Germany's Energiewende is Shifting the Energy Paradigm, Now it's Time to Optimize

By Peter Sopher

Revolutionary paradigm shifts often require cohesive development of many moving parts, some of which advance more quickly than others in practice. Germany’s revolutionary Energiewende (or “energy transition”) is no exception. Set to achieve nearly 100 percent renewable energy by 2050, Germany’s Energiewende is one of the most aggressive clean energy declarations in the world. While growth of Germany’s installed renewables capacity has been explosive in recent years, optimization measures designed for Energiewende have manifested at a relatively slow pace.

Germany already has one of the most reliable electric grids in the world, but as implementation of Energiewende continues, optimization will be key to its future success. This will require better sources of backup generation to accommodate the intermittency of wind and solar, a dynamic energy market that ensures fair compensation for this backup, and a more flexible, resilient grid enabled by smart grid technologies to fully optimize demand side resources and a growing renewable energy portfolio.

Every plan needs a backup

One of the biggest arguments against building a world dependent on 100 percent renewable energy is the challenge of intermittency. To make up for this “weakness,” grid operators have traditionally relied on fossil-fueled “peaker” plants to fill the energy gap when the sun’s not shining or the wind’s not blowing. But more flexibility for dispatch that includes energy storage and demand-side resources is needed to backup increasing amounts of wind and solar.

According to the Hertie School Experts, “approximately 80 GW” of backup capacities will be needed for Germany. At present, lignite and gas are the country’s most abundant backup power source. Among renewable energy sources, pumped hydro and bioenergy are the most developed technologies providing storage capacity, but potential for these sources in Germany is very limited. Close to Germany, in Scandinavia, there is more potential for storage, but infrastructure for transporting electricity from Scandinavia to Germany is â€" at the moment â€" underdeveloped.  More robust grid linkages with other countries will enable renewables from across the continent to provide power for a larger number of people.

Demand response â€" an energy savings tool that pays people to shift their electricity use to times of day when there is less demand on the power grid â€" has also proven to be a successful backup resource in the U.S.; but in Germany, it is still a very nascent resource. However, EnerNOC president and co-founder David Brewster believes that “in the next two years, Germany is [EnerNOC’s] biggest opportunity in Europe.” Because demand response relies on people, not power plants, to accommodate rising electricity demand, better integration of this powerful tool could help Germany balance its growing renewables portfolio without having to build more peaker plants.

Backup power must receive appropriate compensation

The current energy market in Germany fails to fairly compensate backup power solutions. One potential solution to this challenge includes shifting from Germany’s current “energy only” market, in which utilities are only paid to produce and deliver energy, to a “capacity” or “capabilities” market.

In a capacity market, utilities are not only compensated for the energy they produce, but also for what they have on reserve for immediate use when faced with reliability challenges. But this model does not give preference to any particular energy source. A capabilities market is more flexible to changing market needs. As a result a capabilities market can use competitive forces to incentivize reduced CO2 emissions or water usage for example. Natural gas-fired plants, energy storage, demand response, and renewable energy resources are just a few examples of the reliability measures that might be prioritized over a coal-fired “peaker” plant when trying to meet the demands of a strained electric grid.

Smart infrastructure will optimize Germany’s electric grid

Today, much of Germany’s renewable energy generation occurs in the north while demand is in the south.  While transmission capacity, at least in the short term, is sufficient for serving Germany’s energy demand, high voltage transmission and distribution (T&D) infrastructure is needed to alleviate pressure on the increasingly congested lines transporting power from Germany’s north to its south.

Since the passage of the Grid Expansion Acceleration Act (NABEG) and the Energy Act (EnWG) in 2011, the Bundesnetzagentur (BNetzA), or Federal Network Agency, has been leading Germany’s grid expansion efforts. For example, through approving grid enhancement and expansion efforts from the 2013 Electricity Grid Development Plan (NEP 2013), BNetzA is leading the enhancement or optimization of 2,800 km of existing power lines and the construction of an additional 2,650 km of new lines.  Each year usually involves a new NEP, and longer term 2015/2025 grid expansion plans are under development.

Beyond added transmission and distribution, Germany must also improve investment in smart grid technology, such as intelligent sensors and smart meters. This technology allows for a two-way exchange of energy information between customer and utility that empowers people to save energy (and money), while helping utilities balance demand. While a goal of Energiewende, implementation of smart grid technology has only recently begun. A more robust adoption of smart grid technology could help Germany bring more renewables online, improve grid reliability, reduce electricity demand, lower or maintain energy costs, and reduce harmful CO2 from polluting power plants.

Conclusion

While accumulation of renewable electricity generation capacity is the most iconic feature of an energy transition, a host of additional measures are necessary for optimizing an electricity grid’s cleanliness, cost-efficiency, and reliability. With so many moving parts to an energy transition, it’s inevitable for some to advance more quickly than others. For Energiewende, renewables capacity has developed more quickly than grid optimization measures. Awareness of this implementation trajectory is useful for identifying future paths forward with the highest marginal returns for modernizing the grid.

This is the fourth blog post in a six-part series on Energiewende, which will describe best practices gleaned from the German experience and examine their U.S. applicability. Topics will include the Economics, Politics, Governance, Implementation, and Reliability of Energiewende.