Energy Efficiency and Implementation of Energy Transition Among Top Priorities of Annual Economic Report 2015

Energy efficiency and the implementation of the Energiewende figure among the top priorities of the Annual Economic Report 2015 entitled “Investing in Germany’s and Europe’s Future”, which the German government presented yesterday. The government raised its 2015 growth forecast for the gross national product from 1.3% to 1.5%.

1. General Remarks

In view of challenges like the accelerating technological change and an aging society, investment and innovation were key to improving competitiveness, maintaining prosperity and a better quality of life for people living in Germany and Europe, the government said. Hence it wants to strengthen private and public investment in Germany and Europe.

The economic policy prioritises higher public expenses for education, research, energy efficiency and infrastructure as well as improving conditions for private investment. The government also announced to help industry and small and medium-sized companies to cope with the technological change. Furthermore the government said it wanted to continue with the Energiewende in a successful and cost-efficient way, providing investment security by setting clear frame work conditions. Besides, the government announced to spend more on education and labour market integration.

2. Energiewende and Climate Protection

By 2050 renewable energy shall account for 80% of Germany’s gross electricity consumption (cf. Section 1 para. 2 EEG 2014). The government calls the implementation of the energy transition (Energiewende) a “generation project” and says it wanted to balance affordability, security of supply and environmental sustainability. In particular with regard to the affordability the government points out that is was important to pay more attention to the cost effectiveness of individual tools as well as the total system (Gesamtsystem) as such, but also to “planning and investment security for all stakeholders, affordability (it remains unclear whether this redundancy is accidental or shall emphasise the point), public acceptance and a better coordination of the individual tools (Bausteine)”.

The government also wants to link the Energiewende more strongly with European and international energy policies.

Regarding climate protection the government announced to work towards an ambitious and binding climate protection agreement to be concluded at the Climate Conference in Paris at the end of this year (for more information, please see here).

On the European level the government strives for a reform of the European Emissions Trading System (EU-ETS) so as to increase the price of emission allowances and set stronger incentives for companies to invest in climate protection (for more information, please see here). However, an overhaul of the EU-ETS was not enough, national instruments like the Renewable Energy Sources Act (EEG) that promotes renewable energy, the Act on Combined Heat and Power (KWKG) and energy efficiency measures were also necessary, the government remarks, stating that all sectors had to contribute. In this regard the report mentions again an envisaged (but still unclear) additional reduction of 22 million tonnes of CO2 by 2020 by conventional power plants (please see here for more).

2. EEG 2014 Reform

The fundamental reform of the EEG that entered into force on 1 August 2014 (EEG 2014) had make renewable energy growth more predictable and manageable, linking it better with the rest of the energy system and reducing costs (the government specifically mentions changes to the “special equalisation scheme” contained in Sections 63 to 69 EEG).

The government also points out that as of 15 April 2015 financial support for PV power shall be auctioned (on average 400 MW annually in the years 2015 and 2016; regarding the ordinance regulating the matter, please click here). Based on the experience gained, support for the other renewable energy sources shall also be established in competitive bidding processes by the end of 2016, the government says. This is indeed a further fundamental change of the EEG funding system that already underwent a change from fixed feed-in tariffs to mandatory direct marketing topped up by a market premium in August 2014 (under the EEG 2012 direct marketing was still voluntary). The new shift is also necessary to bring the EEG in line with the with the European Guidelines on State Aid for Environmental Protection and Energy 2014-2020 (EEAG), which foresee that “during a transitional phase covering the years 2015 and 2016, aid for at least 5% of the planned new electricity capacity from renewable energy sources needs to be granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria” before competitive bidding processes become eventually mandatory (with limited exceptions) as of 2017 (cf. paragraph (126) EEAG).

As it wanted to retain a broad renewable technology mix, it had decided against a quota scheme, obliging utilities to buy certain quota of renewable energy, and also opted for holding individual auctions for the various renewable energy sources, thus not following the recommendations of the advisory committee (Sachverständigenrat), the government says.

3. Security of Electricity and Gas Supply

a) Electricity Supply

In view of more intermittent production, demands have been made in the past to create a capacity market that remunerates reliable production (particularly by conventional power plants that have come under financial pressure as renewables enjoy grid priority, cf. Section 11 para. 1 sent. 1 EEG). The transmission system operators had identified excess capacities of 10 to 12 GW in the period 2014 to 2016 that could help stabilise the grids, the government says. For the future one was assessing the options. In October 2014 a Green Paper on the future development of the German electricity market had been published. Following consultation it shall be followed up by a White Paper with specific proposals at the end of May 2015, based on which one would decide about legislative proposals.

b) Gas Supply

Regarding the gas supply that has come under threat due to the Russian-Ukrainian crisis, the government points out other supply sources, in particular from the EU. Besides, it mentions that Germany has the world’s fourth largest gas storage systems that are well filled, but says a further diversification was examined. The option to create a national gas reserve (which has been discussed lately) is not mentioned (cf. page 42 no. 182). At the Handelsblatt Annual Energy Conference last week, Jochen Homann, President of the German Energy Regulator Bundesnetzagentur (BNetzA), touched on the subject, saying there was no need to create a national gas reserve.

4. Energy Efficiency

The report highlights the importance of improving energy efficiency to make the Energiewende happen. It mentions the main tool, the National Energy Efficiency Action Plan (NAPE) adopted in December 2014 which sets the course for the legislative term.

Key elements of NAPE are key points for an energy efficiency strategy for buildings, promoting energy efficiency as a business and profit model, and fostering personal responsibility for energy-efficiency by providing more transparency and improving energy counselling.
The report also mentions increased funding for energy-efficient renovations of buildings as well as tax incentives. The latter is however a difficult topic. Under the previous government a bill with a similar aim failed to get the necessary support by the sixteen German states that feared tax losses.

5. Grid Expansion

Grids are the bottlenecks of the Energiewende, the government says, highlighting the adoption of the Grid Expansion Acceleration Act (NABEG) in 2012 and the Federal Requirement Plan for Transmission Networks of 2013, which create the legal framework for the speedy expansion of the transmission networks. For three of the 36 project (contained in the Federal Requirement Plan) applications for the federal grid planning procedure have been submitted, according to the government (for more information, please see here). The government also points out that the EEG 2014 provides the possibility for underground cabling for certain power lines which will help gain more experience with this type of cable.
Increasing investment needs into the distribution networks over the next years (often due to new renewable power plants) are another topic touched on by the government. An amendment of the Incentive Regulation Ordinance shall be presented this spring, and shall better incentivise investments in distribution grids while making sure that power remains affordable. Regarding our blog post on the evaluation report of the Incentive Regulation Ordinance please see here. For President Homann’s comments on options for a reform, please click here.
The government also announced a package of ordinances regulating smart metering without specifying a date, but adding that the government would examine the use of meters for heat, water and other uses as well, as this might lower costs for users so that smart meters (which currently often do not pay off) become more attractive for customers.
The full 104-page report (in German) can be found here.

Source: Federal Ministry for Economic Affairs and Energy

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