German Energy Transition Lowers Emissions of Electricity Generation and Electricity Prices Also in Neighbouring Countries
Research
Electricity from solar or wind power is increasingly substituting electricity from conventional coal and gas-fired power plants in Germany. This reduces both emissions and wholesale prices on the energy market. Both effects benefit not only Germany, but – via the transnational electricity market – also its neighbouring countries. However, the costs of promoting renewable energies are mainly borne by German consumers, as they pay the EEG surcharge levied on them. This is the result of a study by ZEW Mannheim and the Potsdam Institute for Climate Impact Research (PIK) based on generation and wholesale market price data for ten Central European countries between 2015 and 2020.
“The electricity sector plays a key role in the energy transition. It emits large amounts of CO2, and emission abatement in transport and heat generation also largely relies on electricity. By promoting green electricity from solar or wind energy, Germany wants to make the economy more carbon efficient,” says ZEW environmental economist Jan Abrell, co-author of the study. Meanwhile, the promotion of renewable energies in Germany also has an impact on neighbouring electricity markets such as Austria, Belgium, Denmark, France, Poland, Sweden, the Netherlands, the Czech Republic, and Switzerland.
In order to understand the impact of the increasing supply of wind and solar energy in Germany on electricity generation and prices, the researchers examined a large dataset from the European Network of Transmission System Operators for Electricity (ENTSO-E) with hourly data on electricity generation by technology and country, as well as wholesale prices. In addition, data on CO2 and fuel prices as well as emissions were included in the analysis.
Renewable energies displace electricity from conventional energy sources
According to the study, by expanding and promoting renewable energies, Germany reduced emissions by 79 to 113 million tonnes of CO2 equivalent (MtCO2) per year during the observation period. This corresponds to about one tonne of CO2 per inhabitant. The majority of these emissions (80-90%) are saved domestically. However, Germany exports about one third of its green electricity to its direct neighbours. According to the results of the study, these exports lead to savings of around 15 MtCO2 in these countries, especially in the Czech Republic and the Netherlands, where the proportion of fossil fuels in electricity generation is still fairly high. There, renewables from Germany replace part of the fossil fuels that would otherwise be burned in power plants.
The greater supply of renewable energies also reduces the German wholesale price for electricity by an average of 14 euros/MWh and between three and eleven euros/MWh in most neighbouring countries, the study reveals. “Subsidised solar or wind energy substitutes expensive electricity from coal and gas-fired power plants on the energy market, as cheaper energy is preferred. This is known as the merit order effect,” says Mirjam Kosch from PIK and co-author of the study. This not only applies to Germany, but also has an effect on the transnational electricity market.
German consumers bear the main costs for renewable energies
Overall, the promotion of renewable energies in Germany incurs annual economic costs of around 23.7 to 25.2 billion euros. “Although the cost of purchasing electricity on the wholesale market is falling due to renewable energies, the electricity bill of German consumers is rising. This is due to the fact that the subsidy costs are covered with the refinancing surcharge for renewable energies, which is borne by consumers,” the authors explain. At the same time, the profits of electricity suppliers are declining due to the fall in electricity prices. Overall, the latter thus bear about one third of the total costs, while consumers cover about two thirds.
In neighbouring countries, the promotion of renewable energies in Germany does not generate any costs, as the effects balance each other out there: Consumers thus benefit from falling electricity prices, while producers there also have to accept profit losses.