Stimulus debates add fresh drive as energy transition efforts restart after coronavirus break
The federal government set in motion several important energy and climate projects in 2019, but legislative progress on such policy as the coal exit or renewables expansion has since been hindered by coalition disputes and the impact of the coronavirus outbreak. The pandemic has slowed down law-making in most every policy field and reduced pressure to act as the priorities shifted to health and jobs. This was most apparent when a meeting meant to resolve the impasse on renewables between Chancellor Angela Merkel and state premiers quickly turned into an emergency meeting on ways to contain the virus outbreak.
“Progress in German energy policy was stalling in recent months,” said Alexander Reitzenstein, senior policy advisor at energy and climate think tank E3G. He warned that such a stalemate threatens the country’s mid-term climate targets and ultimately the goal to become climate neutral by 2050.
The German government gave itself a hefty load of homework with the adoption of the climate package in September 2019. It included plans to introduce a major climate law and a CO₂ pricing system for transport and buildings – both of which have been approved by parliament – as well as finalising the coal exit laws and several legislative and regulatory reforms to accelerate renewables expansion – most of which is still in progress.
After channelling efforts on combating the impact of the coronavirus pandemic for some weeks, the coalition has now put renewed focus on settling old energy and climate disputes. Even before the crisis, Merkel’s conservative alliance (CDU/CSU) and the Social Democrats had fought for months over issues such as the details of the expected hydrogen strategy and wind turbine distance rules.
Only this week, the federal coalition partners found a breakthrough agreement on wind power distance rules and the removal of the solar power support cap.
Reitzenstein welcomed the deal as “it solves some urgent issues” of the energy transition, he told Clean Energy Wire. However, “it is not enough to bring Germany back on an ambitious 100 percent renewable track.”
Other experts caution that not all progress on energy and climate legislation is plainly visible. “The ministries are currently working on the regulations necessary for implementation, which is largely taking place in the background,” said Thilo Schaefer, head of environment, energy and infrastructure at the industry-sponsored German Economic Institute (IW) research organisation.
Reitzenstein sees the turbine distance dispute as a good example of general energy transition challenges. “While there is a very strong technological and economic case for onshore wind, the stalemate of the last months was caused by political tactics and social aspects of the transition.” He expects wrangling about political direction, burden-sharing and issues of social justice related to the transition to increase in the future.
Coronavirus response could accelerate energy transition in certain areas
The impact of the coronavirus outbreak does not mean key energy policy measures have to now be delayed. Instead, some should even be accelerated, said IW’s Schaefer. For some time there has been a lack of clear and reliable perspectives for climate-friendly investments, such as in decarbonising the industry sector, he said. “This was already the subject of criticism before the coronavirus crisis and is now completely overshadowed by the pandemic.” Already planned programmes and investments in infrastructure, renewables and the power grid should now be started quicker in order to open up the perspectives for private investors as well as to provide a short term impulse, Schaefer said.
There has been a rapidly growing debate about using economic stimulus packages for the post-pandemic recovery to reset the economy on a more climate-friendly path. The European Commission has said it aims to use the Green Deal as a sustainable growth strategy out of the crisis. It is expected to present its recovery plan on 27 May. The German government has also thrown its weight behind the idea of a green stimulus, and this week, Chancellor Merkel and French President Emmanuel Macron announced a joint proposal for a 500 billion-euro European recovery programme, emphasising climate targets and floating the idea of creating conditionalities in the areas of climate, biodiversity and environment.
IW’s Schaefer also proposed that the planned reduction of the renewables levy be introduced earlier than planned – and decreased even more. Energy industry and business representatives have long called for a complete abolishment of the surcharge. The debate has resurfaced as the impacts of the coronavirus pandemic threaten to increase the levy. Indeed, Johannes Teyssen, CEO of utility E.ON, recently called for the surcharges to be abolished or immediately decreased in an interview with Frankfurter Allgemeine Zeitung.
The cabinet on Wednesday paved the way for using the federal budget to lower the country’s renewables levy from 1 January 2021. Doing so with the help of the carbon price revenues was a key feature of the climate package agreements and is meant to avoid overburdening energy consumers. It is not yet clear how much the surcharge will be lowered. The government and parliament have yet to decide how much of the budget to use, which could lead to contentious discussions. An early draft law on lowering the surcharge, seen by Clean Energy Wire, stated that “an additional decrease […] could be necessary due to the coronavirus crisis”. The reference is omitted in the final version.
