News item | 2013-12-19 | 08:45 AM

Germany’s energy turnaround takes new turn

After the nuclear disaster in Fukushima in March 2011, Germany embarked on an unprecedented shift in energy politics: the German energy transition, Energiewende, put an end to nuclear energy and boosted renewable energy sources.

We have taken a look at four cornerstones of how Germany's newly elected government intends to reform Energiewende in order to make it less costly for industry and consumers, and how it will affect Vattenfall.

From the start, Angela Merkel, Germany's old and new chancellor, declared Energiewende a "century project." Critics, however, have been raising increasing concern about the alleged malfunctions, saying it has become both inefficient, unsustainable, costly, and anti-social.
Now, Germany's newly elected grand coalition government has agreed on a major reform that intends to turn around the downsides of the turnaround.

Sabine Froning, Director Business and Stakeholder Relations at Vattenfall, takes a look at four major cornerstones of the Energiewende reform and the effects on Vattenfall.

Lower and slower subsidy scheme for renewables

A central question for the coalition is how to define new support levels for different renewable technologies. In line with recently published guidance from the European Commission, the government considers to introduce a tender system to determine the level of subsidies. This could become reality from 2018, provided a pilot project proves that such a system will allow meeting the targets at a lower cost.

Sabine Froning explains why this is important for Vattenfall:
"The agreement safeguards investor security as changes will only affect new plants. This is important for Vattenfall's offshore investments in the German North Sea which will remain dependent on support for the foreseeable future. "

Exemptions from renewable surcharge

Currently more than 2000 companies benefit from a compensation scheme to limit the impact of the renewable surcharge on their competitiveness and jobs. The coalition remains committed to this principle but intends to verify the eligibility and level of compensation in the different sectors. The compensation scheme has also been criticized by the European Commission.

"Vattenfall's lignite mining business is eligible under the compensation scheme and could potentially be negatively affected by a change of rules," Froning comments.

Base power guarantee

With a target of 40 to 45 per cent by 2025 and 55-60 per cent by 2035, the share of renewable energy will continue to grow substantially in Germany. So far, producers of renewable energy have been free from responsibility for delivering base power into the grid. Now it will be examined if the "big" renewable energy operators should have to guarantee a base load part of their capacity.

Sabine Froning says renewable energy, conventional power plants and storages are all necessary to guarantee security of supply.

"Giving more responsibility for security of supply to renewable energy producers will benefit operators with a diverse portfolio such as Vattenfall. The flexible lignite plants provide back-up capacity when the wind does not blow or the sun not shine."

Commitment to climate protection

The agreed text also includes a clear commitment to a functioning European emissions trading system based on a target of at least 40 per cent reduction by 2030. Interventions in the emissions market should only be envisaged in case the CO2 targets will not be met.

"A well-functioning emissions trading system is important in order to enable new investments in low-carbon electricity production and hence for Vattenfall to meet the expectations of society," says Froning.

Are these changes a first tendency to a more integrated European energy solution?

"The coalition clearly expresses its commitment to a strong European policy based on three targets: CO2 reduction, growth of renewable energies and energy efficiency. European market integration is a central theme in the agreement. Coming from one of the largest Member States, this can be seen as an important signal for the European Summit in March."