Germany bucks 17-yr power trend

For the first time in 17 years, Germany became a net electricity importer in 2023, largely due to expensive fossil fuels which meant power from its neighbours was cheaper than that domestically generated. Carbon emissions in the country also plummeted but is the drop permanent as the country looks to transform its power system? Listen to a discussion on the choices facing Germany and the pros and cons of splitting its single power market zone.

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel

Guest: Fabian Huneke, Project Lead Energy Transition, Agora Energiewend

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:05

Hello listeners and welcome to the Montel Weekly Podcast, bring You Energy Matters in an informal setting. In today's pod, we turn our attention again to Europe's largest energy market. Germany has seen phenomenal growth in renewables capacity, and in 2023, green electricity met more than half of the country's power demand. However. Germany also became a net energy inor for the first time in 17 years. What's the outlook for 2024 in addition? What has the increasing reliance on intermittent solar and wind power meant for costs in balancing the country's grid and when can we expect to see Germany sign off on its power plant strategy? Helping me Richard Sverrisson to discuss this and much more is Fabian Huneke of Agora Energiewend at Berlin based think tank. Oh welcome to you Fabian.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 0:59

Thank you very much, Richard, for having me.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:01

I hope I haven't totally mispronounced your surname.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 1:03

No, not totally.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:05

Just a little. Okay. Excellent Fabian. I'd like to start off by talking about the carbon emissions in Germany in 2023. Now they fell quite dramatically. Is that right?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 1:16

Yes it has been a huge drop. It has been 73 megatons less than last year, so this is 10% year on year, and this is really, is huge and it's the lowest emissions we had since the 1950s. Excellent. So what's the main reason for that? What's the main cause of the drop? Yeah, while 73 megaton sounds and 10% is really good news for the climate debate, we have to look a bit closer and we have to see that not all of these emission drops has are sustaining through the next year. So there are some of these ambition or some reasons for this emissions drop, which will be there next year and this decade, but some of them may come back. Some of these emissions. So we estimated about 15% are sustainable emission drops, but 85% are not. And the biggest reason we see for this emissions drop is a shift in import and export of power. So if we look to the imported export numbers, we see that there have been 19 Tet hours, less exports. So we used to be a very big exporter of ignite and coal power, and this has been reduced dramatically and we also increased our imports. So the imports increased for 20 meg tett hours, so we. Really reduced exports, really increased imports and for the first time for many years we have been a net import of power.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:45

And you expect these emissions to, to not be permanent in a sense that they could basically the exports of these kind of power sources could return.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 2:55

So this is not really clear as it depends on the merit order in the European power plants, and it is very clear that the merit order can change when the co price changes, when the gas price changes, and when the CO2 price changes. Let's have a scenario with low CO2 prices and high gas prices. Coal would be in favor, the merit order and consumption could like production, coal production, IGN production could boost up again. And then all we have. As a emission drop this and last year could be back again.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:30

So a lot of this is out of the hands of, or out of Germany's hands. Put it that way. It's all depending on, on, on global or European commodity prices.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 3:37

Yes, true. So we can't rely on this. We if we really want to substitute this power, we should rely on cheaper imports than producing coal power. We should rely on producing more power out of. Solar out of wind,

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:52

You feel, then do you think that the government or the authorities in Ger Germany can't afford to be complacent here? They have to be, they have to meet this structural challenge of decarbonization, right?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 4:03

Yeah that's totally right. So we can't, we cannot just only rely on a phase out of nuclear and a phase out of coal and of ignite. Without having a phase in of the same amount of electricity produced in Germany out of solar and wind, because if we don't do the the increasing demand for electricity out of from coming from electric vehicles, from heat pumps, from Electrolyzers can't be met. If we don't wanna be a net importer for the next decades, we need to rise our expansion of solar and especially of wind. The solar expansion has been quite big last year, so we had an addition of 40.4 gigawatt of photovoltaic, so this was quite good. But we still have only a. Small addition of wind onshore facilities.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 4:57

If you look at the numbers here, and you, as I said in the introduction, that more than half of Germany's power demand was met by renewable electricity. That, that's quite a phenomenal number.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 5:07

It is really big news and it's, I think also it's great news but if we look closer. Let's keep in mind that the emission or this high share of renewables is also an effect of really low electricity demand As industrial consumers were producing less goods. Also the energy intensive consumers, they were producing less goods, so they had a low gas demand. They had a low power demand. And it's easier to have a high share of renewables if demand is low, isn't it, Richard?