E3G’s Reitzenstein also said that in some areas, the coronavirus pandemic might accelerate change. Recovery packages should be used to drive the modernisation and competitiveness of economies. “It would be the completely wrong signal to stop or delay climate policy as this would only increase the risk of stranded assets and lock-in effects, and, as shown by recent studies, even be bad for economic recovery,” he said. Reitzenstein named the coal exit as one area in which change might be sped up by the current crisis. “The coal industry will potentially never recover from the coronavirus, and renewables are the safer bet for investors.”
Status of key energy transition projects
Find below a list of major Energiewende efforts by the German government and short overviews of the current status.
Coal exit -- status: parliament has yet to adopt legislation --
After a multi-stakeholder commission recommended in early 2019 that Germany phase out coal-fired power generation by 2038 at the latest, it took the federal government many months to officially accept the proposal and mould it into legislative text. First, it presented a law to ensure transitional support for mining regions, and then in January 2020 the actual coal exit law. For the latter, a shutdown timetable for lignite plants was agreed with affected states and companies, as the fuel is still mined domestically and is important for the regions’ economies. The coal exit law draft also contains provisions on auctions for remuneration to take hard coal units off the grid.
Both laws are now dealt with in parliament. The idea is to approve them around the same time. Some say there should be no shutdowns without the guarantee of support for the regions, others say there should be no money for regions without guaranteed shutdowns. The act on support for mining regions ultimately needs the approval of the states in the Bundesrat (council of state governments), the coal exit law will be decided by the Bundestag (national parliament). [see this factsheet on German law-making] MPs from the government coalition have said they still plan to get the legislation approved before the summer break 2020 starting in July, but also that the time frame is “admittedly tight”. Should the law still have to be debated after the break in September, it grows increasingly unlikely that the first 4 gigawatt capacity shutdowns can still be auctioned this year as currently planned. The Bundestag will hold a public hearing on the coal exit law on 25 May.
Key open questions and disputes
States, operators and municipalities (who often own local utilities) complained that compensation for hard coal shutdowns is not sufficient to pay off loans taken out to build newer units and invest in renewables at the same time. There is no compensation planned for shutdowns from 2027. The energy industry says there must be more support for combined heat and power (CHP) plants. The putting into operation of new hard coal plant Datteln IV is also a point of contention. The Greens have called on the government to clarify how it aims to decide the amount of EU Emissions Trading System (EU ETS) allowances it plans to take off the market during the coal exit.
Climate Action Law -- status: enacted --
Germany's first major national climate law entered into force in December 2019, only three months after the coalition agreed to introduce it as part of the extensive climate package to reach 2030 climate targets. It enshrines the national 2030 greenhouse gas reduction target and annual emissions budgets for each economic sector into law and establishes rules on monitoring; assigns responsibilities; lays out what happens in case of target misses and sets up an independent “expert council for climate issues”.
Renewables expansion -- status: first hurdles taken, but legislation pending --
The government has said that substantial renewables buildout is a prerequisite for a successful coal exit and reaching greenhouse gas reduction targets. In their 2018 coalition agreement, CDU/CSU and SPD had decided to bring the share of renewables in total power consumption to 65 percent by 2030 – a target that was later enshrined in the Climate Action Programme 2030. In 2019, renewables supplied about 42.6 percent of power consumption.
The new overall target and the expansion goals for solar and wind energy have to replace the old ones through an amendment of the Renewable Energy Act (EEG). So far, the government has drafted only miniscule changes to the EEG, which extend deadlines for the realisation of renewables projects amid the coronavirus crisis.
E3G’s Reitzenstein has said a major reform of the Renewable Energy Act (EEG), including much more ambitious expansion pathways for renewables, is “overdue”, especially as chancellor Angela Merkel has committed to an increased EU climate target and projections showed that power demand would increase in sectors including transport and heating.
In May, the federal government and states agreed to introduce a coordination committee on the accelerated expansion of renewables.
The government aims to expand onshore wind capacity to about 70 GW by 2030, from 54 GW at the end of 2019. However, expansion fell to the lowest level in 20 years in 2019, mainly due to regulatory hurdles and local opposition. To reach the 2030 expansion target, the climate cabinet decided on several measures in September 2019, including an attempt to increase acceptance from residents by introducing a national minimum distance rule for turbines from nearby settlements.
Based on these proposals, economy minister Peter Altmaier presented a plan for strengthening the expansion of onshore wind power in October, which included a legislative timetable for the individual measures. Most of these were scheduled for some time in 2020.
Progress on key measures:
- After critics said a blanket minimum distance rule would bring expansion efforts to a standstill, as it would leave too little space, the concrete design of such a rule was the subject of much wrangling among the coalition parties for months, and held up legislative progress. In May 2020, the partners finally found a compromise. A provision will be put in the building code that enables states to introduce minimum distance rules of up to 1,000 metres to nearby homes. Legislation now has to be drafted.
