The coalition accord between Angela Merkel and Martin Schulz includes an increase in the renewables target in the electricity mix from 50% to 65% by 2030. Jon Berntsen and Anders Nordeng of Thomson Reuters Point Carbon have analysed how this will impact the German energy sector and conclude that it is a coal phaseout policy in all but name.
On 12 January, Angela Merkel’s CDU/CSU party and Martin Schulz’ SPD announced they had reached a provisional agreement on several key elements of German energy and climate policy for the years to come.
The provisional deal explicitly admits that the self-imposed 2020 target of 40 percent greenhouse gas (GHG) emission reduction compared to 1990 levels is not realistic and will not be met. Hardly a surprise (it was a well known secret that the target would not be achieved), the acknowledgement by the country’s two top politicians nevertheless caused angry reactions from environmentalist NGOs.
Germany had cut 27 percent already by 2015, but the remaining 13 percentage points seem harder to achieve. According to forecasts by Agora Energiwende, a think tank, Germany is on track to achieve a 30 percent reduction by 2020.
However, Merkel and Schulz did stress their determination to stick to the 2030 goal of cutting 55 percent on 1990-levels. They intend to table a legislative proposal to that effect in 2019.
It will require tough political decisions to enable and finance the deployment of additional renewable generation capacity and the significant upgrades of the transmission network to integrate the increased renewables capacity
What is more, they also want to accelerate the deployment of new renewable energy, by raising the target for the share of renewables to 65 percent in 2030. The current target for that year is a 50 percent share. They explained that a market-oriented expansion of renewables is a “precondition for a successful climate policy”.
Furthermore, the two confirmed the mission of the special commission foreseen in the German Climate Action Plan 2050 that was passed by the previous CDU/SPD coalition in late 2016. It stipulates that a commission is to be set up, to present a draft proposal for the phasing out of coal (including a timeline and the types of regional development that should be put in place as compensation).
Merkel and Schulz now reiterated the promise that the commission will present a timeline before the end of 2018. That means the commission members will need to be designated shortly.
Without too much reading between the lines it seems reasonable to conclude that the discussion on coal phase-out in the years to come, both within the coal commission and the ensuing political debate, will revolve around a) the timeline (how fast/ambitious) and b) the support schemes to be put in place to compensate coal regions and to train/re-educate miners to change to different professions.
In this analysis we look into how the more ambitious RES (renewable energy sources) target for 2030 will imply a more rapid phase-out of coal, how this will affect power sector emissions over the next decade, and how this could impact carbon prices.
More renewables squeezing coal out of the electricity mix
Some 216 TWh of electricity was generated from renewable sources in Germany in 2017 according to AGEB Energiebalanzen. That equals a share of 33 percent of the total generation of 654 TWh in 2017, and more than twice the production in 2010 when the share stood at 16 percent.
Raising the 2030 target from 50 to 65 percent would mean another doubling from 2017, to 420 TWh in 2030, assuming constant electricity demand. It will require tough political decisions to enable and finance the deployment of additional renewable generation capacity and the significant upgrades of the transmission network to integrate the increased renewables capacity.
While clearly a challenge, in the following we assume these policies are followed through and that any technical and economical hurdles to reach the target are overcome.
A speedier phase-out of coal in Germany will have a dampening effect on the price for carbon allowances
We have looked at the electricity mix in 2030 under a 50 and a 65 percent renewables scenario, under the following common assumptions:
- Nuclear power generation is phased out by 2022
- Wind- and solar energy will take the majority of the renewables share in both scenarios due to low costs and short project lead times
- Biomass and hydro will have smaller shares, while geothermal will be insignificant
- Gas is in the money compared to coal, due to a combination of tougher EU-level emissions standards for coal, rising carbon prices and fuel price levels leading to favourable economic terms for electricity production from gas. Consequently, we assume that current gas capacity will run close to maximum capacity with no new capacity coming online
- Total electricity demand is steady over the forecast period.
Figures 1 and 2 show the estimated electricity mix in Germany under a 50 percent and a 65 percent renewables target.
