Markus Steigenberger is the Deputy Executive Director of Agora Energiewende, a Berlin-based, non-partisan think tank focusing on the transformation of energy systems. In this function, he oversees Agora’s international activities. Before joining Agora, Markus led the Germany programme of the European Climate Foundation (ECF). Markus started his career as a journalist and held various positions in German and international civil society organisations. He completed a Master of Business Administration as well as a Magister Artium in economic history, political science, and law.
In a nutshell, Germany’s “Energiewende” is the transition from an energy system based on fossil fuels and nuclear sources to a system predominantly based on renewable energy. Germany has set a number of targets in all sectors, including electricity, heating & cooling and transport.
Most prominent and most successful so far has been the transition in the power sector. From 1990 to 2015, the share of renewable energy increased from 3% to almost 33%. The key priorities for Germany are the reduction of greenhouse gas emissions, the phasing out of nuclear by the end of 2022, energy efficiency and the growth of renewable energy.
Similar to Germany, Europe as a whole is moving towards renewable energy. Wind and solar photovoltaic (PV) have become the cheapest renewable technologies and are in fact, already cost-competitive when compared to conventional generation technologies. In this regard, they will eventually become the dominant sources of electricity in Germany.
The weather dependency of wind and PV has triggered a paradigm shift in how power systems are operated. Baseload is an outdated concept. Instead, the new paradigm is flexibility. This flexibility challenge requires re-designing the market and the regulatory framework of the power sector. Five elements should be designed hand-in-hand: (i) the energy-only market, (ii) the emissions trading scheme, (iii) an instrument to remove high carbon and inflexible assets (smart retirement), (iv) a scheme to provide stable market revenues for renewable energy, and (v) a mechanism to safeguard resource adequacy.
Despite its ambitious greenhouse gas reduction targets, Germany has started much too late to systematically address the phasing out of high carbon assets. As of today, Germany still possesses up to 50 GW of lignite and hard coal capacity, and produces more than 40% of its electricity with coal/lignite units.
This is neither aligned with climate targets, nor with the growing share of renewables and the need for flexibility in the power system. As such Agora Energiewende has developed a comprehensive plan for German to phase out coal by 2040. The plan has steered a vivid debate and today, discussions are about “when and how” to phase out coal, and not about “if” anymore. The lesson that can be drawn from the German case is to start early in seriously thinking about the future of coal in a renewables-driven power market, and to apply a system-wide perspective that takes into account jobs, regional development and other issues.
Deploying large amounts of renewable energy requires to us look beyond renewables. As wind and solar PV will be the two dominant sources in almost all countries in Asia (as well as in Germany), a system perspective is needed: enlarging and enhancing the grid, retiring inflexible baseload capacities and incentivising flexibility at the demand and supply side are key ingredients for a cost-effective and reliable renewables-driven power system.
Secondly, Germany has deployed more than 100 GW of renewable energy through the instrument of a feed-in tariffs (FIT). This has provided certainty for more than 15 years. Bolstered by FIT, a domestic renewables industry has developed. Banks and investors have learned how to finance renewable projects, and millions of German citizens have either built their own installations or become shareholders in thousands of projects. The downside has been the high costs due to large installation rates at times when solar PV was still relatively expensive. Today, at a share of more than 30% renewable electricity, Germany is moving towards an auction system – with the aim of lowering costs and maintaining control of installation rates.
The energy sector has rarely ever changed as quickly as what we are witnessing today. Conventional fuels like oil, coal and gas have become cheaper, and most experts believe this will not fundamentally change. However, the international climate agreement of Paris stipulates leaving these resources in the ground in order to keep global warming “well below 2 degree Celsius”.
Fortunately, we are concurrently seeing rapidly decreasing costs for renewable energy and storage, which provides us with a credible and viable alternative to fossil fuels. The digital revolution is bringing entirely new opportunities and challenges to the market. We see utilities fundamentally re-considering their role and changing their business models. More and more, we understand that not adopting to these developments will quite likely be a recipe for disaster.