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In Germany, an Energy Market Transition Without Massive Economic Disruption

January 12, 2016
Tim Buckley

The German think tank Agora Energiewende is out this month with a powerful message on how a major economy (the sixth-largest electricity market in the world) is transforming its energy markets without massive economic disruption.

In its “State of Affairs 2015” report, Agora forecasts record low wholesale electricity prices continuing into 2018 at least. Consumers will start to see gains in terms of a gradual and permanent decline in retail electricity prices over the next five to ten years as the near-term peak of subsidies passes.

One upshot: Countries like India and China get all the benefits without the costs of the sort of expensive public subsidization that Germany imposed on itself to kick-start the transition.

The broad effect is to drive down the cost of new technologies globally.

Here’s the Agora list verbatim:

  1. Renewable energy: 2015 was a year of superlatives. Wind energy saw record growth of 50 percent, renewables were by far the dominant energy source with a 30 percent share of production. They now cover 32.5 percent of power consumption.
  1. Power usage: Electricity usage rose slightly in 2015 due to weather conditions compared to 2014, while the economy grew by 1.7 percent. However, the decoupling of power usage and growth is not happening fast enough: While the federal government’s energy concept envisions a decline in power usage of 10 percent by 2020 over 2008, usage was only down 3.4 percent in 2015.
  1. Conventional energy: Nuclear and gas power plants produced somewhat less power than in the previous year, electricity from lignite and hard coal remained nearly constant. Because renewables are covering ever more of the domestic power needs, German coal power is being increasingly exported.
  1. Climate protection: The CO2 balance of the power sector hardly changed compared to the previous year. Total greenhouse gas emissions in Germany even rose slightly and were 26 percent below those of 1990 in 2015. It is thus becoming more and more difficult for Germany to reach its 2020 climate targets.
  1. Power exports: Power exports rose considerably in 2015. Physical power flows reached an all-time high at 50 terawatt-hours on balance. This was on balance around eight percent of all power production. Measured by trade flows, net exports amounted to around 61 terawatt-hours, 50 percent more than in the previous year. The Netherlands, Austria and France are the main power importers from Germany. The reason: Germany hasthe second-lowest market power price in Europe after Scandinavia.
  1. Power prices: Market power prices fell again in 2015. They were around 31.60 euros per megawatt-hour. On the futures market, prices decreased even further: In the second half of 2015, power for the years 2016 and 2017 traded at less than 30 euros per megawatt-hour.
  1. Flexibility: There was a mixed picture of the flexibility of the power system in 2015. While the number of hours with negative power prices nearly doubled to around 126 (2014: 64 hours), the average negative power price sank to around nine euros per megawatt-hour (2014: minus 15.55 euros).
  1. Record days: On 23 August, the share of renewables reached its highest level: Between 1pm and 2pm, 83.2 percent of all power demand were covered by renewables. The litmus test for the power system came on 20 March, during the partial eclipse of the sun: The power system dealt extremely well with the sharp fluctuations in nationwide solar power production.
  1. Popular sentiment: A large majority of the population supports the energy transition: 90 percent of all citizens consider the Energiewende as “important” or “very important”. Solar (85 percent) and wind (77 percent) power are the most popular choices to be the main pillar of the energy system, while only 5 percent of the population favour nuclear and coal power.
  1. Outlook 2016: In production, the share of nuclear energy will decline slightly, while renewables will continue to expand, due to the continued build-up in wind power plants. Despite the decline in market power prices, household power prices are likely to rise slightly due to higher levies and fees, nearing the 2014 level.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.


Tim Buckley

Tim Buckley, Director, Climate Energy Finance (CEF) has 30 years of financial market experience covering the Australian, Asian and global equity markets from both a buy and sell side perspective. Tim was formerly Director Energy Finance Studies, Australia/South Asia, IEEFA, and was a Managing Director, Head of Equity Research at Citigroup for 17 years until 2008.

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