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Energiewende: What the US can learn

Hydrocarbon Engineering,

The Brookings Institute has recently highlighted three ‘lessons’ that the German Energiewende can teach the US, as it thinks strategically about the future of its energy industry.

The Energiewende

For over a decade Germany has had a comprehensive energy-climate policy that is centred on dramatically increased the share of renewable energy in the electricity portfolio. A feed-in-tariff (FIT) provides a guaranteed above-market price and grid access for power generated from a renewable energy source over a fixed long-term period (e.g. 20 years).

The results have been significant. Germany’s share of gross electricity consumption from renewable sources increased from 6% to 17% of the national total in just one decade (2000 – 2010) and renewables now account for 23% of electricity consumption, surpassing the government’s goals: they had projected to reach 20% by 2020.

Now, the country is set for much larger capacity addition: by 2022, it is expected that Germany will have 220 GW of total capacity, of which 90 GW will be from conventional sources and 130 GW from renewables. Wind and solar account for 90% of added renewable power capacity.

German policy makers have also highlighted robust investment in the country’s energy sector, job creation, a burst of renewable energy technology innovation and Germany’s status as a global leader in the renewable energy sector as positive outcomes of the Energiewende.

Three lessons

The three ‘lessons’ that the Brookings Institute believes that the US can take from the success of the Energiewende are as follows:

Setting objectives and developing national policy is important.

If a country can come to political agreements on fundamental objectives, designing and implementing effective policy mechanisms is easier. Germany has rolled out a sweeping and effective suite of policies and legislation successfully, supported by a remarkable political and social consensus. In particular, it has been able to come to an agreement about the exigencies of climate change and the importance of emissions reduction, as well as reaching strong consensus on phasing out nuclear power primarily for safety concerns.

Brookings has emphasized that gaining a consensus on a clear policy direction is critically important and should precede and inform debates about which specific policy mechanisms to implement and how.

Monitoring and course questions are required, with solutions tailored to local conditions.

Brookings has highlighted that policymakers should be prepared to not only continually monitor the effectiveness of policy, but also to alter the policy as technology and market conditions change. Fine-tuning policy or market design should not be viewed as a failure.

German policymakers acknowledge that the FIT policy was not sufficiently responsive to market and technological changes. As a result, proposed revisions to the law currently under consideration are intended to make policy more market-oriented, moderate renewable energy capacity additions, and have industry shoulder more of the cost. Policymakers are also increasingly focused on how to adapt market design in order to ensure sufficient flexibility to accommodate high levels of variable renewable energy.

Brookings suggests that cultural, economic and industry differences between the two countries mean that we cannot expect every element of the Energiewende to work in the US: e.g. the FIT is not likely to be a policy tool widely deployed in the US. In addition, electricity consumption of the average American household is significantly higher than the average German family of four, which uses approximately 3500 kWh/y, compared to the 10 800 kWh/y US average. For this reason, a US ratepayer is likely to be much more sensitive to price increases.

Furthermore, despite the costs of the Energiewende, German households and politicians remain ideologically committed to the goal of emissions reduction and highly tolerant of associated costs. Alarm over climate change and its impacts have not penetrated American politics or society in the same way.

A high level of renewable penetration presents unique challenges, but is manageable.

Germany has arguably demonstrated that high levels of renewable energy penetration are possible, with limited to no impact on reliability and system stability (even at penetration levels of above 50%).

Recent analysis from the International Energy Agency (IEA) concluded that system integration of renewables is not a significant challenge of penetration levels of up to 10% of total generation, although ‘minising total system costs at high shares…requires a strategic approach to adapting and transforming the energy system as a whole’. Brookings highlights that cost-effective solutions are emerging for implementing this system transformation approach, some in Germany. In particular, resources such as demand response, storage and energy efficiency are important tools complementing such a systemic transformation.

Today, renewable energy penetration levels in the US are already increasing. For example, in Iowa and South Dakota, wind provides more than 25% of total energy generation.

According to Brookings, the US need not be discouraged by challenges raised in the German experiment. Renewable energy is an abundant natural resource that can serve as a critical asset in meeting multiple energy policy goals: economic, environmental and national security.

Adapted from a press release by Emma McAleavey.

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