investors and the conventional energy sector. They thereby fail to comment on the one-time opportunity that a shift to distributed power production owned by citizens and communities represents – and on the challenge that potential poses for the conventional energy sector's business models to date.
For instance, Liebreich writes, "Germany has made some progress towards addressing the grid connection problems that stymied offshore wind" without pointing out that there is no consensus in the German public, much less within the German wind sector, that we need all that offshore wind. A lot of Germans want less expensive onshore wind that they can own themselves.
Not surprisingly, where Liebreich get something wrong, he reveals a bias towards big business:
The main preoccupation on the continent will be to stabilise the financial situation of the utility sector – with the big German utilities undermined by large volumes of renewable energy, and EDF still struggling to shore up the position of nuclear in Europe’s energy mix. Germany will spend the year convulsed in discussions of the “Energiewende”, or Energy Transition. Wildly popular until people realise that over half of their energy bills are driven by the cost of renewable energy feed-in tariffs and the associated grid upgrades.
Indeed, it would be amazing for people to realize that renewables and grid upgrades make up half of their energy bills. Let's start with the simple fact that there is a difference between energy and electricity. Although I do not expect every journalist to understand the difference (it's probably one of the most common things confused in mainstream journalism), I do expect the CEO of BNEF to get that right. It turns out that the price of electricity, where the effects of renewable power are mainly felt, has risen slower than prices for heating oil, gasoline, and natural gas – which, by definition, have little to do with the cost of renewable energy (see screenshot), as Renewables International previously discussed.
But even then, more than half of the renewables surcharge has to do with the way the surcharge is calculated, not with the cost of renewables. For more information, see these reports from last October and the second chart on the left.
The claim that "grid upgrades" to accommodate a greater share of renewable power is harder to quantify. This chart in German over at Wikipedia shows the composition of retail power prices in Germany since 1998. The green sliver is the renewables surcharge, but "grid upgrades" are not a clear item, being instead put under the orange part at the bottom ("transport") – and even then, general grid costs cannot be separated from what was specifically spent on expanding the grid solely for renewables.
So let's take a look at another chart (PDF and to the right), which shows grid fees broken down by retail customers (left), commercial customers (middle), and industry customers (right). In the first two cases, grid fees have actually decreased considerably, whereas they have remained at a stable (and quite low) level for industry customers – an outcome that is not surprising anyway, because the overall volume of investments in the grid has actually remained stable at around two billion euros in recent years.
Indeed, Germany has managed to increase its share of renewable electricity from six percent to around 22 percent without having to upgrade its grid much – because so much of this generation capacity is distributed across the country. It is central plants that require grid expansion. No one doubts that Germany will have to start changing its grid if we are to move up to 50 percent renewables by 2030 as planned, but these upgrades need to be seen in context – it's not more than what would be needed for coal or nuclear to double their share of power supply.
Overall, Germans understand that what counts is not what share of the retail rate consists of renewables, but whether the retail rate rises unnecessarily quickly – and whether the profits go to large corporations or back to citizens who have invested in renewables. Denmark seems to be doing just fine with the highest retail power rates in Europe and a 40 percent share of renewable electricity; the Danes are some of the richest people in Europe, far ahead of the UK and Germany. And if I look at the red line on this chart representing the "Big 6 Average Retail Price" for the UK, it seems that retail electricity is anything but stable in countries that are shifting to renewables much more slowly than Germany and Denmark. (Craig Morris)