Germany’s Energy Transition Creates Costly Problems With Grid

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By Jabeen Bhatti

Bolstering Germany’s renewable output and expanding its electricity grid will be among Chancellor Angela Merkel’s priorities if she prevails in upcoming federal elections.

As Germany forges ahead with its green energy transition, grid operators are being forced to dramatically increase operating costs to stabilize a centralized grid that has become unsuited for fragmented renewable production.

“In the next legislative period, we will need a great deal of effort to overhaul our transmission networks,” Merkel said at her Christian Democrats’ Energy Policy Dialogue event in April.

A “speedier” legislative process will be a priority as will establishing a “community of responsibility” with those of Germany’s federal states that have lower transmission costs than others, she added.

Germans head to the polls Sept. 24 to decide whether Merkel, who has led Germany since 2005, will remain in power.

Even if so, to make Merkel’s vision a reality, “there’s a lot of investments that they have to make and this contributes to increased grid fees,” Matthias Lang, a partner at the Bird & Bird law firm in Düsseldorf, told Bloomberg BNA. “But even if tomorrow we have a beautiful idea for the grid, it will still need to be built. And we’ll be paying for it for the next 40 or 50 years.”

The energy transition, in full swing for more than a decade, has drawn attention across Europe and from other countries also looking to rely more on renewable energy.

Germany already has some of Europe’s highest energy costs, so analysts wonder whether more increases will curtail public support: Some 95 percent of Germans support continued investment and expansion of renewables, according to a representative survey by German research agency Kantar Emnid.

Transmission Snafu

Germany decided to cut ties with nuclear power in an ambitious energy transition known as the Energiewende. The move completely upended its energy production and transmission procedures. Since beginning the phaseout of nuclear energy in 2010, renewable energy output has doubled to 33 percent of total production in 2016, while fossil fuel and nuclear energy production significantly decreased, according to the Federal Ministry of Energy and the Economy. As of March, wind made up almost 12 percent of all electricity generation, while solar was almost 6 percent.Despite having succeeded in rapidly overhauling energy production, Germany’s electricity grid, originally optimized for a centralized approach to energy consumption and transmission of non-renewables, is still struggling to efficiently accommodate the flood of electricity from renewables, analysts said.Strategically placed power plants used to funnel energy in a harmonized system based on need, price of production, high-consumption areas, and energy availability. As such, grid infrastructure developed along centralized transmission routes.The Energiewende’s quick rollout changed that practice. As opposed to strategically erecting power plants in line with transmission networks, renewable energy centers began popping up wherever wind or solar was available. That created a distributed operation using mixed energy sources that has put increased strain on the existing grid, analysts said.“The factor is really commercial where you get the cheapest place to put your wind farms” and solar, said Lang. “It has nothing to do with where the power is consumed. So you have increased the amount of transportation that you need, because there’s a total disconnect between where generation and consumption takes place.”

New Infrastructure ’Urgent’

The German power grid is sectioned into transmission quadrants overseen by four operators: TenneT, Amprion Inc., 50Hertz Transmission GmbH, and EnBW Transportnetze AG.Hundreds of local and regional energy producers pay these operators to transmit electricity to consumers across Germany. Costs on producers then are passed on to the consumers themselves. Analysts and grid operators said the transmission costs largely stem from efforts to stabilize electricity flow on the grid, known as re-dispatch costs, during periods of particularly high renewable output. This involves turning on or shutting off traditional power plants either to stanch or ramp up output in line with need.As renewables have become more popular, increased output has clogged transmission on a grid that was optimized for fossil fuels. This January and February, instances of re-dispatch on the grid increased by some 63 percent in comparison to the previous year, a spokeswoman from Germany’s Federal Association of Energy and Water Management told Bloomberg BNA.

