This column comes from Katrina Prutzman, the leader of Urban Green Energy's (UGE) systems design team. She recently returned from a smart grid and energy storage delegation trip to Germany, where they have a target of 80% renewable energy use by 2050 as part of the country's Energiewnde (or "energy transition). These are Katrina's thoughts from the trip, as well as her take on whether the US could and should do the same. This article was originally posted here.
Germany has put itself on the world map in the past decade as an early adopter of energy generation from renewable sources. In 2013, 25% of the country’s energy came from renewable sources -- the highest percentage in the world. By 2050, as part of the country’s Energiewende nbsp;(or “energy transition”), Germany expects this number to be at 80%. This is an incredibly ambitious goal, as Germans and the rest of the world will agree, but the country is preparing now to make this happen.
As part of the Transatlantic Program hosted by the German American Chamber of Commerce, I had the incredible opportunity to meet with many of Germany’s energy influencers and to learn directly about how Germany is transitioning to carbon-free energy. It hasn’t all been smooth sailing, but there are key lessons that the U.S. and the rest of the world can learn from both Germany’s successes and its plans for improvements.
The Bundesnetzagentur in Bonn is Germany’s Federal Network Agency for electricity, gas, telecommunications, post, and railway, and it has many insights to share about the how such high rates of renewable penetration have been possible. In particular, the agency attributes this achievement to policy, and more specifically, to three aspects of the current renewable energy policy in Germany: guaranteed grid and market access for renewables, priority dispatch of renewables over conventional generators, and guaranteed financial support for twenty years through the feed-in tariff. These three attributes have provided great incentives for installers of renewable energy, paving the way in some cases for high profit as competition from solar producers caused panel prices to drop rapidly. This is a key lesson the U.S. can learn from Germany: consistent policy is critical for a similar large-scale transition to renewables, and it’s currently missing in our market.
Though policy incentives are often criticized, predictability of returns throughout the expected life of renewable equipment is essential in the early years for a transition of this size. With policies that are inconsistent or even disappear from state to state and year to year, individuals, businesses, and even utilities are hesitant about investment in newer technologies. Germany’s foresight on this front has resulted in solar capital costs that have reached grid parity -- a great thing that much of the world can take advantage of as we follow suit.
The transition to renewables has not been all smooth sailing for Germany. The sudden drop in solar prices as the German market was flooded by low-cost Chinese suppliers was not anticipated. In addition, the large influx of intermittent sources has made grid management difficult. What's more, only 5% of the renewable capacity on the German market is owned by the primary utilities, with the rest being owned by individuals, communities, industry, and smaller utilities. The complexity of planning for these widely dispersed sources (which are guaranteed access to the grid), and existing baseload plants like nuclear or coal that are difficult to shut down quickly, resulted in a perfect storm of sorts, with overproduction of supply and negative pricing on the spot market. This actually caused demand to increase in order to balance supply and demand on the grid and to stabilize the voltage and frequency output of the system.
Germany is now adjusting its incentive structure to adapt to these unforeseen effects. The feed-in tariff will soon become a feed-in premium, so eligible producers of renewable energy will need to bid their production into the market just like all other providers. They will then receive a bonus or premium price over the resulting market price. In this way, all generators have an incentive to curtail production when the market price and demand are both low (thus avoiding negative pricing) and to produce when the price (and demand) is high.
Though Germany went through some growing pains to arrive at this stronger footing, it has also paved the way for greater understanding and policy structures for other markets. As other nations look to implement a similar transition, we have a head start with Germany's lessons learned, and we can structure incentives that are implemented in a way that rewards responsible installation and management of clean technology projects.
Despite the challenges, Germany’s negative pricing phenomenon led to the need for very creative energy solutions. The country has been able to achieve unparalleled development and deployment of new and emerging energy technologies, many of which now have strong potential to scale. Our delegation met with many of these new companies, and it was exciting to see what’s on the horizon:
Though the technology and progress enabled by the Energiewende is incredible to behold, it still comes at a cost. The renewable feed-in tariff is funded by ratepayers, and many in Germany agree that its implementation created excessive windfalls for some. Though the rate of the FIT is declining for new installations, projects that are already operational are still reaping massive benefits. With all of its ups and downs along the way, Germany is leading the world in the energy transition, and we can all learn from its experience.
Katrina Prutzman leads the system design team at UGE and recently returned from the Transatlantic Program for Young Technology Leaders.