Assuming constant electricity demand around 650 TWh in both scenarios, Germany will have to produce 100 TWh more electricity from renewable sources in 2030 if the target is increased to 65 percent RES share by 2030. What will have to give?
As nuclear power generation disappears by 2022, electricity production from natural gas will play an important transitional role in Germany in order to fill the gap left open from the closing of nuclear capacity.
We estimate the share of natural gas to grow from 13 percent today, to 20 percent by 2025, and maintained at this level throughout the period until 2030. This would translate to a total production from gas of around 130 TWh, a level we estimate to be close to Germany’s maximum potential given current 30 GW of nameplate gas capacity. As illustrated by the figures, the role of gas is the same – at its maximum – in both scenarios.
As a consequence, we estimate that increased renewable energy production will take shares only from coal. In our 65 percent RES scenario, coal produces 100 TWh of electricity in 2030; down from current levels at 250 TWh and down from 200 TWh in our 50 percent RES scenario. The figures illustrate how renewable sources replace coal in electricity production, which shrinks from 30 to 16 percent across the scenarios, while gas remains relatively constant.
Figure 1 German electricity mix with 50 percent renewable energy – coal at 30 percent in 2030
Figure 2 German electricity mix with 65 percent renewable energy – coal at 16 percent in 2030
What implications for Germany’s emissions and climate ambition?
Assuming a switch of 100 TWh from coal to renewable energy by 2030, we estimate that Germany’s emissions will be reduced by around 550 Mt CO2eq over the total forecast period. This is equal to more than two years of emissions from coal power burning in Germany (which was roughly 250 Mt in 2016). –
In order to quantify the isolated effect of an increased RES target, we keep other variables constant. This is obviously a debatable assumption as one could for instance argue that a more rapid growth in renewable energy could allow for less energy efficiency gains and growing demand for electricity, or perhaps a prolonging of the coal industry at the cost of natural gas.
Germany will overshoot its abatement target by 85 Mt in 2030, reaching a 62 percent reduction instead of the 55 percent that is decided politically
Fewer emissions from increasing renewable sources in the electricity sector could also allow for increased emissions in other sectors like transportation.
Germany’s current GHG target is to reduce emissions by at least 55 percent by 2030. This target has remained unchanged in the government coalition talks. Figure 3 shows that in 2015, emissions were 27 percent lower than in 1990.
Factoring in the emissions reductions from the more ambitious 65 percent RES target, we find that Germany will in fact achieve 62 percent emissions reductions in 2030 compared to 1990, 7 percentage points beyond the current 55 percent reduction target, and a substantial overachievement of Germany’s 2030 climate ambition.
Figure 3 65 percent RES will tighten Germany’s emissions target for 2030
Carbon market effect
A speedier phase-out of coal in Germany will have a dampening effect on the price for carbon allowances. Using our long term carbon price model, we have modelled the carbon price trajectory until 2030. We find that the additional emission reductions from the 65 percent RES target in Germany will leave the carbon price €4/t lower in 2030; down from €25/t.
Over the entire forecast period, we estimate that carbon prices will on average be €1.4/t lower compared to our base case which has 50 percent RES in the German electricity mix.
Figure 4 65 percent RES in German power sector will lower the price for carbon allowances
Both the 50 percent and the 65 percent RES scenarios will be bad for coal. From a current level of 250 TWh per year, we expect coal power generation to drop to respectively 200 TWh and 100 TWh in the two scenarios.
In terms of GHG emissions, the effect will be significant. The German coal power plants let out around 250 Mt of CO2e in 2016. In our scenario, the remaining coal plants in 2030 are expected to emit 165 Mt. This means that Germany will overshoot its abatement target by 85 Mt in 2030, reaching a 62 percent reduction instead of the 55 percent that is decided politically.