- The economy ministry has proposed to increase acceptance by letting nearby municipalities participate in wind park profits. In May 2020, news agency dpa reported a ministry paper, which called for levies to be paid by wind farm operators to nearby communities, and reduced electricity tariffs for local residents.
- The government in March adopted rules on wind turbine illumination that would allow operators to turn off hazard warning lights for air traffic during the night if no aircraft are around to increase acceptance.
- The environment ministry and states are looking into aligning the different rules on wind turbines and species protection, such as distance rules.
The government coalition had originally promised to increase the offshore wind expansion target from the previous 15 gigawatts (GW) to 20 GW by 2030 (status at the end of 2019: 7.5 GW). In May 2020, it reached an agreement with affected states, regulators and grid operators to ensure the implementation. The federal government said it plans to introduce an amendment to the offshore wind energy act in the first half of 2020 to put the new target into legislation.
The government aims to expand solar PV capacity from the current 50 GW to 98 GW by 2030. To ensure sufficient expansion, the coalition has promised to abolish the existing 52 GW solar power support cap. However, media reported that conservative politicians did not want to lift the cap without an agreement on wind turbine distance rules. With the May 2020 compromise, the partners also said they would “promptly” abolish the solar support limit. Altmaier said the removal would be attached to a legislative text already in parliament to speed up the process.
The solar cap was put in place in 2012 due to worries that costs would skyrocket. Introduced before costs for solar power started to plummet considerably over the last years, the cap stipulated that smaller new facilities – those up to 750 kilowatt capacity, which do not have to participate in auctions for renewables support, but have until now simply received feed-in tariffs per kilowatt hour – would cease to receive remuneration under the Renewable Energy Act (EEG) once total solar capacity across Germany reaches 52 gigawatt. The industry expects this to happen by mid-2020, and has warned the cap would threaten further expansion.
CO₂ price in transport/buildings -- status: amendments pending --
After shunning the debate for years, the government coalition made CO₂ pricing in transport and buildings a central element of the climate package adopted in September 2019. The coalition parties heatedly debated whether to introduce a tax on CO₂ emissions – favoured by the SPD – or a national trading system for emissions allowances, as called for by the CDU/CSU. The eventual proposal of a trading system with fixed allowance prices in the first several years is a mix of the two approaches.
The law entered into force in December 2019, but the pricing system will only start on 1 January 2021. In light of the coronavirus pandemic, politicians from the opposition pro-business FDP party have already called for postponing the introduction, saying tax increases would be wrong in times of an economic crisis. However, so far the government sticks with the original plan.
The plan initially proposed starting with a fixed price of 10 euros per tonne of CO₂ by 2021, but this provision was amended in December 2019 following a backlash by state governments. A mediation committee between the national parliament (Bundestag) and the council of state governments (Bundesrat) agreed on a higher starting price of 25 euros per tonne and an increase on prices for the following years. The cabinet on 20 May adopted a draft amendment to enshrine the higher price into law. It now has to be approved by parliament.
Renewables levy -- status: amendments pending --
On the same day, the cabinet also paved the way for using the federal budget to lower the country’s renewables levy from 1 January 2021. This is paid by customers as part of their power bill to support the expansion of renewable energy sources. Doing this with the help of the carbon price revenues was a key feature of the climate package agreements and is meant to avoid overburdening energy consumers. The draft changes to the Renewable Energy Directive have to be approved by parliament. The government said this is set to take place before transmission grid operators publish next year’s renewables levy on 15 October.
It is not yet clear by how much the surcharge will be lowered – the government and parliament have yet to decide how much of the budget to use, which could lead to contentious debates. Energy industry and business representatives have long called for a complete abolishment of the surcharge – a demand utility E.ON’s CEO Johannes Teyssen recently reinforced in an interview with Frankfurter Allgemeine Zeitung.
Hydrogen Strategy -- status: adoption by cabinet delayed --
Researchers and companies have highlighted the production and use of green hydrogen in the energy transition for some time, but the idea of a German government hydrogen strategy really only gained traction in 2019. Northern states made the first step by kicking off work on their own hydrogen strategy at the beginning of the year. In July, economy minister Peter Altmaier announced that Germany is aiming to become a global top player in hydrogen technology and that the government would present a strategy before the year was out. He organised a big hydrogen conference in Berlin in November, but the strategy itself got delayed. In 2020, the cabinet pushed back a decision again and again, as affected ministries argued about key issues, such as which hydrogen to include and whether to support fuel cell passenger cars. The cabinet had still not adopted the strategy by mid-May.