By Prof Dr. Joachim Scherer/Caroline Heinickel (Baker & McKenzie, Frankfurt)
In the wake of the nuclear disaster of Fukushima, the German Federal Government has decided to phase out nuclear power by 2022, to accelerate the transition to a clean energy system that will largely rely completely on renewable energy sources, and to extend and upgrade the existing electricity grid to allow for this transition.
To achieve these ambitious policy objectives, the Government has submitted to the Federal Parliament (Bundestag) a legislative package introducing or amending eight bills that will provide the legal basis for Germany's transition into the "Age of Renewables". The first reading of the legislative package in the Bundestag has taken place on 9 June 2011, the second and third parliamentary reading is scheduled for 30 June 2011 and a final vote in the Federal Council (Bundesrat) is proposed to take place on 8 July 2011.
The German "Energy Transition" will open new business opportunities for businesses and investors, in particular for network improvements, new power storage capacity installation, modern thermal power plants (in particular gas plants), and thousands of megawatts of renewables plants.
The German renewable energy aid programs will be open to foreign investors and developers, and we do not expect the Government to create any preferences for German-owned businesses.
Phasing out Energy Generation from Nuclear Sources
By 2022, all German nuclear power plants will be shut down. Prior to the Fukushima incident, which led to the temporary shutdown of the seven oldest nuclear power plants in Germany, 17 nuclear power plants with a total capacity ("Kapazitätsleistung") of ~ 21,500 MW generated about 22% of the power used in Germany. By 2022, this energy will have to be replaced by power generated from renewable as well as from conventional sources.
To phase out energy generation from nuclear sources, the German government has proposed a bill modifying the Atomic Energy Act, which provides for the following measures:
• The seven oldest German nuclear power plants, which have been temporarily shut down in the course of the German nuclear moratorium as well as the Krümmel plant will remain offline. These plants have a total capacity of 8,8 GW). One of these power plants is expected to serve as reserve capacity until the spring of 2013 in the case that energy generation from conventional sources, such as gas and coal plants, is insufficient to safeguard the security and stability of power supply.
• The other nine existing German nuclear power plants will be successively phased out during the years 2015 (Grafenrheinfeld nuclear plant with a capacity of 1,3 GW), 2017 (Grundremmingen B nuclear plant with a capacity of 1,3 GW), 2019 (Phillipsburg 2 nuclear plant, with a capacity of 1,4 GW), 2021 (Grohnde, Grundremmingen C and Brokdorf nuclear plants with a total capacity of 4,2 GW) and 2022 (Isar 2, Emsland and Neckarwestheim 2 nuclear plants with a total capacity of 4,2 GW).
The owners of the German nuclear power plants expect to be compensated for any damages arising from the nuclear phase-out. E.ON expects its damages from the phase out of nuclear power to amount to several billion Euro. Jürgen Großmann, President and CEO of RWE, announced that the company is considering its potential claims for damages.
Transitioning to Energy Generation from Renewable Sources
According to the Government's plan, 35% of the power used in Germany (compared to 17% at present) must be generated from renewables by 2020, with wind power being the main source. By 2030, renewables must supply at least 50% of the electricity used in Germany, 65% by 2040 and at least 80% by 2050.
Off-shore wind plants are expected to generate 25 GW of power by 2030, thus replacing the annual capacity of about 20 nuclear plants. The law provides that rrenewable energy sources are hydro-power, photovoltaic systems, geothermal power and power generated from biomass.
In order to provide for a sufficient and stable power supply, power generation from conventional sources will have to be expanded as well with a focus on natural gas as the most CO2-efficient conventional power source.
Making the "Energy Transition" Work
To implement its "energy transition" program, the German Government intends to implement a multitude of measures that include the following:
• Optimizing the integration of conventional and renewable power
Integrating conventional and renewable sources of power for Germany must be optimized. This will pose significant challenges in particular with regard to the following areas:
• Strengthening the renewables sector: The Renewable Energy Act will be amended to further strengthen the generation of renewable energy with wind power playing an increasingly important role.