For German politicians it is clearly easier to say that yes to more renewables that to say no to coal
If that happens, it will no doubt be used as an argument by those who claim that Germany’s climate ambitions are already too high. On the other hand, cynics might question whether the ambitious targets will really be met. Merkel and Schulz recently decided to ditch Germany’s ambitious 2020 emission target that had been set last decade. If it is so easy for the government to simply say that targets will not be met, then what will keep it from saying e.g. in 2028 that the 2030 RES target was never realistic and will not be achieved?
In either case, it becomes clear that if Germany, in the years to come, pursues the 65 percent RES target, this will de facto mean a substantial cut in coal’s share of power generation. While not officially recognised as a coal phase-out plan, the effect will be the same. For German politicians it is clearly easier to say that yes to more renewables that to say no to coal.
Jon Berntsen (firstname.lastname@example.org) and Anders Nordeng (email@example.com) are senior carbon market analysts on Thomson Reuters Point Carbon Commodities Research & Forecasts team (@TRPC_Climate).
Mike Parr says
Interesting article. A small experiment: lets assume 100% of the 100TWh/year from RES comes from off-shore. Let’s assume that the new generation of WTs is delivering 50% capacity factors & let’s take a size of 10MW. 10 x 4000hrs = 40kMWh. Divide that into 100TWh and you get 2500 Wind turbines. If these were installed over 10 years, this would be roughly 250 per year – 2.5GW per year.
That is quite a few WTs. I guess the network suppliers could build the shore to farm HVDC connections. Which leaves the old north-south problem. Germany will need new approaches to solve that – probably HVDC on some existing AC routes – maybe replace some old pylons with newer low-profile stuff. It all looks do-able – but will need quite a mobilisation of resources & a plan – which the politicos then stick to – & they have a real bad record on doing that – sticking to plans.
On a more positive note – the off-shore approach would certainly dig Siemens out of its hole (tell me boys – how is the steam turbine business going?) – so I guess they are knocking on Angie’s door right now. Starts to look pretty good & given the recent off-shore auction result – the main cost is likely to be transmission – with the off-shore farm standing on its own two financial legs. Not discussed is back-up for no-wind in winter (summer won’t matter so much due to PV). Perhaps cross-border could deliver something?
Helmut Frik says
Well Siemens says a installation of 7 GW Offshore per year would be enough to keep existing manufacturing capacities busy. This would add about 28 TWh additional wind power output per year from offshore. Additional 15 TWh/year onshore and 10-15TWh/year solar wold also not stress the supply chain.
So the 65% are well within reach, as far as construction of the capacity is concerned.
Costs will also not be a topic, given the last results of the tender almost equal to the fuel costs of hard coal plants.
Relevant point will be grid expansion. The Tennet-islands with 2-digit GW interconnectors in all directions will make a lot of sense then till 2030, so far it is planned to have them up and running in 2025 as I remember, with ongoing expasions after startup. This project would also add so much interconnector capacity for UK that it would be possible to run UK on interconnector suppy alone- same most likely for Skandinavia. Adding a strong interconnector bundle towards greece would make a lot of sense too, then. Le’s see how things develop.
Mike Parr says
I think you would find that the idea of the UK running off German electricity would get the UK Tories and associated Brexiters rather “excited”. Given the size of UK’s economic sea zone & given the quality of the wind resource the obvious thing to do would be for the Brits to build out their off-shore fleet. However, for the past 40 years the Brits have been doing the opposite of what is economically obvious & good for the country. So – pace – a Corbyn gov having the vision and inclination (money is not an issue) I don’t see much happening. & sure the brits at the moment are very active in off-shore. However, 80 – 90% of the economic benefits from this activity flow out of the UK. Which raises some very interesting policy questions, that the current Uk gov are functionally incapable of addressing.
Helmut Frik says
I would also expect UK to become a net exporter o offshore wind power. But the characteristic of wind and solar is that they work much better in international cooperation – so UK would likely export a lot of power by the interconnectors when wind is strong, and imort power when wind is low in UK but strong elsewhere, or when solar power is cheap in southern europe, or when some remaining gaps could be filled with hydropower from scandinavia, from the alps or further away. Beside that these islands would make a huge amount of offsore wind nearshore, in german, dutc, danish, norwegian and british water, and so would collect offhore power from there. Double use of the same cables.
