The coalition agreement – an evaluation of the energy policy plans in view of the German energy market

In a nutshell:

The coalition agreement will be crucial for determining the political line in the coming years. This also applies to energy policy.
In the following article, the authors analyse the statements and plans made in the coalition agreement with regard to the energy industry and attempt to evaluate them. Of course, the statements made may only serve as an indication of the upcoming energy policy but, nevertheless, they refer to a great challenge of our time: energy transition and climate protection. It is often difficult to draw a conclusion from the goals and plans formulated as political catchphrases in a non-binding manner. Nevertheless, they reveal fields of action that will affect the energy market in the coming years.

In a nutshell:

The coalition agreement will be crucial for determining the political line in the coming years. This also applies to energy policy.
In the following article, the authors analyse the statements and plans made in the coalition agreement with regard to the energy industry and attempt to evaluate them. Of course, the statements made may only serve as an indication of the upcoming energy policy but, nevertheless, they refer to a great challenge of our time: energy transition and climate protection. It is often difficult to draw a conclusion from the goals and plans formulated as political catchphrases in a non-binding manner. Nevertheless, they reveal fields of action that will affect the energy market in the coming years.

Energy efficiency 

In the coalition agreement, the new Federal Government has made the following commitment:

”We will make Germany the most energy efficient economy in the world”, ”In the area of energy, we want to set the framework conditions in a way that energy transition will be the driving force behind energy efficiency, modernisation, innovation and digitisation in the power, heating, agricultural and transport sectors without putting the international competitiveness of Germany as a location of industry at risk.”

But how is energy efficiency evaluated in this context and how realistic are the goals of the future Federal Government?

Energy efficiency, to put it briefly, is equivalent to low primary energy consumption. The following chart shows the development of primary energy consumption in the past:

Therefore, also in the coalition agreement, energy efficiency remains one of the major goals. The chart presented above also shows that e.g. the ”2020 target”¹ is still a long way off even despite a marginal decline in consumption. In the current economic upturn it would be overconfident to assume that the required jump in energy efficiency is possible to achieve. Only with massive expansion of electrical mobility (the average energy efficiency of electric motor is 90%) could a lower primary energy consumption be achieved.

The simplest means of setting incentives for improving energy efficiency would be to increase energy costs, e.g. by way of a carbon tax, but this is known to be a politically unpopular solution.

Moreover, it is expected that the advent of electric mobility will trigger quite a significant increase in the sales of electricity (leaving aside the fact that this will pose substantial network-related challenges).

Energy transition 

According to the coalition agreement, the prospective future government has made the following commitment:

”We will continue to pursue the energy transition in an environmentally friendly and affordable manner ensuring the security of supplies: Targeted, efficient and increasingly market-oriented expansion of renewable energies synchronised with the grid. Under these conditions: The share of renewable energies will be increased up to 65 percent until 2030. The grid will be modernised”.

Moreover, a greater focus will be placed on wind power:

”Off-shore wind energy is significant for Germany in terms of industry policy and can also contribute to cost reduction. Therefore, we will support the creation of a national offshore-testing field which we will deploy to explore the off-shore potential for energy transition.”

But: The expansion of renewable energies is directly linked to energy transition and climate policy. Already in January, the 2020 climate target (reduction in carbon emissions by 40 percent as compared to 1990) was ”dropped” as being beyond reach. But, after all, measures should be taken that, at least, will make it possible to achieve the target in the early 2020s. In concrete terms, this will be supported by an extended volume of auctions in onshore wind energy and photovoltaics. But when looking at e.g. the expansion in photovoltaics during the recent years, it can be seen that the expansion has significantly deviated from the expansion path of 2.5 GWp set out in the EEG [German Renewable Energy Resources Act]. Thus, the planned additional 4 GWp for the expansion of photovoltaics also compensate for the non-increase in the auction volume in the recent years.

Nevertheless, the volume of auctions is set to increase in the years to come and project developers will be faced with challenging work. In Bavaria, however, only few activities are expected because of the ”10-H-rule” applicable in the wind power sector so that, here, the development of sites in Northern Germany should also come to the fore.

Installed solar power capacity in Germany in GWp
(1,000 MWp)

But another question that arises is whether the respective arrangements made harmonise at all. In the coalition agreement ”a share of renewable energies of about 65 percent until 2030” has been mentioned. This probably refers to electricity. In 2017, the share of renewable energies in the generated net energy was already 38.3 percent². Thus, the target of 65 percent seems not so far away, for now. But still, this would mean almost doubling of the installed capacity (with power consumption remaining at the same level and considering the almost exhausted hydropower).

It may prove treacherous that the rise in electricity consumption (despite higher energy efficiency) should be significant by that time. The main reason for this will also be the expansion of electric mobility and decarbonisation in the heating sector. The latter will be implemented, in the first place, by using heat pumps instead of individual furnaces. The used electricity is, therefore, likely to boost the demand so that a significant increase in the required installed capacity must presumably be assumed. This fact has been identified also in the coalition agreement but, unfortunately, without any further conclusions or any further impetus for a major decentralised expansion.

