Why the German energy transition keeps on stuttering

Johan Nordensvärd,
Senior Lecturer,
Political Science,
Linköpings universitet,
Sweden

Frauke Urban,
Associate Professor,
Unit of Sustainability, Industrial Dynamics and Entrepreneurship (SIDE),
Kungliga Tekniska Högskolan,
Sweden

Germany has long been considered a champion of the Energiewende (energy transition), by replacing fossil fuels and nuclear energy with renewable energy. Renewable energy, especially wind energy, as well as solar and biofuels have been increasing rapidly over the last two decades. 20% of the electricity is currently generated by wind energy, while solar PV, biofuels and hydropower together account for another 20%. Yet, about 35% of Germany’s electricity still comes from coal, as well as an increasing share of natural gas (IEA, 2020). The country’s coal exit is being planned for 2038, which is nearly two decades away. Critics argue that the continued large-scale use of coal over such a long time frame is a major bottleneck to the energy transition and that the coal exit needs to be speeded up. Other bottlenecks beyond the energy sector are the continued use of fossil fuels in the transport and industrial sectors. Beyond these major bottlenecks, there are also other challenges that lead to a lagging energy transition.

A few years ago we conducted research for our article “The stuttering energy transition in Germany”[1], which captured the perspectives in Germany among industry and policy-makers regarding transitions to renewable energy, particularly wind energy. It has now been 20 years since the Renewable Energy Law (Erneuerbare–Energien–Gesetz EEG) came into force, which spurred the energy transition and introduced feed-in-tariffs for renewable energy. The EEG and the feed-in-tariff for renewable energy, currently being updated again for 2021, are seen as the cornerstone and key instrument for driving forward the energy transition, and with it innovation in renewable energy technology.

Germany’s feed-in-tariff enables producers of renewable energy to feed electricity into the grid and be financially compensated for it for a time frame of 20 years. Offshore wind energy was particularly financially favoured in the early 2000s, to boost large-scale wind energy generation capacities, yet some of that funding will come to an end soon. The feed-in-tariff is being funded not by taxes, but by a surcharge on electricity users, which adds roughly 20% to the price of electricity. Yet, the government is giving exemptions from the feed-in tariff to energy-intensive industries, such as the car industry and other large manufacturing industries. Industries that use large electricity quantities are only paying a small share of the electricity prices that private households are paying.

Over time, the quota for industries to receive a reduction in electricity prices has sunk from an electricity consumption of 10 GWh to 1 GWh which means that the overall national industry payment into the EEG account decreased, while the costs of the energy transition is mainly being shouldered by the individual consumers. Hence the consumer is facing an economic disadvantage while large energy-intensive firms, utilities and large energy providers are the economic winners of the energy transition in Germany. An increased share of wind energy and other renewables has indeed lowered energy prices, albeit only for large corporate customers and energy providers, not for the individual consumer. In recent years, this situation has been partially attempted to be fixed by transitioning to an auctioning system for renewable energy to reduce electricity prices. Yet, this means the cost reduction has to be borne by renewable energy providers and project developers, not by energy-intensive industries that still benefit from the amended system. Other recent policies, such as a minimal distance between buildings and wind turbines of at least 1000 meters has also put a damper on wind turbine installations.

2020 marked the introduction of the European Green Deal and the EU’s ambitions to achieve net zero emissions by 2050. In line with this goal, the German energy transition is advancing, despite the current challenges. Yet, the flawed policy design, the cost exemptions for energy-intensive industries on the back of individual consumers and the continued long-term reliance on coal mean that the energy transition is advancing slower and less smooth than might have been hoped for. For creating an energy transition that is socially just, economically viable and environmentally-friendly, the costs of the energy transition have to be distributed more equal.

[1]https://www.sciencedirect.com/science/article/abs/pii/S0301421515001159#:~:text=Energiewende%20refers%20to%20the%20German,energy%2C%20most%20importantly%20wind%20energy.

Email: Johan.nordensvard@liu.se

Email: F.urban@indek.kth.se

Expert article 2826

> Back to Baltic Rim Economies 4/2020

To receive the Baltic Rim Economies review free of charge, you may register to the mailing list.
The review is published 4-6 times a year.