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:40

Yeah, absolutely. But do you expect then, do you expect demand to return to pre pandemic levels in the next two or three years?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 5:48

Actually the big, the big idea of our energy turnaround in Germany is to have electrification of heat electrification in the transport sector. It would be very bad news if we couldn't have more demand on the power market. If so, I think today it's very hard to say if the energy intensive industry in Germany will be full back, fully back in some years. We have seen a really large drop and in parts the industrial production of aluminum and so on metals chemical production they may, they might come back not to the full, not in full extent maybe as well, in to the full extent. That's how to predict from today.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:33

In a sense, some some people would say that it was a mistake or maybe Germany was a little bit hasty in, in, the coal or the nuclear exit and then the coal exit. Would you agree with that?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 6:47

I think Germany was not. Has enough with expansion of renewables. So we had we just we, we have not used the tie we had during the phase outs of nuclear and now during the phase out of colon ignite. And this is I think the main reason why we had an import balance shipped in water to imports now. Yeah. And maybe one more word to the difficult German question of the nuclear phase out. How to put it, let's say it's. For German energy policy, it's a value itself to keep to the plan which has been there. So everybody who invested into a power plant the last years knew that there would be the nuclear phase out. And if you if you take if you put your investments into the market. Relying on energy policy and then the phase out plans are changed and changed again and over again. This also is not really a good good and reliable policy, isn't it?

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 7:52

Absolutely. Uncertainty is a big problem here. And certainly retrospective moves to change the reor regulatory environment are not helpful in any way. But this brings me on to my next question, and I know we discussed it be a little bit before we went on Air fian, in order to keep the lights on. Many people have said that the country needs to install, 2025 gigawatts of gas fired or hydrogen ready capacity. Plans are expected soon is called the power plant strategy. If I'm not wrong, we are discussing now on, on Tuesday the 23rd of January. So soon the strategy could be made public, but what do you expect to see here?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 8:27

There are, I think let's break it down to three different mechanisms, how we could invest it to steerable power, plant capacity. One is the power plant strategy, but let's keep that to the end and just mention the other two. So there as combined heat and power power plants, which are. Finance through a special law in Germany, and some of the capacity might come from investments in this sector combined heat and power substituting some coal power plants, which are producing heat as well and so on. Then we are also, at the moment we had this platform, clean, not rally storm system, so platform climate neutral power system where we discussed a lot on the on the. Topic of capacity markets. So there is the second mechanism, how to finance the steel web power plant capacity. And then the third one is this power plant strategy. The power plant strategy is a shortcut. For the German government not to go through the dis whole discussion of a capacity market and to have an auction for capacity a little bit sooner than later and also having it before the next election. This this I think was was maybe the idea of this power plant strategy and there has been a, understanding that the European Union and at least the commission and the German government, they said in, in summer 2023, okay, we now found a common understanding how we can do this power plant strategy, how we can form the auction and to what share we need. Which kind of power plants. And then there was a big problem in November when the court said that we can't just spend so much money anymore and this kind of very expensive power plant strategy. So the number of 60 billion euros was there in the room. Had a, had bad times during the winter, I'd say. And actually they wanted to have the power plant strategy ready in December and now we are still waiting for it. And some in the Berlin political sphere say. The power plant strategy is dead already. Some others said it's it's to be expected to be there right? In some days. So we hear a lot of things, but nothing from the ministry. So we are very, we are looking, checking our mouths every second. Yeah.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:02

Absolutely. Absolutely. And probably a good thing to, to follow in Montel News as well, 'cause we're on top of these developments. Yeah. I'd also maybe like to point any listeners to an episode we covered at the start of January when we looked into detail about the Constitu constitutional court decision. And this 60 billion euro black hole in the finances of the power plant strategy. But the, the. There is a lot of talk about, ways of keeping the lights on. Do you think the best way is to build or Germany has to build this amount of capacity to back up the renewables and the energy transition in Germany?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 11:36

It is very clear that there is a certain amount of capacity which has to be built, but the certain amount is not so clear how high it is. You said something about a little bit more than 20 gigawatt. I think the studies, I know there are somehow between. 18 gigawatt at the least, and about 35 gigawatt at the maximum.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:56

