"Power market design 2.0"
In an interview conducted by our German colleagues at the Husum Wind Energy tradeshow in September, Hermann Albers and Thorsten Herdan – the heads of German wind power association BWE and VDME Power Systems, respectively – provide two different perspectives on how German energy policy needs to be revised going forward. Although the conversation is a few months old, it still reflects the discussion in Germany. We provide this text as background reading for the holidays.
Renewables International: German Environmental Minister Peter Altmaier likes to talk about sustainability and calls wind power – both onshore and offshore – "indispensable pillars." He has also said that "we want to help renewables succeed worldwide." Are you happy with that?
Thorsten Herdan: That is certainly not all that needs to be said about the Energiewende. The first question is speed and the second whether individual energy sources should receive preferential treatment. Here, we have to keep in mind that we wanted to have a wide range of technologies. We wanted to have certain technologies because they offer benefits in the overall system. Offshore is one example. Admittedly, no industry has come about and none probably will offshore over the next 10 years – and there are still no cables. Nonetheless, there was a reason why we wanted this technology. We shouldn't call all that into question too quickly.
Renewables International: Mr. Albers, if I may paraphrase you, you have said that the sector should recognize a few positive things that Altmaier has said. That doesn't exactly sound like you are excited about his first six months in office!
Hermann Albers: We can also sign off on all of the Minister's quotations you mentioned. But it is also clear that actions speak louder than words. We are witnessing a shift from a debate about energy policy among experts to a general debate that is largely undifferentiated. And that's not going to help us reach our targets. We aim to help discuss what needs to be done professionally – and then take the steps needed. That's what needs to be done with the Renewable Energy Act (EEG), the Energy Management Act, and the expansion targets of individual German states. But over the past few weeks, the voices I have heard from the German government seemed to be indicating the opposite – we want less wind power, less renewables, and we want to slow down the Energiewende.
Renewables International: Nonetheless, you praised Altmaier at the opening press conference held at the Husum trade show in September for having "brought clarity to the debate" and said that the industry and politicians "aim to further develop the EEG." What do you like about what's happening?
Albers: In a situation where top governmental officials were calling for the EEG to be immediately done away with, Altmaier clearly stated that we need to make careful preparations for revisions to the EEG. He pointed out that there is a great responsibility for the sector itself, but also for our power supply. And he made it clear that knee-jerk reactions will not help anyone; indeed, they may harm our business environment. All of those statements are important right now. So we hope that a decision about a new EEG will be made in 2014. In the meantime, we will speak with the Environmental Minister about goals. One thing that I've noticed is that the government's previous minimum targets, which had some leeway to be overshot, especially for the grid expansion plan…
Renewables International: You are talking about the assumption in the plan that the grid would have to be expanded to accommodate 50 gigawatts of wind power built over the next 10 years, which would have put renewables far above the government's minimum target of 35 gigawatts in its original Energy Concept [since raised to 40]?
Albers: Yes, 50 gigawatts of wind power by 2022. I've noticed that the debate increasingly focuses on the lower end of scenarios and no longer covers the full scope. Yet, our industry has such fantastic opportunities. And every time that we work together to solve problems quickly, we keep ahead of the global competition. We shouldn't see this as a risk, but rather as an opportunity.
Renewables International: I think we can all agree on that. Mr. Herdan, if I read a recent interview published in your organization's magazine with Mr. Albers, you seem to agree with his call for careful, organized changes with your own call for seamlessness change that is not rushed. But when the new EEG surcharge is announced on October 15, won’t we really need much greater statements of unity?
Herdan: Without the EEG, we would not be where we are today. But we have also reached a point where we have to make it clear to the industry that we cannot continue with business as usual – we need to rethink things without doing away with the EEG altogether. The VDMA wants to look into how the system can be intelligently continued. Here, a number of things need to be tended to.