Nigel West says
Yes, I would add the UK doesn’t want dirty German leccy either given the high coal-fired component. UK is getting rid of coal stations much faster than Germany.
Nigel West says
“This project would also add so much interconnector capacity for UK that it would be possible to run UK on interconnector supply alone- same most likely for Skandinavia.”
Dream on, the UK is not about to free itself from EU control only to become over dependent on Germany for electricity.
As for Siemens, the UK will be looking to cheaper producers of wind turbines in the US and China once EU tariffs cease to apply to the UK.
Helmut Frik says
Well there are no relevant tarifs but you are free then to subvention chniese products if you don’t like to buy things cheap in germany.
If you don’t like trading electricity, go and build your fancy nuclear power stations, but then don’t complain about wholesale prices of 15ct/kWh and more.
Sesms it is a century or more ago now that british people were good traders and negotiaters. Which is sad.
The only good thing about brexit: noone in UK will be able to blame all that nonsense made in westminster and downing street o the EU – well, mr Johnson will likely continue to do so.
In the meanwhile internatinal schools in frankfurt and other places expand their capacitys in double and triple digit rates, because in a first wave a lot of high potentials who formerly were headed to london from abroad now go to germany, and in a second row now the british bankers seek lots of places in theses schools for their children in preparation to movint to a new place to work from.
I will have a comfortable place from which to look what will happen. So far it is not yet planned to connect UK this way, but it would make more than jutst al lot of sense for UK to connect the planned the offsore windfarms at Doggerbank to those islands as well, bridgin the last few missing km. But manybe the british prefere higher power prices and more blackouts in favor of having control- whatever you like to control then over there (common sense says there will be less control, but that’s your problem, not mine)
Nigel West says
The EU has a huge democratic problem. The UK leaving will presage other countries leaving whose populations are unhappy with centralisation in Brussels.
The Euro is just a new form of the Deutschmark that benefits German exporters, but not Italy or France.
After 6 months Germany finally has a Government. Unfortunately, with the not so popular arch federalist Martin Schulz who wants a full blown Union with EU members transferring sovreignity to Brussels. Good luck with that.
Maybe Mrs Merkel will open Germany’s doors again to a few million more illegal immigrants. Germany is the top rule breaker in the European Union too even as it lectures other bloc members how to behave. It faces 74 infringement proceedings from Brussels for failing to adequately convert EU rules into German law.
EU members should cancel Mastricht and revert to the principles of free trade under the EEC.
Mike Parr says
“The EU has a huge democratic problem” – as does the UK and all countries that depend on elections and have political elites. I suggest you read “Against Elections”.
Helmut Frik says
you should take a look how “unhappy” the european populations really are with EU – quite different from what youthink they are, and good opinion about EU is rising along with rising brexit chaos in UK.
Bü the way, EU parlament and EU comission are electet in exactly the same ways then the parlament in Westminster and UK gouvernment. So UK has a democratic problem with it’s gouvernment? Maybee UK gouvernment is appointed by anonymous buerocrats?
Mike Parr says
“the UK will be looking to cheaper producers of wind turbines in the US and China” – let’s say I have a $3bn off-shore project in the UK & the choice is a US Wt, a Chinese WT (neither with a track record) and Vestas or Simenes (track record plus a whole lot of other goodies to do with farm optimisation). Wow difficult choice – well actually it will be the banks etc that make the choice. But you knew that – didn’t you?
Speaking of Chinese track records: Gwynt-y-Mor – North Wales off-shore – some geniuses @ Fluor (a risk sharing partner in the project) decided Chinese monoplies were the way forward – didn’t do proper QA in China and 100+ monoplies had to be sent back – lawyers are still making money on that one. Yeah – “made in China” I can see that one really running in off-shore – not. Right now – it is the Danes educating the Chinese on how to implement off-shore – & hats off to the Chinese – they are fast learners – but it will be 5+ years before they will be positioned to come to Europe – & the reason they are absent now? Industrial espionage and intellectual property – remember the Sinovel case?
