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2015 outlook: Key topics for the Energiewende

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After an eventful 2014 – marked by the reform of the Renewable Energy Act (EEG), a new climate action package and the first fall in CO2 emissions for two years – German energy policy is primed for action in 2015.

High on the government's agenda will be its plans for energy efficiency measures and CO2 reduction, designing a new power market and proving its commitment – along with other governments – to limit global warming to two degrees celsius at the upcoming UN climate conference in Paris.

The Clean Energy Wire - CLEW takes a look at the topics that will be crucial to the German Energiewende in 2015, 15 years after the original Renewable Energy Act set off the country’s shift to a low carbon economy.

Implementing the climate action programme: reducing emissions from coal

The climate action programme (CAP) of December 2014 spells out more than 40 measures meant to reduce emissions in the energy, industry, household, transport and agriculture sectors. Greenhouse gas emissions will have to shrink in each of these areas by even more than previously anticipated so that Germany can reach its climate protection target of a 40 percent CO2 reduction by 2020 over 1990. With the opposition questioning the government’s ability to implement the CAP, Angela Merkel’s cabinet and –  most prominently –  Economic Affairs and Energy Minister Sigmar Gabriel and Environment Minister Barbara Hendricks, will be scrutinised as to whether they adhere to the goals they put down on paper.

The make-or-break question while preparing the CAP was “if” or “how” the country would phase out the biggest contributor to emissions growth – coal. This culminated in a compromise that would require the power sector to cut an additional 22 million tonnes of CO2. However, the details of these emission reductions from fossil-fuelled power stations are all but clear. “What does an additional 22 million tonnes really mean? What emissions trajectory is assumed? What will be counted towards the emissions savings?,” asks Patrick Graichen, director of the Berlin based think-tank Agora Energiewende. These are open questions, he says, which will only be resolved when the law is enacted in 2015. Hence a big issue in the next six months will likely be how to shape the bill, which forces power station operators to cut emissions while avoiding a clash with the European Emissions Trading Scheme (EU ETS) and without risking legal battles with utilities. Gabriel has already said that the emissions cap bill will be closely connected to the new power market design.

Power market design

After the new renewable energy law and the climate action plan, power market reform is the next essential piece in the government’s effort to manage the energy transition in a manner that both benefits the climate and also remains cost efficient for companies and consumers. Following a “green paper,” evaluating the different types of capacity markets or revisions to the current energy-only-market (EOM), the Ministry for Economic Affairs and Energy had planned to publish a “white paper” detailing specific recommendations in spring 2015, before drafting the actual bill later in the year. However, since Gabriel declared the emissions reduction law for coal-fired power stations will be linked to the power market design, observers believe a quicker drafting process is likely. The minister repeatedly voiced his dislike of a full-blown capacity market (which plant operators would prefer but not the industry sector). This led Hildegard Müller, Head of the Association of Energy and Water Industries (BDEW) to question the openness of the process, according to a story published by Dow Jones Newswires Germany, which said that Gabriel’s remarks criticising a capacity market sounded as if a decision had already been made. The legislative process in 2015 will show if an EOM with added power reserves or a capacity market will win-out.

Utilities

The big four utilities in Germany (E.ON, RWE, Vattenfall, EnBW) are under pressure. Since E.ON announced in November 2014 that it would spin off its nuclear and fossil operations into a separate company in order to focus on renewables and distribution networks, the debate about the future of big power suppliers in a new energy system gathered steam – and will continue in 2015. With EnBW struggling to compensate for receding earnings from nuclear power by investing in renewable sources and Vattenfall putting its lignite operations in Eastern Germany up for sale, the large utilities will be watched closely next year.

The future design of the power market (see above) will be crucial, because these utilities still earn most of their money with power from coal, lignite and nuclear sources.

Another recurring matter involving utilities are the costs for nuclear decommissioning and pending legal proceedings over the nuclear phase-out that Vattenfall, E.ON and RWE have issued against the German government. State secretaries in the energy ministry and the environment ministry have suggested a state-managed fund  into which nuclear power station operators would pay provisions. This idea came amid worries that the utilities might not be able to meet financial obligations for dismantling nuclear plants and dealing with their waste.

