Germany’s energy transition, or Energiewende, offers lessons
for the United States, just not the ones typically cited on this side of the
Atlantic. The challenges and concerns that have arisen in Germany should not be
taken as indicators that the Energiewende is failed policy, or more
specifically, to dismiss the importance of renewable energy.
In the past year the U.S. Government has intensified efforts
to highlight climate change as a critical national policy issue. The White
House unveiled a Climate Action Plan in June 2013 outlining three ways
to address climate change, including reducing carbon emissions from power
plants. In March 2014, the Department of Defense’s Quadrennial Defense Review 2014 concluded
that the impacts of climate change are “threat multipliers.” In May, the Global
Change Research Program released the National Climate
Assessment, concluding that the U.S. is already experiencing the impacts of
climate change, from drought, severe weather, ocean acidification and sea level
rise. Then on June 2, 2014, the EPA issued its proposed rules to reduce carbon emissions from
existing power plants by 30 percent by 2030.
This revitalized interest in crafting policy to address
greenhouse gas emissions, in particular from the electric power sector, is in
contrast to Germany which, for over a decade, has had a robust, comprehensive
energy-climate policy centered on dramatically increasing the share of
renewable energy in the electricity portfolio, and since Fukushima accelerating
the phase-out of nuclear power. The cornerstone of the support for renewable
energy is a feed-in tariff (FIT) providing a guaranteed above-market price and
grid access for power generated from a renewable energy source over a fixed,
long-term period (e.g. 20 years).
The results are impressive. Germany’s share of gross electricity consumption from renewable
sources increased from 6 percent to 17 percent of the national total in just
one decade (2000- 2010), and renewables now account for 23 percent of
electricity consumption, surpassing the government’s goals: they had been
projected to reach 20 percent by 2020. In addition, the country is on pace for
much larger capacity additions: by 2022, it is expected that Germany will have
220 GW of total capacity, of which 90 GW will be from conventional sources and
130 GW from renewables, with wind and solar accounting for 90 percent of the
added renewable power capacity.
German policymakers also point to robust investment in the
country’s energy sector, job creation, a burst of renewable energy technology
innovation and Germany’s status as a global leader in the renewable energy
sector as positive outcomes of the Energiewende.
Nevertheless, the Energiewende also poses challenges. During
a recent Brookings private roundtable with German counterparts, U.S. utility
industry representatives expressed skepticism regarding the efficacy and
viability of the Energiewende, reflected in the following issues and questions
raised during the meeting:
- Cost Impact on Households. Would rising household rates evidenced in Germany be acceptable in the United States?
- Implications for the Economy and Industrial Competitiveness. How do the costs of renewable energy policy affect long-term economic growth and competitiveness?
- Impact on utilities. Will traditional utilities be driven out of business? Or are new business models emerging?
- Fairness and equity. Would a policy in which one sector (households) bears most of the costs be politically or socially viable in the United States?
- Technical barriers. How is Germany overcoming technical challenges in integrating large shares of variable renewable energy, including impacts on neighboring countries?
The Energy
Security Initiative (ESI) at Brookings will be exploring these and
other issues in detail in a policy brief to be released later this summer, but
for now, based on our roundtable discussion and related research, we can see
that Germany’s Energiewende provides several useful lessons for the U.S. as it
thinks strategically about the future of its electricity industry.
1. Setting objectives and developing national policy are
important. If a country can agree politically on fundamental objectives,
designing and implementing effective policy mechanisms is easier. For German
policymakers, renewable energy is a pathway to achieve the environmental
objective of addressing climate change, as well as to bolster economic goals
(promoting a new industry, creating jobs, stimulating exports and trade), and
enhance security (diversifying sources of energy). In spite of high costs, and
despite the realization that elements of the Energiewende need to be reworked,
Germany has rolled out a sweeping and effective suite of policies and
legislation successfully, supported by a remarkable political and social
consensus. In particular, it has been able to come to an agreement about the
exigencies of climate change and the importance of emissions reductions, as
well as reach a strong consensus on phasing out nuclear power primarily for
safety concerns. Gaining a consensus on a clear policy direction is critically
important and should precede and inform debates about which specific policy
mechanisms to implement and how.
