Are we Achieving a Turnaround in Energy Policy? Praise for Renewable Energy - Criticism About Security of Supply

In mid-December, the Expert Commission for the "Energy of the Future" Monitoring Process issued its first position statement regarding the federal government’s annual status report on German renewable energy policy. Prof. Dr. Andreas Löschel, chairman of the Expert Commission and a research department head at ZEW, explains its findings.

Prof. Dr. Andreas Löschel directs the research department of "Environmental and Resource Economics, Environmental Management" at ZEW. In addition, he is Professor of Economics at the University of Heidelberg. Löschel is serving as lead author for the 5th Assessment Report (2010–2014) of the Intergovernmental Panel on Climate Change (IPCC). He is also Chairman of the Expert Commission that regularly assesses the status of Germany's energy transformation on behalf of the German federal government. He has advised a number of German federal ministries, the European Commission, and European Parliament on issues in environmental economics.

What are the results of your evaluation of the monitoring report?

We welcome the federal government’s monitoring process, including the adoption of an indicator system and the release of the first monitoring report. They do a good job of presenting key aspects of the effort to transform Germany’s energy economy, including goal attainment in the area of renewable energy and the reduction of greenhouse gas emissions. What we find lacking, however, is the report’s assessment of specific changes and of the energy transformation as a whole. For this reason, we provide a scientific perspective on the report along with suggestions for improving the monitoring process. To present changes more succinctly, for example, we believe it would make sense to use a smaller number of lead indicators that distil a broader set of measures. Making these lead indicators as aggregated as possible would help to reduce complexity and generate policy recommendations. The current Monitoring Report includes nearly 50 indicators, which are hard to interpret without an appropriate classification system.

The Expert Commission proposes that one first classify the objectives of renewable energy policy. What could such a classification look like?

We see the effort to transform the energy economy as characterized by two overriding goals: (1) the reduction in greenhouse gas emissions, and (2) the phase-out of nuclear energy. It is important not to be distracted from over-riding goals. Germany has chosen a specific pathway for achieving its aims. This pathway will be accompanied by additional flexible goals, e.g. in the areas of energy efficiency and the use of renewable energies. The triangle of energy policy goals – economic affordability, environmental sustainability, and security of the energy supply – should be the key yardstick by which to judge the success of this flexible goals. If they appear to be critical from an economic, environmental or social perspective, the flexible goals have to be adjusted.

How does the Expert Commission assess the development of renewable energy and energy efficiency during 2011, the year covered by the report?

The development of renewable energy has been proceeding smoothly in all areas thus far. Thus, growth in renewables has been rapid in the electricity sector, even though it has been associated with corresponding cost increases, especially for energy from photovoltaic installations and offshore wind farms. In the future, there will be a need for greater systems integration and an active effort to react to developments in transmission networks and, over the long term, in the area of energy storage systems as well. In the areas of transportation and heating, growth has been significantly less vigorous, and, as a result, developments need to be thoroughly re-evaluated. In the area of energy efficiency, we see three areas for improvement: the attainment of reductions in electricity consumption, developments in the area of household heating, and in the transportation sector. Seen as a whole, the issue is less about seeking new interventions and instruments, and more about configuring existing interventions more intelligently to achieve the intended goals.

The effects of renewable energy policy have already become tangible – for example, in the debate about supply bottlenecks in the winter of 2011/12 and about extending intervention options for the Federal Network Agency. How would you assess security of supply?

The Expert Commission has taken a rather critical view of the situation with respect to security of supply. Thus, although we can acknowledge that there are ongoing positive steps in raising power plant capacity scheduled through 2015, we must keep an eye on power output after that point. Especially in Southern Germany, we need to anticipate future supply bottlenecks. Interruptible loads, storage devices, and the expansion of networks could work to offset these problems. With regard to the accelerated expansion of transmission networks, delays have occurred that make a reliable assessment more difficult. Efforts on the part of the federal government regarding network development plans should be seen as a welcome sign in this area. However, the supply infrastructure for natural gas should also be kept in mind, as similar problems arose in the gas supply last winter in Southern Germany.

In your opinion, what burdens to the end user will result from Germany's renewable energy policy?

In the area of economic affordability, the focus is on providing energy efficiently. Such efficiency cannot be seen in Germany’s energy system today, and it is also missing from many of the measures envisaged for the future. The mechanisms of Germany’s renewable energy policy must be designed in an efficient and effective manner. Specific burdens placed on the supply of energy can be analyzed from an aggregate picture of expenditures. Single components may distract us from the overall process of the energy transformation and we do not want to focus on particular interest groups. Thus, our calculations using final end-user expenditures for electricity show that the overall burden of renewable energy policy currently amounts to 2.5 per cent of nominal GDP – about the same level of burden witnessed in 1991. However, the expenditures have been doubled in recent years in nominal terms and are anticipated to increased further in many areas in the future.

The German federal government intends to regular examine the status of its broad policy effort to transform the country’s energy economy. To this end, it has implemented the “Energy of the Future” monitoring process. A Commission of Energy Experts has been assigned the task of providing a critique to accompany the federal government’s annual Status Report. The Chairman of the Expert Commission is Prof. Dr. Andreas Löschel, head of the research department of “Environmental and Resource Economics, Environmental Management” at ZEW. Other members of the Expert Commission are Prof. Dr. Georg Erdmann of TU Berlin, Prof. Dr. Frithjof Staiß of the Center for Solar Energy & Hydrogen Research in Baden-Württemberg (ZSW), and Dr. Hans-Joachim Ziesing, president of the Energy Balance Working Group.