Is Germany's energy transition a "dirty mistake", as Frank Drieschner wrote in this newspaper last week? Let's start by taking a look at the facts.
In 2000, the Bundestag adopted the Renewable Energy Sources Act, and the government of the day agreed a timetable for a nuclear phase-out with the plant operators. Since then, the annual production of electricity from renewable energy has grown by 144 terawatt-hours (TWh), and that from nuclear power plants has dropped by 72 TWh. The rapid expansion of renewables has therefore more than offset the electricity produced by the phased-out nuclear facilities. At the same time, a substantial volume of fossil-fuel electricity generation for the domestic market has been displaced.
Despite this, the amount of electricity generated by fossil-fuel power plants in Germany has scarcely changed. Why is this? A glance at the import-export balance helps us here. Back in 2000, exports and imports were balanced, but last year we had a record export surplus of 34 TWh, and this year it is likely to be even higher. So what has happened? In recent years, the operators of coal-fired power stations have proved able to sell more and more electricity to clients in other countries. This has had repercussions on Germany's climate footprint.
Carbon emissions related to electricity generation in Germany initially fell, from 319 million tonnes in 2000 to 294 million in 2009. Since then, they have been rising again, largely due to the growing export surpluses; the figure for 2013 was 317 million tonnes. As I mentioned earlier, this happened even though the expansion of renewable energy has more than offset the nuclear switch-off by a long way. The stagnating or rising carbon emissions seen over the last four years are not the product of a "dirty mistake" in the energy reforms, but are the logical consequence of a political failure.
In 2005, emissions trading for power plants and industrial facilities was introduced in Europe. It worked on the basis of the "cap and trade" principle. The number of emissions certificates is restricted; these certificates may be freely traded so that emissions are reduced where it is most efficient to do so. Carbon is given a price, with the result that old, inefficient facilities and those using particularly climate-damaging fuels like lignite pay more than efficient facilities with low-carbon fuels like natural gas. At the beginning of 2008, when emissions trading entered its second phase, the principle was still working well. The price per tonne of C02 stood at Euro 22, meaning that the costs of producing electricity in modern gas-fired power plants were lower than those of the old coal-fired stations.
But the price then collapsed, firstly due to the economic crisis in Europe and the related oversupply of certificates. And then there were large volumes of emissions certificates from Russia, Ukraine and China, which the EU had allowed into its system. These were cheap certificates, many of which did not actually entail an additional reduction in emissions. The result is that we now have an EU emissions trading market with more than 2 billion surplus certificates! The carbon price is at rock bottom. The average spot market price for 2013 was a symbolic Euro 4.50. At these sorts of carbon prices, lignite displaces hard coal, and hard coal displaces natural gas, especially as the relative fuel prices have changed.
This development is entirely unrelated to Germany's energy transition. But it should have been prevented. The European Commission, backed by the European Parliament, tried to take immediate action to rescue emissions trading. Some of the surplus certificates were to be discontinued. Eastern European countries were opposed to this, but they could not have prevented steps from being taken, since decisions on emissions trading in Europe are taken by a qualified majority. The main country standing in the way of the necessary reforms was Germany. And the main person responsible for this was Economics Minister Rösler. Federal Environment Minister Altmaier was in favour of reforms, but the coalition partner, the FDP, blocked them. We can see the consequences today. Low carbon gas-fired power stations are offline in Germany and in its neighbouring countries - displaced by coal-generated power, which is profitable because fossil-fuel power stations are allowed to use our atmosphere as a carbon dump virtually free of charge.
The new German government will have been in office for a year on 17 December. It has brought together the responsibilities for energy policy in the Economic Affairs Ministry, and the Chancellor, the Economic Affairs Minister and the Environment Minister are all pulling in the same direction on climate policy. As a result of this, it was possible for the European Council to agree on ambitious climate and energy targets for the next decade on 24 October. Greenhouse gas emissions in Europe are to drop by 40 % by 2030 (from 1990) - without any factoring in of cheap certificates from countries outside the EU. The share of renewables is to increase to 27 %, and energy efficiency is also to improve by 27 %. These unanimous decisions by the 28 heads of state and government of the European Union show that, whilst we may be travelling at different speeds in the EU, we are all moving in the same direction. In particular, emissions trading is to be reformed in order to help us achieve the climate mitigation targets. But the reforms will take time. The German government wants the reforms to be implemented more rapidly than is proposed by the European Commission. Whatever happens, no reduction in the massive surplus of certificates can be expected before the middle of the next decade. Regrettably, emissions trading will basically not be available as an instrument to help us attain our national climate targets for 2020.