Renewables International: Don't you need to be more specific and start communicating your common ground to dispel the charges that the industry just wants high feed-in tariffs? Take the flexible capacity bonus you are talking about, Mr. Albers, and the capacity bonus without priority for renewables that you want, Mr. Herdan…
Herdan: I'm not talking about renewables not having a priority on the grid. I merely say that we have to start thinking about how our energy supply needs to be further developed so we can eventually have 100 percent renewables. Towards that end, a priority doesn't make sense. Such a set up will eventually take us nowhere. We have the same problem in the way power prices are determined. The price of power on the exchange will eventually drop to zero if it is based on variable costs. Inevitably. So we have to start thinking now about what changes are possible. In return, that certainly does not mean that we have to do away with the priority for renewables – or the entire EEG – tomorrow. Rather, we have to try to get other components into the game. Maybe we should start thinking about when power has a certain value. Do we need to pay the same feed-in tariffs in every location at every time of day?
Renewables International: You are talking about the power demand approach.
Herdan: The power demand approach is already in use. Take offshore. Offshore wind power has a different rate because it is generated in a different location. That is the logic of offshore. It is a source of energy that provides a large number of full-load hours, making it especially beneficial for our power supply. And we currently all pay more money for that service.
Renewables International: I assume this is where you disagree?
Albers: If that were the reason, then Schleswig-Holstein would have to receive higher feed-in tariffs than other German states. Incidentally, the taller onshore towers shown at this trade show will easily be able to achieve the same 4,000 to 5,000 full-load hours on land. They’re going to provide the same reliability. The reason why compensation for offshore is currently higher is that this startup technology is more demanding and the cost of installations is greater – even in terms of the additional power produced.
But your question about whether October 15 marks a turning point towards long-term political stability is excellent. I would be very thankful if Minister Altmaier would make sure that policy changes continued to be made calmly even after this date. And we should also commonly explain that the increase in the EEG surcharge is not greater than the price hikes in a lot of other energy markets over the past one or two years, whether we are talking about announcements of power price hikes, increases in natural gas prices, or the price of gasoline at the pump. And I expect the Minister to join forces with us in explaining that only half of the cost attributed to the EEG surcharge is the direct results of renewables. The other half stems from administrative decisions about how the calculation is made. The main factor is industry exemptions, which have been expanded from large firms whose consumption exceeds 10 gigawatt-hours a year to firms with only a single gigawatt-hour. As a representative of the wind sector, I also expect us to point out that wind power is the best way to make the Energiewende less expensive for consumers.
Renewables International: Altmaier says that the growth of renewables will have to be tailored to the grid "and vice versa." Wouldn't it help if the industry made good on its part of the deal – putting up turbines where the grid can take them – and in return, you could expect the Environmental Minister to expand the grid reliably in line with the growth of wind power?
Herdan: We have made a large number of proposals. But it would be fatal to talk about all of them via the press; after all, they will always be quite comprehensive and numerous. The public debate might then temporarily focus on individual aspects. But our energy supply is much more complex. Minister Altmaier is on the right path here when he frequently has his platforms dealt with in working groups. In addition to the power demand approach, we need to start thinking about how different energy sources fit together. The VDMA and BWE may not always be of the same opinion on these issues. Why don't come up with an EEG 2.0 that intelligently links, say, wind power and flexible conventional power plants so that they complement each other? The current EEG provides for biogas contracts with suppliers that may consume biomethane in cogeneration units hundreds of kilometers away from where the biogas is produced. And they receive feed-in tariffs in that contract. The same could be done for wind power. If someone builds a turbine, they could be required to sign a contract with someone who agrees to balance out that power production with storage, flexible power plants, or something else. But we cannot discuss these individual aspects publicly in isolation. That will just cause even more confusion because each individual aspect damages the system instead of meaningfully reforming it.
Renewables International: Mr. Albers, can you agree with that?
Albers: In principle, yes. We could indeed support some kind of stipulation of complementarity this in the next revision. In fact, we discussed such things the last time the law was amended…
Herdan: Exactly.
Albers: … to see whether we should put larger generators with greater outputs into our wind turbines or whether we should resort to larger rotor diameters and taller towers, but keep the generator size the same so that we increase full-load hours by 1,000 or 2,000 hours. If we do so, we can provide power to consumers 95 percent of the time.