Meanwhile, in 2015, re-dispatch efforts cost operators some 412 million euros ($490 million), three times the cost from the previous year, according to the latest Monitoring Report from Germany’s Federal Network Agency. The agency has warned that costs could jump to 1 billion euros ($1.2 billion) by 2020 as renewable output increases.As a result, TenneT, Germany’s largest grid operator, whose transmission zone spans the entire middle passage of the country from north to south, was forced to raise operating fees in its zone by 80 percent in 2017, a company spokeswoman told Bloomberg BNA. That translates to a 27 euro ($32) increase a year in energy costs for a three-person household. Grid prices on average accounted for some 25.7 percent of energy costs for German households as of February, according to statistics from the the federal energy and water management association.“New infrastructure is becoming more and more urgent. Curtailment costs of renewables are increasing and we can’t build the infrastructure so that the networks are faster,” Andreas Jahn, a senior associate with the Regulatory Assistance Project, an energy think tank in Berlin, told Bloomberg BNA.

Infrastructure Needs

Grid operators must now rapidly build infrastructure from the ground up in areas lacking proper access, such as along Germany’s coast with the North Sea, a major center of wind production.“They have an obligation to connect a particular wind farm to the grid,” said Lang. “But if the grid behind the wind farm was never built to take on that type of power, they have to reinforce the grid. And this drives up grid costs.”

This is particularly the case in rural areas in East Germany, where a lack of grid infrastructure has left consumers there footing the bill for updates to newly constructed renewable systems, in addition to transmission costs and stabilization measures.“The costs simply stay with this limited number of customers,” said Jahn. “We need a common agreement on the cost: Urban customers should have to pay a part of the costs in rural areas as well.”While updated transmission routes are supposed to be finished by 2022, when the last of Germany’s nuclear plants are to go offline, the Federal Network Agency confirmed to Bloomberg BNA that new, high-traffic grid connections likely won’t be finished until 2025.

Disputed Solutions

Numerous actions have been suggested to stymie rising costs—from efforts to rapidly increase grid expansion to legislation to equalize costs among consumers across the board, regardless of geographic location.A bill addressing the latter was completed in the Parliament in July and will clear the way for a harmonization of long-distance transmission costs across all regions by 2023.“There’s differing positions from the states simply because many profit enormously from the current system: They have lower grid costs while others’ bills are higher,” Tobias Austrup, an adviser on energy policy with Greenpeace Germany, told Bloomberg BNA. “But it really comes down to a question of fairness,” he added.Another proposal has been to decouple Germany’s transmission network from Austria and Luxembourg to combat electricity bottlenecks at the border that contribute to skyrocketing redispatch costs. But analysts dispute whether decoupling would be financially and politically beneficial. While creating a domestic internal bidding zone for electricity could indeed drive down prices in the short term, it doesn’t match the political objectives of the European Union and could increase congestion at national borders. And that could serve to exacerbate re-dispatch costs.“Electrons don’t know national borders. They know copper,” the Regulatory Assistance Project’s Jahn said. “In the end, it will be more expensive if we have 27 energy transitions instead of a joint project.”

‘Antiquated Power Stations’

Greenpeace’s Austrup views the grid in its current form—with its mix of traditional and renewable power plants—as the root of the problem. With an all-or-nothing approach replacing all traditional power stations with renewables immediately, instead of gradually, Germany could significantly reduce grid fees and energy costs, he said.“It’s a myth that the problem is that there’s too much renewable energy that can’t be transported,” Austrup told Bloomberg BNA. “The problem is these antiquated power stations that no longer belong in this world.”Still, building up renewables to the point of energy independence is a waiting game, said attorney Lang. Technology and legislation have to reach the point where such a feat would be possible.“If we finish the buildup of renewables, then at some stage, the grid will have caught up,” said Lang. “But I’m hesitant to say when exactly this is going to be, because we don’t know what technology we will be able to use going forward.”That means that high energy costs for consumers in Germany—already higher than most of its European counterparts—won’t show any sign of stopping, he added.“It’s costing money and costs are going to increase. It will get more expensive,” he said. “If we want a higher percentage of renewables, then we have to upgrade the grid to do so. And that will cost what it costs.”

To contact the reporter on this story: Jabeen Bhatti in Berlin at correspondents@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

For More Information

The Federal Network Agency's 2016 Monitoring Report is available, in German, at http://bit.ly/2xY6ULM.

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