2. Monitoring and course corrections are required, with
solutions tailored to local conditions. Policymakers should be prepared
not only to monitor continually the effectiveness of policy, but also to alter
the policy as technology and market conditions change. Importantly, fine-tuning
policy or market design should not be viewed as a failure.
German policymakers acknowledge that the FIT policy was not
responsive sufficiently to market and technological changes. As a result,
proposed revisions to the law currently under consideration are intended to
make policy more market-oriented, moderate renewable energy capacity additions,
and have industry shoulder more of the cost. Policymakers also are focused
increasingly on how to adapt market design in order to ensure sufficient
flexibility to accommodate high levels of variable renewable energy.
Even supporters of the Energiewende do not believe that
other countries should follow suit with exactly the same approach, and
recognize the enormous scope of the challenge. German policymakers see the
energy transition as a worthwhile experiment in the global effort to address
climate change, and accept that this will come at a high cost. As one architect of the renewable policy has noted, “With the
Renewable Energy Act that we created in 2000, we financed a learning curve that
was expensive. But the good news is that we have learned in only 13 years to
produce electricity with wind power and solar facilities at the same price as
if we were to build new coal or gas power stations.”
Moreover, cultural, economic and industry differences
between the two countries mean that we cannot expect every element of the
Energiewende to work in the U.S. For example, the FIT is not likely to be a policy
tool widely deployed in the United
States. As part of Brookings’ research in recent years, we have heard
considerable skepticism of this approach among key stakeholders, with concerns
largely revolving around the experience with the Public Utility Regulatory
Policies Act. Abundant, cheap natural gas also seems to offer one low-cost and
politically palatable pathway to reduce carbon emissions significantly (i.e., a
widely available alternative to coal), though over-reliance on natural gas
brings its own set of challenges.
In addition, electricity consumption of the average American
household is significantly greater than the average German family of four which
uses about 3,500 kWh/year, while the U.S.
average is 10,800 kWh/year, making a U.S. ratepayer much more sensitive to
price increases. Furthermore, despite the Energiewende’s costs, German
households and politicians remain ideologically committed to the goal of
emissions reduction and highly tolerant of the associated costs. The fact that
alarm over climate change and its impacts have not penetrated American politics
or society in the same way may be the most significant cultural difference
between the two countries and may explain American disbelief that Germans could
remain supportive of an increasingly costly policy.
3. A high level of renewable penetration presents unique
challenges, but is manageable. Germany has demonstrated that high levels
of renewable energy penetration are possible, with limited to no impact on
reliability and system stability. This is commensurate with numerous recent studies that have concluded that
“proven technologies and practices can dramatically reduce the cost of
operating high penetration variable renewable energy,” including at penetration
levels above 50 percent, without negative impacts on reliability. A recent analysis from the International Energy Agency
stated that system integration of renewables is not a “significant challenge”
at penetration levels of up to 10 percent of total generation, although
“minimizing total system costs at high shares…requires a strategic approach to
adapting and transforming the energy system as a whole.” Cost-effective
solutions are emerging for implementing this system transformation approach –
some in Germany – including developing market rules that enable system flexibility,
diversifying resources and expanding the geographic footprint of operations,
and improving system operations. In particular, resources such as demand
response, storage and energy efficiency are important tools complementing such
a systemic transformation. Indeed, we are witnessing higher renewable energy
penetration levels in several U.S. states. In Iowa and South Dakota, for
example, wind provides more than 25 percent of total
electricity generation. In short, high shares of renewable energy in the
electricity mix present less of a challenge for technical integration, than for
existing business models and market design.
We don’t have to copy the Energiewende in the United States.
We should, however, not let challenges raised in Germany’s experiment disparage
renewable energy. Rather it is an abundant natural resource that can serve as a
critical asset in meeting multiple energy policy goals: economic, environmental
and national security.
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