When faced with a global problem like climate change, there are good arguments for and against national climate targets. If, however, following a long debate, a government adopts a national energy concept with a 40 % reduction in greenhouse gas emissions in Germany by 2020, and announces and advertises this decision in the international arena, compliance with the climate change target becomes a matter of credibility. Particularly as the arguments against national targets are the same as those against European targets.
On 3 December, the progress report on the energy transition was on the Federal Cabinet's agenda. Analyses had revealed that Germany would miss its 2020 climate target by 5 to 8 percentage points if it did not take further action. In months of discussions, measures were drawn up which, overall, ensure that Germany will attain its climate target for 2020. The government has explicitly committed itself to this. A national climate mitigation action plan and a national energy efficiency action plan have been adopted. The energy sector is responsible for about 40 % of Germany's greenhouse gas emissions. It will not be possible to close the gap without involving the electricity sector. The cabinet decided that the Federal Minister for Economic Affairs and Energy should present a regulatory proposal for this in 2015. Sigmar Gabriel has announced his intention to draft a law in the first half of the year which will define a carbon emissions budget for the electricity sector. It will then be up to the companies to decide how they achieve their shares of the reductions. This is a transitional instrument to cover the time until European emissions trading starts working again.
National measures to restrict emissions often face the objection that they will have no impact on climate change because they merely mean that emission certificates will not be used in one country, and will instead be used elsewhere in Europe. This argument would be correct if there were scarcities in EU emissions trading. However, given a surplus of more than 2 billion certificates, national reduction measures will result not in additional emissions in other EU countries, but in an increase in the surplus. The European Commission has proposed the introduction of a market stabilisation reserve with a view to reducing the surpluses in future. This would also skim off carbon certificates released by national measures.
It is important for national measures to fit into the European framework. Germany's energy reforms are not an act of renationalisation of energy policy - they are the precise opposite. The German energy transition can only succeed in the European context. We have agreed on climate and energy targets for 2020 and 2030 in Europe. It is now up to the Commission, and also to the member states of the EU, to roll out the necessary measures for this. The internal electricity market will help us to attain the goals of our energy transition.
Our future electricity system will be highly decentralised. Millions of generators will be linked to customers via smart systems. This transition is as radical as the replacement of mainframe computers by PCs. But a distributed, decentralised approach should not be misunderstood as implying autonomy. The energy transition in Germany will mainly be based on wind power and photovoltaics (PV). These facilities are the only ones capable of providing enough low-cost renewable electricity for us to attain our expansion targets. However, wind and PV both have features which are fundamentally different from conventional power generation. Their electricity production is weather-related, it is highly intermittent, and their short-term operating costs - the economist speaks of "marginal costs" - are close to zero. After all, there are no fuel or carbon costs. These three features must give us cause to reinvent our electricity system.
The first lesson is: the better integrated the grids in Germany and Europe are, the easier and cheaper the energy transition will be. Because the wind is not equally strong everywhere, and the intensity of the sunshine varies from region to region, the grids can offset the fluctuations.
The second lesson is: our system needs to become more flexible. Conventional electricity generators have always needed to adapt their output to the constant - but fairly regular - changes in demand. Now they need to also take account of the weather-dependent output of electricity from the wind and the sun. I should mention that this is entirely unrelated to the statutory priority given to renewables in our grids, but is rather rooted in the logic of the electricity market. On the electricity exchange, those generators with the lowest short-term operating (marginal) costs are first in line. The last one required to meet demand determines the price - which all the providers then get paid. Since wind and PV have no fuel costs, they are always first in line on the exchange.
So the electricity exchange determines the order in which renewable and conventional power facilities are used. The marketplace is European. The single market means that every customer has the right to purchase electricity from the neighbouring country. More and more customers in other countries are taking advantage of this, which is why we have such a large export surplus. It is pure fantasy to claim that Germany is flogging off its "surplus electricity from renewables" abroad. Germany has never had surplus electricity from renewables. The highest proportion of renewables-based electricity ever seen in Germany was 80 % at 1 p.m. on 11 May 2014. If demand is low, and at the same time there is a lot of wind and/or sunshine, and conventional plants do not respond flexibly at such times, there can be surpluses. The exchange responds to this with negative prices. Customers take off extra electricity and get paid to do so. It is important to permit negative prices, since they are an important market signal. This signal says that flexibility pays off! Those who lack flexibility are punished by negative prices from the exchange. They have to pay so that the electricity they produce will be taken off. There were negative prices at Christmas 2012 and 2013. In both years, it was relatively warm, the demand, which is in any case low on public holidays, was particularly low, and we had a lot of wind. In 2012, there were negative prices of up to Euro 220 for nine hours on Christmas Day. At Christmas 2013, in very similar conditions, the market players had learnt the lesson, and the price fell far less below zero.