Renewables International: But the industry is already doing so out of its own interests…
Albers: Yes, but not every producer in every respect. I still see a trend and an ambition to install larger generators. The latest industrial trends…
Renewables International: … turbines with large wings and an output of around two megawatts…
Albers: … is slowing down this tendency somewhat. But policies can help set the course by determining which tariffs consumers pay and producers get on the market. I think that directly connecting consumers and producers on site will reduce the load on the grid and should therefore be supported. After all, it costs us around a cent per kilowatt-hour to expand the grid, so some power producers are going to say, fine, I won't use the grid – I'll sell to someone nearby. Why shouldn't such producers not be compensated for not requiring the grid to be expanded?
Renewables International: Would the industry then have to combine this with a demand to have wind farm construction facilitated where this power is needed?
Albers: That is something that we both, I believe, have fought for over the past 10 years. For the time being, I am pleased that so many German states have set ambitious targets for themselves. But now, we have to make sure that these states are not discouraged by having their capacities denied. Instead, we need to structure the process and use the ambition and will of the states – and of the German public – to design the energy transition so it can progress as quickly as technically possible, rather than slowing it down. It is said that we have 40 years for the Energiewende, but we should not wait that long. We should instead show the rest of the world that German industry is ready to make the energy transition possible.
Renewables International: It sounds like you're saying that we simply need to rely on German industry to come up with the right solution, and politicians will simply have to adjust the EEG accordingly afterwards.
Herdan: That's definitely not what we're saying. Otherwise, we would not be talking about an EEG 2.0. We need an EEG, and it should still be called the EEG – simply for continuity's sake – but it will have to look completely different. Take Mr. Albers' example of larger rotors and smaller generators. The current EEG does not promote this trend because such turbines produce fewer kilowatt-hours than the opposite approach [larger generators, ed.]. And if the grid operator only has to pay for the kilowatt-hours produced, why should I make do with fewer of them if I can make more? The EEG should therefore be revised so that people think, okay, I need to make fewer kilowatt-hours so that I can help make the power supply more reliable. To do so, we need to revise compensation. But we cannot simply leave feed-in tariffs at the current level and simply add a bonus here and a bonus there.
Renewables International: Overall, it seems, Mr. Herdan, that you are more satisfied with the way Altmaier is leading the debate. Is it because the Environmental Minister, as a representative of the wind power sector, has helped you export to the rest of Europe?
Herdan: The Windtec Initiative you are referring to does not play any role for us in the debate about the EEG and power market design. At the end of the day, I am neither satisfied nor dissatisfied with what Minister Altmaier says. I think we simply need to go down this road now. Up to now, too much renewables has been installed per year, especially photovoltaics. The public is currently talking about costs, and we can continue to conduct the debate as it is. I agree with Mr. Albers that we can take a critical look at who caused these costs. But we also have to change the general framework – regardless of who's at fault. After all, the problem just gets passed on to power consumers – both industrial and household. I like Altmaier's approach of having to change things but doing so carefully. What I don't like are the insinuations along the lines of "we have to get rid of the EEG."
Renewables International: But is in the EEG 2.0 going to go far enough for the industry's export interests if the targets are too modest? In other words, would other European countries not follow Germany's lead and lower their targets, shrinking export markets for German turbine manufacturers?
Herdan: We have to see things in relation. Germany makes up five percent of the global market. The industry is not necessarily going to shrink just because the German market does, though the domestic market is admittedly more important for some firms than others. The real reason why the wind sector faces a tough time over the next two years is completely different. The US wind market is completely collapsing as the price of shale gas drives down demand. The effect is so dramatic that it doesn't even matter whether the PTC (Production Tax Credit) is extended. Our sector therefore has to look elsewhere for business. What's worse, cheap natural gas is something that directly competes with renewables.
Albers: Yes, but not for consumers.
Herdan: Only because this cheap shale gas has not yet reached Europe, Mr. Albers. All of the LNG (liquid natural gas) terminals that are going up mean that prices will also level out in Europe.
Renewables International: You are nodding in agreement, Mr. Albers. So you also think that the wind sector is going to have to bring down prices faster – with faster reductions in feed-in tariffs?
