On Earth Day, some 171 nations formally signed the Paris climate agreement; it was a mostly symbolic, though meaningful next step. The document now awaits individual ratification and, more specifically, ratification by 55 countries representing 55 percent of global greenhouse gas emissions. When and from where those approvals will come is difficult to say with certainty. How are the targets are then actually met is even less clear. For its part – and well aware of the fact that it has much to do – Germany is in the process of reshaping its transformative Energiewende policy.
To be sure, Germany is no slouch. Over the last two years the country has added roughly 11 and 4 gigawatts (GW) of wind and solar capacity respectively. Last year, nearly 33 percent of Germany’s electricity demand was satisfied by renewable sources – wind even out-produced coal for the first time ever in December. Renewable energy penetration in the power supply is already greater than 100 percent in two German states. Moreover, renewables account for 15.3 percent of gross final energy consumption nationwide, up nearly 2 percent from 2014. Globally, Germany has a top-three wind fleet and the world’s largest solar PV capacity. Related: Is This The Biggest Red Herring In Oil Markets?
But – with high expectations and increasingly heavy realties – there’s still much left to do. As it stands, Germany will not meet its current climate obligations. By 2020, it is estimated that Germany will only have cut greenhouse gas emissions by 32 percent compared to 1990 levels, or well short of its 40 percent target. In fact, GHG emissions have seen year-on-year growth in six out of the last ten years. Persistent, and in some cases growing coal use, combined with backward progress in the transportation sector suggest the current, aggressive electricity transformation is having trouble maturing into a full blown energy shift.
Growing pains are of course expected and, to date, modifications (see: feed-in tariff adjustments, grid fees, etc.) have been fairly quick to materialize, if only reactively. Looking forward – and in an effort to get ahead of the curve – Germany is preparing some big changes for 2017. The most sweeping reforms will come to the nation’s Renewable Energy Act (EEG). Related: U.S. Crude Imports Surge After Long Period Of Decline
Slated to enter into effect on January 1, 2017, pending government approval, EEG 2016 will abolish feed-in tariffs as the primary policy instrument to incentivize renewable energy development. Instead, the Ministry for Economic Affairs and Energy will establish an auction system, designed to provide market-based renewables support while making it easier to control development within a broader network of associated infrastructure.
Three pilot tenders for large-scale PV installations were held last year, producing rather mixed results – hopes for a more diverse pool of bidders and lower prices were largely unmet. Moreover, measures limiting system size and alterations to the surcharge on self-generated and self-consumed power will limit profitability for an already slumping German PV industry. Still, EEG 2016 favors solar development, which is prioritized over more cost-effective onshore wind projects. Related: Biofuel Breakthrough: Production Jumps 64%
Regarding onshore wind, auctions will begin in mid-2017 and continue with relative frequency through 2018 as a price level is established. Incentives will be provided to installations across Germany, but the most efficient sites will receive the greatest support. The exact capacity volumes to be auctioned are less clear, however. More specifically, capacity additions for wind are determined by subtracting existing and non-wind planned renewable additions from the target figure for renewable electricity. As such, onshore wind takes on new swing-producer role under EEG 2016. Floors and caps have yet to be decided, but will likely settle in the 2.0 to 2.9 GW range, far below last year’s record level.
For Germany, increased uncertainty and planning insecurity for many of the country’s wind developers is a necessary risk as it tries to combat ballooning state costs and infrastructure deficiencies. Its climate responsibilities are great, but – with much of the world watching, and taking notes – getting it right is the first piece of the puzzle.
By Colin Chilcoat of Oilprice.com
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