I can imagine how tempting it is for a journalist to turn negative prices into a scandal. The year has 8760 hours. In 2013, we had 64 hours of negative prices. In 2013, the average price of electricity exports to neighbouring countries was Euro 52 per megawatt-hour, and that of imports Euro 49 per MWh. We sell electricity at a higher price than we import it. The idea that Germany is giving away its highly subsidised renewable electricity abroad is a distortion which is entirely unrelated to the real world.
It used to be the case that the highest electricity prices were at midday, because that is when demand is highest. At peak-load times, power plants with low investment costs but high operating costs were used. Today, more than a million PV facilities produce electricity in these hours, with operating costs which are close to zero. They are displacing some of the expensive conventional power stations. The price on the electricity exchange is still high in these hours compared with other times of day, but is much lower than it used to be. It is not surprising that customers from neighbouring countries prefer to buy electricity from Germany in these hours than from expensive facilities in their own countries.
Let's imagine Germany in ten years' time. Six months ago, the Bundestag and the Bundesrat agreed on a "deployment corridor" for renewable energy, to lie between 40 and 45 % in 2025. These are annual average figures. This means that, in ten years' time, there will be hours in almost every week in which wind and PV facilities generate more electricity than is demanded by the customers in Germany. We then have three options: Either we limit the output from wind and PV, which means we go without electricity which has already been paid for by the investment in the facility. Or we store it; this will be very expensive, because conventional storage technologies are unsuited to lengthy periods, and new ones, like power-to-gas, entail high costs due to the conversion losses. The third option: we sell the electricity to customers in the neighbouring countries who pay us money for it. For example, operators of hydropower facilities in the Alps and Scandinavia can leave their water in the reservoirs at times when there is a lot of wind and sun in Germany, and instead buy electricity from us to sell in the other direction at times when there is not much wind or sun. The internal market ensures that there are low-cost solutions.
The same goes for the question of energy security. Purely national approaches make no sense, because we can't know whether the operator of a facility in Germany has sold its electricity to a client elsewhere, i.e. is not available to supply the German market. The same is true in the other direction. The current situation in Germany and most of its neighbours is characterised by large overcapacities. The cause of this is the increasingly efficient internal electricity market, coupled with low demand in some countries due to the economic situation, and the growing share of renewable energy. There will inevitably be a reduction in overcapacities. The German government will not introduce payments to keep superfluous power plants afloat. The only issue at stake is energy security. We need a market design which will continue to ensure energy security even after the reduction in overcapacities. Energy security exists if it is always possible to balance supply and demand. In other words, there must be sufficient controllable capacity available even in times of the highest level of demand which is not covered by wind or PV. "Capacity" means not only conventional and renewable fuel-operated power plants, but also demand flexibility and storage. The Federal Minister for Economic Affairs and Energy has presented a "green paper" for this to serve as a basis for discussion; the public consultation on it is running until the end of February. Also, we are working closely together with our neighbouring countries and the European Commission to come up with joint assessments and solutions.
The energy transition is a major opportunity for our country. The Renewable Energy Sources Act was introduced in 2000. In just 14 years, we have learnt to produce electricity from new wind and large PV facilities at the same overall costs as if we were building new hard-coal or gas-fired plants. A glance across to the UK shows that electricity from new nuclear power plants would be 100 - 150 % more expensive. We now have efficient technologies to deliver renewable energy. They can generate electricity cheaply. It is now vital for us to set up a new, distributed and interlinked electricity system with low system costs. After all, the system costs will determine the prices for the customers. The energy transition must become not only an environmental success story: it must also be an economic success. We need to show that it is possible to supply one of the world's greatest industrial nations with rising shares of renewable energy reliably and at affordable prices. The world is watching us very closely. If we succeed in shifting to renewable sources AND in retaining production and jobs in industry, this example will be the greatest contribution that Germany can make in the fight to combat climate change.