Wow. Wow. Okay.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 11:57

So there are a lot of numbers and I really can understand from a, from the perspective of a model why their numbers are differ so much from each other. It's, I think it's because if at the same time a lot of electric vehicles and t pumps wanna consume electricity maybe in the winter. You will need a lot of backup capacity if you in the other hand, as a modeler of the energy system in six or 10 years, assume that that they are consuming power. Very flexible. You won't need that much capacity, but you will need a lot of fresh capacity in the market. And ev so this is very clear, but it's not really clear how much it will be. And maybe this discussion is also a good a good argument for us not to not to let the ministry or the regulation decide what is the right capacity because it's not clear yet. So maybe the market is the better has the better feeling for the right capacity. Yeah. This could be a good argument to to let the market decide whether the right share of power, plant capacity, and flexible consumption and the. At the, for at the level of of electric vehicles and heat pumps, what is the right share? Yeah,

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 13:16

I think we discussed this in in last week's episode, more the role of flexibility, which is absolutely crucial here. But just a final question on the power plant strategy. Fabian, is a lot of it here to do with, for example, is the delay in. Publishing it as you've mentioned, is it to do with the European Union concerned about the market design in Germany and maybe going against or breaching state aid regulations? Has Halbeck the economy minister, has he boxed himself into a corner?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 13:43

Richard, I I don't know, but I can tell you my personal view on this. Sure. Which is more or less if you wanna have fresh capacity in the market, but you don't want to spend years of discussing a capacity market. And then you decide for a shortcut and you do a decarbonization instrument saying, I want capacity. I am, I want to auction capacity. For renewable electricity, you will need green electricity, which is not coming from natural gas. The basic idea of the power plant strategy is to have not. Any kind of capacity be, but to have green electricity. The power plant capacity power plant strategy needs green hydrogen in the merit order in front of natural gas power plants. And this is the expensive thing about the power plant strategy. And now I think this is like a discussion which. Could have been okay-ish for the state and for Mr. Lindner in summer. But now after the court's decision in November, there's not enough money to have a very expensive but quick. Instrument. And this is, I think this is the hustle we are having now at the moment.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 15:01

Could you just explain to the listeners rather who Mr. Lindner is those not so familiar with the intricacies of German politics? Fabian.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 15:09

Yeah, of course. So Mr. Lindner is allowed to look over who's, what money is spent in Germany on what exactly?

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 15:16

So he's the finance minister. He's in charge of the purse strings as you were. Now let's move on to the, some of the issues related to this huge growth in renewables in Germany and the challenges in balancing the grid or managing the net networks here. You researched into the concept of re-dispatch and could you explain that and why that's important for the electricity grid?

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 15:39

What's the nice thing about renewable electricity for wind and for Volta is that it comes for zero short run marginal cost. So they can produce power for zero costs once they are built. And if it's windy and if it's sunny, they do this a lot and they do it at the same time. So there's a lot of grid electricity in the grid. And the grid can't ha can't have this big feed in all the time at all regions. So sometimes the grid operators have to say sorry we used, we have a problem. There's too much electricity in this grid element. We need to constraint. We need to ramp down your production, your feeding, and because someone else wanted to consume this power and bought this power over the exchanges. At another point in the grid, another power plant has to ramp up and this management is called dispatch and. At the at the moment, this is done by the TSOs. The big question at the moment is, are the TSOs the right institution to manage this? Or should we break up the prices or let the market decide where power should be produced and where should be consumed, which power plants are ramped up and ramped down. Yeah, and I think like the last years the discussion risk bench was like. Increased in velocity because risk patch cost and risk pitch numbers were were growing and increasing. So this discussion has become very vital these days. And I think one number is very interesting when looking to 2023 we had 22% of the wind offshore generation. Which has been cured, has been dispatched in the first half of 2023. So it's one out of five kilowatt hours of wind offshore power, which could have been produced but hasn't been fed into the grid embraces and it has, we had to pay for it. This is quite a, quite, quite a big number. But let me add, 2023 is maybe a bad example because of the first quarter of 2023, we had the low nuclear output in France. We had a lot of dispatch in southern Germany. So maybe this is like a very enormous number, which won't be there in the second half of 2023. But still it's not a problem of the future. It's a problem of today. What do you mean by that? Do you expect that those numbers to come down? The only thing which can reduce this number is the grid expansion, but there's another measurement, another measure which could be undertaken which is organizing this re-dispatch process, which could be reformation of the price zones in Germany. So one thing is like really healing this problem with grid expansion. And the other one is who's responsible for telling? Who should be re-dispatch? Which power plant, which generation source should be dispatched? Is it a power plant in the European surrounding countries from Germany. Is it a, is it an offshore power plant? Is it a co power plant? So who should be in charge for for giving the dispatch signal? Is it the TSO Should they do the dispatch? Or should we have a market? Where the market price decides which power plant is feasible to run and which is not.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 19:03