Energy efficiency: Implementing the National Action Programme for Energy Efficiency (NAPE)

Energy efficiency measures in buildings will make the news again in 2015 since implementing the NAPE (envisaged to cut 390-460 petajoule in energy consumption) is still to come. Tax relief for efficiency measures and building insulation will have to be agreed on with the federal states – Chancellor Angela Merkel announced that a working group would present an agreement by February. “The federal states should consent to these efficiency measures quickly,” Hermann Falk, head of the German Renewable Energy Federation (BEE) said in December. Their economies would profit from the measures while a long political tug-of-war would only have negative effects on employment and the climate.  NAPE measures are meant to leverage some 80 billion euros in investments by 2020.

Renewables growth

2014 culminated in yet another record figure from the renewables sector: 27 percent of Germany’s power consumption was covered by renewable sources, the Ministry for Environment announced on the 29th of December. However green politicians and associations for photovoltaics and biogas are warning that investment in renewable installations will slow down considerably due to changes made in the reformed Renewable Energy Act (EEG). 2015 will show how renewables will fare under the new EEG and whether testing of a new system of tenders to determine payments to solar installations will succeed and take off.

Grid expansion

Extending the German power grid, both by expanding the link from wind parks in the north to industrial power customers in the south, as well as integrating the German grid into a European system, will be a focus in 2015. A big part of the Energiewende is to incorporate the renewable power producers into the grid system, but local communities in Bavaria, Baden-Württemberg and Hesse have loudly opposed power lines, especially the “Südlink” power lines. At the same time, nuclear power plants in the south are scheduled to be taken offline, making the need for new power from offshore windparks even more urgent. Network operators have put forth a new grid development plan, which the German network agency, Bundesnetzagentur, is currently evaluating. The planning process for Südlink entered the next stage in the approval regime and planning of the 1000 meter-wide corridor for the transmission line will continue in 2015. Meanwhile, the Bavarian state government has announced a process of dialogue with local communities and has said it wants to present its own energy concept by January.

Power Prices

Significant for German power consumers in 2015 is the reduction in the so-called EEG surcharge to 6.17 cents from 6.24 cents. The surcharge makes up the difference between the market price for electricity and the price that grid operators have to pay to renewable energy producers, who are legally entitled to a higher, guaranteed tariff. The grid operators pass that difference on to consumers, by topping up their price-per-kilowatt hour with the surcharge, set every year based on the previous year’s payments. More than half of the power price is comprised of the surcharge and other taxes, levies and fees that go to the state.

While wholesale prices have fallen dramatically since 2011, power companies have failed to pass those declines onto retail consumers. Germans still pay around 70% more per kilowatt-hour than in 1998. But there are some signs that 2015 could finally produce some relief for households. According to Verivox, the online price comparison website, 242 of 800 electricity companies have said they will cut prices by 2.4 percent at the beginning of 2015, which would take around 30 euros a year off an average consumer’s bill. To what extent others, especially the big, basic providers, will follow suit, however, is still up in the air. Utility EnBW said it will cut prices by 1.4 percent, the first reduction since 1999.

Industry representatives and trade unions have complained heavily about the comparatively high power prices in  Germany in the past – and are set to continue their warnings about negative effects for growth and jobs, particularly in the chemicals industry and other power-intensive operations. German producers have to put up with power prices twice as high as in the U.S., Ernst Grigat, head of chemicals company association Chempark said in an interview in December. Meanwhile – preparing for wage negotiations in January 2015 – the IG-BCE trade union for the energy and chemicals industry, has stated that the chemicals industry was in good condition and was looking forward to a profitable year.

Germany’s international engagement: Climate Summit and G7

Germany is facing an uphill battle to secure its reputation as a leader in green energy and sustainable climate policy, as CO2 emissions have risen in the past two years. But a recent fall in its emissions and the Climate Action Programme could be the light at the end of the tunnel. If the implementation of the additional measures goes well, the country could still meet its 2020 goal of cutting emissions by 40% over 1990 while demonstrating that industrialised countries do not have to sacrifice economic growth when energy consumption and emissions fall. German greenhouse gas emissions in 2015 will be closely watched.

Angela Merkel recently said she would put climate protection on the agenda for the June 7-8 summit of the Group of Seven most industrialised nations in Bavaria, the culmination of Germany’s year-long G7 presidency. The idea is to use the presidency to focus minds ahead of the UN Conference for international climate protection at the end of 2015, which will take place in Paris. At that meeting, 194 countries hope to agree on a successor agreement to the 1997 Kyoto-Protocol, which first set binding international climate goals along with emissions caps. “What happens in 2015 will determine the living conditions of our grandchildren and their grandchildren considerably,” Hans Joachim Schellnhuber, Director of the Potsdam Institute for Climate Impact Research (PIK) told the Süddeutsche Zeitung recently.

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