Has the Cost of Germany’s Energiewende entered a Critical Phase?

Electricity system management costs in Germany are spiralling, in large part due to the sharply increasing costs of compensating renewable generators when their output is curtailed in order to preserve system stability. This, and other prominently criticized failures of the Federal government to control the cost of the Energiewende, have all the makings of a major political issue.

In September the Bundesrechnungshof (the German equivalent of the UK’s National Audit Office) published the latest instalment in its ongoing and sharply critical commentary on the Federal government’s handling of the Energiewende.There is as yet no English version available, but the general character can be inferred from press coverage, such as this detailed report in Die Welt, translated on the GWPF site: “Germany Risks Permanent Loss of Control of Energiewende, Federal Audit Office Warns”.

In essence this new study continues and amplifies the concerns raised in a previous report of 2016, where the Bundesrechnungshof wrote that the Federal Ministry (BMWi) “…does not have an overview of the financial impact of energy transition" and that  "Key questions such as ‘How much does energy transition cost the government?’ or ‘How much should energy transition cost the government?’ have not been asked and remain unanswered.” The authors added that this was no trivial matter:

We therefore perceive the risk that bringing the energy transition forward will become an ever more costly exercise.

Die Welt remarks that in the new report "the criticism is even harder because it suggests a general loss of control." This  point appears to be confirmed by observations in a fresh commentary from the distinguished Danish engineer, Paul-Frederik Bach: “Poor Management of the ‘Energiewende’”.

Bach's presentation of recent data not only shows that the Bundesrechnungshof's predictions of 2016 are broadly correct, but also suggests that the concerns raised in the 2018 study are well-founded. These cost increases appear to be uncontrolled. Take, for example, the following chart reporting a selection of electricity system management costs cited by Bach from the BMWi’s own documentation:

Figure 1: German Electricity System Service Costs. Source: BMWi, cited by Bach “Poor Management of the ‘Energiewende’” (2018).

The sharp rise between 2014 and 2015 is obvious, costs climbing suddenly from €1.1 billion to €1.6 billion in 2015, and €1.7 billion in 2017. Reference to underlying cost data from the Bundesnetzagentur shows that this increase is in large part caused by increasing compensation payments to wind power, both on- and offshore, the output of which has been curtailed in order to preserve system stability. Curtailment payments to wind power in 2014 amounted to €65m, but rose to €277m in 2015, and rose strongly again to €467m in 2016. For comparison purposes, constraint (curtailment) payments to windpower in the UK totalled £91m and £82m in those years. Clearly German consumers are beginning to pay heavily to stop wind power generating. The following chart presents data from 2013 to 2016:

Figure 2: Curtailment compensation payments (Euros) to wind, solar and biomass generators, 2013 to 2016. Source: Chart drawn by the author from Bundesnetzagentur EEG in Zahlen, The Renewables Feed-in Law in Numbers, Tab 9.3.

But the underlying causes are hard to disentangle. A growing capacity of wind power is certainly a contributory factor. Total wind capacity in Germany increased from 38.6 GW in 2014 to 44.6 GW in 2015, with considerable growth offshore (2.3 GW of capacity was added). That obviously matters because offshore load factors are higher, but in itself is not sufficient to explain the fact that total output rose from 57.3 TWh in 2014 to 79 TWh in 2015, an annual increase of 22 TWh. It is true that part of that increase is explained by the greater energy productivity of the enlarged offshore wind fleet, but it would appear also that generally windier conditions increased output. Or, to put it another way, relatively low wind conditions immediately prior to 2015 concealed the latent problems that were brought out with stronger winds in 2015-2016.Together with other factors, about which I can only speculate, such as grid outage, low demand, or the reluctance of neighbouring grids to accept wind overflows, this resulted in a major increase in the volume of curtailed wind electricity, which stood at 1.2 TWh in 2014, but rocketed to 4.1 TWh in 2015. For comparison, the UK constrained off 0.66 TWh in 2014 and 1.28 TWh in 2015. Solar and biomass were also constrained off, as can be seen in the Bundesnetzagentur’s own chart:

Figure 3: Curtailment of wind energy (GWh), biomass, and solar energy, 2009 to 2016. Source: Bundesnetzagentur.

We can calculate approximate cost per MWh by dividing the stated payment by the declared volumes of energy curtailed), and from this it would appear that the unit cost of wind curtailment has also increased very significantly, rising from just over €50/MWh in 2014 to nearly €70/MWh in 2015, and rising again to over €130/MWh in 2016.It is obvious that something new and important is happening in the German electricity system, an energy transformation, an Energiewende certainly, but not of the sort intended. Indeed, while discontinuities are not as common in natural and economic phenomena as sensation-seeking journalists like to pretend, there is sufficient evidence here for it to be reasonable to ask whether Germany is the first to experience a strongly non-linear trend in the difficulty and costs of system management in the presence of uncontrollable renewables.

Then again, the explanation may be more mundane, and political. It is well known that that for several years the difficulties Germany is experiencing in relation to renewables have been masked by the strength of grid interconnection with surrounding countries, permitting export of surplus electricity. That has not always been popular with the neighbouring systems, and it is a matter of fact that Poland and Holland have both installed phase angle regulators at their borders to block German electricity exports if need be. Perhaps the rather sudden increase in system costs is at least in part explained by the fact that these neighbours are now able to say No! when it suits them.

Whichever explanation proves to be correct, and it may well be a bit of both, the Energiewende is now entering a different age, one where the Federal government’s careless indifference to future costs, much criticized by the Bundesrechnungshof for some years now, will cease to be a topic for specialists, and will enter mainstream political discourse. Has the Federal Government lost control of the costs of the Energiewende? How appropriate, therefore that the Greens should be resurgent precisely when those policies are likely to be put in question. It is the Greens, after all, who have cornered otherwise sensible decision makers and used their power within coalition government to force overly zealous renewables policies on the German people. Now the bill is being brought to the table, and Die Grünen can explain in person why they ordered double helpings of all the most luxuriously expensive yet strangely indigestible and unnourishing items on the menu.