Around the World in Power-The Challenges of Energy Policy

Emerson’s Douglas Morris of the Power and Mining industry teams, shares the latest trends in renewable energy in Germany in today’s post.

Emerson's Douglas MorrisIt’s been an active week for stories about the power industry: the impact of renewable power in Germany; the nuclear industry in China; and environmental policy in the United States. Hit the provided links to learn more the other stories as this post will focus on Germany.

At the time of the Fukushima Daiichi reactor accident in 2011, Germany generated almost a quarter of its electricity (23%) from nuclear power. What was once the sixth largest nuclear producer in the world quickly made plans to shut down its nuclear fleet by 2022. Along with shuttering nuclear plants, the country also set in place plans to greatly reduce the use of fossil-based power. Already a strong user of renewables, the government established a goal of 35% renewable power by 2020 and 80% by 2050.

So how has that plan progressed? Pretty well, actually. According to Germany’s statistical office, as of 2012, coal-fired power plants generated 45% of total electricity demand, followed by renewables at 22%, nuclear at 16%, and gas at around 11%. Through 2013, coal is expected to surpass 50% of the mix and renewables is expected to remain about the same.

Wait a minute; this trend is not following the plan? As with most regulation, market forces tend to show where there might be gray areas. Platts data indicates that the gap between the coal and gas spreads (the general measure of profitability these plants) has widened while the cost of renewables has also increased. Per the Financial Times, the annual cost to support German renewable energy feed-in tariffs is set to rise to €3.2bn from 2013 to 2014 and the surcharge added to German electricity bills to cover this cost will increase 18% to a record high of 6.24 cents per kilowatt-hour.

Source: Platts, ANALYSIS: German coal extends dominance in power mix as gas wanes, http://jimc.me/1i21fVy

Although the average German continues to support the aggressive move to renewables, there is a growing concern that the rising costs required to support the transition will hurt manufacturing competitiveness. In a country that relies heavily on exports, this concern is something the government will have to address.

The bottom line is that setting energy policy is difficult and continues to be a lesson in tradeoffs. My guess is that Germany will end up in a place that doesn’t quite reach 80% renewables, rather with a healthy mix of renewables along with other technologies that help balance economics and environmental needs.

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