I'm tempted to say, I think you side with the latter here. Fabian.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 19:06

Actually not. I'm in a process of understanding I think there are two positions and if you ask the market, you will find. All those with more scientific view on the market. And both the European look to market will go for nodal or zone of prices. And if you ask if you ask stakeholders who have been in the market for some years in the German market, and not so much from the scientific, but like from real economic economy, they will say one single price zone has really good effects. And we shouldn't, we should keep to one big price zone. I think the big, the. If we break it down to two, only two arguments, the two most important arguments, I think the fans of Nodal and Zonal Price say, Hey, we need a good efficient re-dispatch in the future and the renewable electricity and the consumption of electric vehicles and heat pumps will be decentral. So we need decentral markets, but then the other ones come and say okay. But what we need as well is a liquid market, a liquid power market. We want to, to trade our risk at the forwards market. So we need some liquidity. And all these small markets, they won't be able to have all this liquidity and these two positions that they both are valid and I, at the moment, I can't decide which one to follow.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 20:21

It's a very complex, and also obviously having one German power zone is politically a very, a strong argument as well.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 20:31

This is, I think because, the Southern Germany industry is fearing to pay more for electricity than the northern one. Although if you look closer, you have to admit that through the grid fees, we are already having a very decentral structure of power prices because the grid fees are. Differing from north to south, very much. And in, in the northern part of Germany, you're having higher grid fees in the southern part. So only looking to the grass market and to the power exchange might be a little bit too under complex. Yeah. Maybe I, I find one, one, there has been one occasion at the beginning of January at 15th of January, which was quite interesting. May, maybe, let me explain this one because it perfectly fits to what you asked me, Richard. It has been quite windy on 15th of January, so prices were quite low but the wind was produced in Northern Germany, so they had to re dispatch a lot. They had to turn to ramp down some wind power plants in northern Germany and to ramp up some gas and coal power plants in southern Germany and surrounding countries. This. Let the TSO in southern Germany, in Bat WuGutenberg Transnet. Let them to tell the people consumer power in Southern Germany, which is called s an app where you can see like messages from the TSO and they say if you want to help to stabilize the grid, please consume less power. We have two signals here. One is the market signal. It says, consume more power. It's windy, the price is pretty low at the exchange. And then we have a TSO thing, please produ please consume less power here in southern Germany because it's quite expensive to have dispatch at the moment. If you wanna have. Lower grid fees, you can help us by reducing consumption. And okay, this is one occasion and this has been there last year as well, one or two times, but maybe this will be more frequently in the next years. If we exceed our, if we expand our wind portfolio.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:38

Absolutely. So obviously it's the consumer in the end who pays for these very costly re-dispatch and this curtailment of wind power. So what's the answer? That's the, if we can round up by talking maybe, what could be the answer here? Fabian.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 22:50

Richard it's hard to tell you the answer because we, I think we haven't found this the stone of wisdom yet in, in these regards. But there are two approaches to this. One is have more intelligent grid fees, so look to the grid fee structure in Germany and give it a a good structure concerning how high are the grid trees at what time and how high are the grid trees where. The grid. The other one is change the bidding zones. This could be this could be an answer to a higher dispatch strategy, but until now, we haven't found a cure for the problem of a liquid future market, forward market. We, it's too early for us to say this is our Agora advice for the grid fees. This is quite this is quite, quite obvious that we need intelligent grid fees which change through the time and change through the node. And we could concentrate on doing having good grid fees at the moment and have a good debate on, on the power market design, on the zonal and nodal split we are trying to help this discussion by doing a nodal, I don't know if you saw this. We have a tool, a dashboard where we visualize the market and we are planning to expand this to have a view on what would be a noal price if we had one, and what would be the renewable energy share if we had a Nodal system. So it. Maybe going to launch with somehow first half of this year, I think. And then let's have a good discussion about the pros and cons and decide for or against a single price zone.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 24:30

Absolutely. A lot of interesting work ahead there, Fabian. I think so. Thank you for joining the Montel Weekly podcast.

Fabian Huneke, Project Lead Energy Transition, Agora Energiewend: 24:36

Thank you, Richard.