Albers: I didn't nod when he said that the German market is not so important. The BWE does not mainly aim to help design German industry policy, but also German energy policy. That's why I believe that the German energy market is the focal point of our work.
Herdan: … that's not what I said…
Albers: … and we want Germany to show what other countries can do. Unlike Mr. Herdan, I like to talk about the EEG as a policy that supports midsize enterprises, but I also agree with the VDMA that the EEG does not mean that all economic groups bigger than midsize cannot take part. But without the EEG, midsize firms are shut out.
Herdan: That's true.
Albers: So we need to be able to ensure project financing with the EEG. At the tradeshow, people were fearfully asking whether they would be able to promise financing after 2013. The current debate has reached banks. I don't know if politicians realize how quickly banks can increase requirements for equity in a project by 10, 20, or 30 percent if the business environment seems unclear. When we're talking about further developing the EEG, I am happy with the term "EEG 2.0." But priority grid access for renewables is not negotiable. It remains an important foundation even with renewables making up 25 percent of supply. We want to make it clear to the energy sector that renewables should always have priority over carbon-emitting energy sources. If there were no priority, the situation would be unclear because, at the very least, new wind turbines might not always be competitive with old coal plants. And as I said, project financing has to be feasible. We continue to need midsize firms to be a driving force. I'm not sure whether the Energiewende would be so fast if we left it up to the old energy monopolists to keep up the pace. After all, renewables compete with their own old fossil power plants, which are more profitable when less renewable power is available.
Herdan: I don't deny that. I just see it from a different perspective. Priority means that certain power plants needed to complement wind power cannot be built. So we have to start thinking about how priority can be changed so that the plants we need are built. At the moment, they are actually being blocked because gas turbines cannot be financed. Banks are going to be skeptical if power firms tell them they don't know how many production hours the plant will run per year.
Renewables International: Mr. Albers, shouldn't you be expanding your criticism of the German government to include others? Your home state of Schleswig-Holstein has a governor, Torsten Albig, who wants to have the biggest share of the pie. By 2020, Schleswig-Holstein wants to be producing three times more wind power than it consumes electricity. Baden-Württemberg would then not be able to meet its new government's targets.
Albers: It would have been good for Mister Altmaier to have made it clear that his controversial statement was misunderstood: "We have 60 percent too much wind energy in state targets…"
Renewables International: … in terms of the German government's minimum targets in its Energy Concept.
Albers: Neither the South nor the North should pursue an energy policy that detrimentally affects the other. On the other hand, we have to keep in mind that Schleswig-Holstein specified its targets a long time before Merkel's coalition joined the Energiewende. Sites were set aside. Mr. Albig cannot step away from that even if he wants to, and I understand his position. But we don't have to talk right now about whether one of the German states should stop pursuing its strategy prematurely when we still have to replace 75 percent of our conventional energy with renewables. Also keep in mind that Altmaier only told Albig to talk with Kretschmann (governor of Baden-Württemberg) and Seehofer (governor of Bavaria) to see if they will go along with this plan. I just read an article in which Albig says he contacted Baden-Württemberg and got the state's consent.And while we're on the topic, Stefan Kohler, head of Germany's Energy Agency in Berlin, has a proposal that makes no sense with offshore: each German state should have a contingency for renewables. Fish in the sea don't need any electricity. If we take this argument to its logical conclusion, BMW and Mercedes would also have to produce cars in Schleswig-Holstein.
Renewables International: But we still need to figure out whether we should have excess renewable power at some point.
Herdan: No, not in excess. In and around Husum, more power is produced than elsewhere.
Renewables International: Is Germany ready to conduct a meaningful debate about the Energiewende beyond ideology?
Herdan: It will never be without ideology. The only way to do it is to propose a roadmap with a clear target. The redesign of the EEG and the power market should not be decided hectically as a part of the upcoming elections, but rather after them.
Albers: The writing is on the wall, and we are going to have this debate. I am happy that we can discuss things with experts and that we have a little time to do so. Mister Altmaier has already said what needs to be done. Everything else would be bad for Germany. (Craig Morris)