• "Repowering" of existing wind power turbines will be facilitated by changes to building and planning laws. Offshore plants in the North Sea and in the Baltic Sea will be promoted through an "Offshore Program" of loans from KfW, the state-owned development bank in an amount of 5 billion Euro.
• The subsidization schemes for wind power, hydro-power, photovoltaic systems, geothermal power and power generated from biomass will be streamlined and enhanced where necessary to secure cost coverage. At the same time, previous over-subsidization will be abolished. As a result, for example the compensation for power generated through off-shore wind power, hydro-power and geothermal power will be increased while the compensation for power generated through biomass will be decreased (on average by between 10 and 15%).
• To ensure that enough electricity from renewable sources is generated to meet demand, incentives such as a "market bonus' will be provided to encourage the direct marketing of renewable energy and to enhance needs-based generation, such as a "flexibility bonus" for biogas.
• Germany's already attractive feed-in tariff will be adjusted to encourage power generated from renewable sources.
• Ensuring the availability of sufficient storage capacity: New storage capacity will be needed to better balance the variability of power from renewable sources. To achieve this, amendments to the Energy Management Act and the implementation of the Network Expansion Acceleration Act are intended. Beside facilitating the installation of storage capacity in particular through changes in planning law, it is foreseen to exempt new storage facilities from network charges. The German Government will also provide up to 200 million Euro until 2014 for efficient power storage reserach and development.
• Securing and stabilizing power supply: New gas and coal power plants will be needed to secure and stabilize power supply during and after the phase-out of nuclear power plants. At present, 10 GWs of conventional thermal power stations are under construction and expected to be online by 2013. By 2020, an additional 10 GWs of conventional thermal power capacity will be needed. To meet this need, the German government is establishing a "Power Plant Promotion" program for small and medium sized power plants and combined heat and power facilities. The grants through the Power Plant Promotion program will be limited to power plant operators who have a share of below 5% of the German power generation capacity. The financial incentives will be accompanied by new laws to speed up the planning process for such plants.
Facilitating and speeding up network roll-out
The electricity grid will need to be reinforced and modernized if it is to cope with the increased supply of energy from renewable sources. The existing grid is not equipped to handle the fluctuations in power generated from offshore wind farms, which are expected to provide the major part of the renewable energy. New network capacity is also needed to move the power generated from wind farms in Northern Germany to the industrial centers in Southern Germany. It is estimated that up to 4,500 km of additional extra-high voltage lines will have to be installed in the coming years.
The Network Expansion Acceleration Act is intended to speed up network roll-out and to facilitate the construction of lines across State borders. The time required to plan and to build power lines should be reduced, according to the government's plans, from an average of ten to four years.
Furthering the siting of Wind Farms
A KfW aid program of 5 billion Euro will be used to support development of ten offshore wind farms through loans to support project financing. The maximum available loans will be in an amount of 400 million Euro to 700 million Euro per project. In addition, up to 100 million Euro per project may be granted to cover cost overrun in the installation phase. The contract period for the loans may be up to 20 years with a fixed interest rate for the first ten years of the loan period. The German ordinance that applies to offshore wind farms, known as the Ordinance on Marine Facilities ("Seeanlagenverordnung"), will be amended to facilitate the approval procedure for offshore farms that are established in the German Exclusive Economic Zone ("ausschließliche deutsche Wirtschaftszone", AWZ). The repowering of existing wind energy plants is to be facilitated by amendments to the German planning law.
Ambitious Agenda or "Gamble"?
While other nations, including Japan, Italy, and Switzerland, have announced their intention to reduce nuclear power, no other nation has gone as far as Germany. The government's stated policy objective is to "enter the age of renewable energies by 2050 ... ensuring that energy supplies will not be interrupted, that the cost of power does not become prohibitive, that Germany remains an attractive place to do business, and that ... climate change mitigation targets" are met.
The German renewables agenda is supported by billions of Euros of subsidies, grants and tariff enhancements, and changes in the laws to make development faster and easier. The German bet on renewable energy will only work if renewables developers and investors take up the opportunities presented by the new legislative package.
– Reprinted with permission from the authors