Nigel West says
“..a level we estimate to be close to Germany’s maximum potential given current 30 GW of nameplate gas capacity. As illustrated by the figures, the role of gas is the same – at its maximum – in both scenarios.”
As coal is phased out, Germany will have to build more CCGTs to cover wind intermittency. 30GW will not cut it. When Germany’s wind fleet is becalmed and demand as >80GW, there will be a big conventional gen. capacity hole to fill without coal. Gazprom and gas traders will be pleased.
Good luck Germany meeting those ambitious targets too. Germany will miss the 2020 target by a mile. To get anywhere near 50% will be orders of magnitude more difficult to reach with more intermittent RES. So the chances are even slimmer as the targets become ever more ambitious. The auction system for renewables has cut deployment rates in half too.
Anyway, Merkel and Schultz will be gone well before 2030 so will not be accountable for setting over ambitious targets that are likely to remain out of reach.
Jeffrey Michel says
Martin Schultz is already gone after offending foreign minister Sigmar Gabriel. The Ministry for Economic Affairs will now be headed by Angela Merkel’s trusted deputy Peter Altmaier, while the SPD environmental ministry will probably remain under the direction of Barbara Hendricks. Both politicians are experienced practitioners, but Altmaier will be constrained not to close any lignite power plants before the respective mining regions have been gainfully reorganized.
As I have shown in the linked articles below, an economic case can already be made for converting the Schkopau 900 MW lignite power complex to renewable energies while relegating Block S of the Lippendorf power station to standby operation. EPH may be awaiting an opportunity to dissolve the MIBRAG mining corporation anyway after incurring a significant loss in 2016. The United Schleenhain mine could be sensibly taken over by LEAG for supplying Lippendorf directly.
If fully implemented, this proposal would reduce Germany’s annual CO2 inventory by around 10 million metric tons, depending on the partial substitution of natural gas for certain processes at Schkopau. I do not anticipate being summoned to Berlin to discuss this prospect, but perhaps the plan can be reinvented.
Philipp Litz says
Despite the fact that I have a sympathy for such quick wrap ups to get the bigger picture on major decisions, unfortunately this article has a big flaw in it:
– I’d agree to all assumptions made on wind&PV deployment, rather stable consumption, slight increased price competitiveness for gas towards coal and so on. These are fair to be made assumptions for such an thought experiment.
– But what definitely is a mistake, is that the calculation assumes the overall power production level to stay stable at 650 TWh per year, which means a fixed export of 50 TWh per year on today’s level. This completely neglects the strong interconnection of Germany in the European power sector already today, not mentioning the neglect of the planned increase of interconnectors and their better utilization. Given the targets of the EU on interconnection, German interconnection capacity will increase significantly over the next years. Even under conservative assumptions regarding realization, this might give room for yet another 50 to 60 TWh of export, which will probably be mainly filled by coal. And this completely turns around the argumentation on a”business as usual coal phase out” until 2030. To meet the 2030 targets, the 65% RES will help, but Germany will still definitely need additional national instruments to even half coal by 2030 (which is more or less the official target for the energy sector). It is by no means a sure-fire success as indicated in this article.
– Also one point on the thesis, Germany might reach a -62% reduction by 2030 with this measure: This is a claim, not covered by the already agreed on measures or the coalition treaty what so ever. It assumes, that the industry, buildings and transport sector will meet their own targets anyway, which – especially in the transport sector with a target of minus 40 percent compared to today’s levels – is from today’s point of view an more than optimistic estimate.
In case you want to discuss this further, let me know!
Helmut Frik says
Unlikely. german interconnector capacity is already far bigger than typically exportet amount of power. So interconnector capacity foes not limit power sales most of the time. So a increase of interconnector capacity in itself s unlikely to expand coal power export. On the other hand, ongoing closures of coal power capacity in germany is likely to decreace exports from coal power stations.