District heating

As regards heating infrastructure, the coalition agreement provides as follows:

”To reform the planning and financing of energy infrastructure – including the existing gas and heating infrastructure for integrated energy – so as to further develop various infrastructures in a coordinated and cost-efficient manner, and in compliance with the energy transition process [German: ”energiewendetauglich”]

Moreover, the Federal Government wants:

 ”to further develop and extensively modernise the combined heat and power technology (CHP) so that it has a future within the framework of energy transition; […] to make the combined heat and power technology lower carbon and more flexible;  […] to expand CHP plants and district heating infrastructure and increase their efficiency”.

It is evident that a strong focus has been placed on integrated energy. With the incentive programme ”Heating networks 4.0”, the Federal Government has already presented in great detail how it sees the future of district heating. But it would have been desirable that alternative technologies already being used, e.g. in Denmark, had been mentioned: solar thermal energy, long-term energy storage and, in particular, geothermal energy, are technological solutions that already exist and have already proven their technical feasibility. Decarbonisation of the CHP technology seems difficult as long as primarily natural gas is used in this area. A return to the increased use of biomethane seems rather impossible to enforce.

Nevertheless, multivalent district heating systems which supply housing and industrial facilities in a manner adjusted to the conditions and needs of a given community and which, at the same time, use waste heat and environmental energy are an important topic for the future of the energy market. In light of the expansion of the district heating structure and the implementation of the concept ensuring compliance with the energy transition, it can be expected that corresponding financing programmes will be made available here. Enterprises should seek collaboration with local providers and jointly implement projects in this area.

Networks

Population, municipalities and enterprises should be involved in the process of structuring the energy transition. The intention is to create more acceptance for the necessary expansion and modernisation of the energy network in general, and, in particular, to take account - more intensively - of nature conservation and legitimate interests of citizens, e.g. by increasing underground cabling. The aim is to harness – in collaboration with the federal states – the benefits of Smart City and Smart Rural Area that arise for the community. With smart grids and smart metering technology, sustainable energy production and supply should be structured in a secure and demand-based manner.

An ”ambitious action plan” still to be developed should lead to the optimisation of the existing networks and accelerated expansion of the power grids. The capacity utilisation of the existing networks should be increased by the use of new technologies, greater digitisation and also thanks to better collaboration between network operators. Here, the intended simplification of the Grid Expansion Acceleration Act [German: Netzausbaubeschleunigungsgesetz] is expected to have a positive effect. But also economic incentives have been recognised as being necessary for network optimisation.

Political arrangements already made³ should continue to apply in the prospective new edition of the coalition. Thus, it is planned to immediately elaborate the regulation on implementation of the already adopted uniform transmission network charges in all federal states. A reform of the network charges should distribute the costs in line with the costs-by-cause principle and in due consideration of the benefits for the grid; this should allow more flexibility for power consumers while maintaining competitiveness. Due to the identified growing responsibility of distribution network operators, the regulatory framework should be further developed so as to support investments in intelligent solutions (digitisation), especially in the area of distribution networks. The occurrence of network bottlenecks will be subject to annual reviews; starting from the beginning of 2019, the necessary action to be taken will be determined on this basis (so-called stress tests).

Good news to public utility companies is that they have been assigned a ”key role in the integrated energy” under the coalition agreement. The intention is to combine, in the first place, heating, mobility and electricity together with storage technologies. This should be achieved, in particular, by adjusting the framework conditions. Public utility companies and distribution network operators should evaluate this as positive in so far as it allows to hope that storage facilities – recognised by the regulatory framework – can be used in an intelligent manner in the future. This will create the basis for developing the existing energy networks into ”genuinely” smart grids and making them ”fit for the future”. Start ups venturing a business model in this area may, therefore, hope for a more secure regulatory framework. This is because network plays a key role in the context of integration of renewable energies and is extremely important for achieving the set climate protection targets and integrating greater volumes of generated volatile energy.

Mobility

The issue of mobility has been addressed in the coalition agreement several times.

The chapter entitled ”Liveable cities, attractive regions and affordable housing” conceals another essential issue: ”Passenger transport law, local public passenger transport [ÖPVN] and mobility in rural areas”. The key word ”mobility” is mentioned also in other places. Thus, the future Federal Government wants to make the ”the leap to mobility 4.0”. The aim is to achieve this by, among others, developing a uniform nationwide ”eTicket” for local public passenger transport and by developing a legal framework for new mobility concepts such as car sharing with a possibility of municipal control. However, keeping up with the tradition of ”Germany being an automotive nation”, the targets for public transport have been juxtaposed with the two targets for private transport; thus, it is obvious which one will remain the focus of attention. This is reflected not least by the fact that the avoidance of driving bans has been placed in a prominent place as part of the introduction. This will be implemented by promoting electric mobility, above all. The intention is, in particular, to make local public passenger transport more environmentally friendly and to boost car sharing.

But this plan has been meanwhile overtaken by reality. The rulings of the Federal Administrative Court dated 27/02/2018⁴ increased the pressure on the prospective Federal Government to reduce the exposure, in particular in the cities. Although the Federal Minister of Transport is committed to ensure compliance with the existing limits also without any driving bans, the Federal Ministry of Transport and Digital Infrastructure is currently working on creating a legal basis for selective driving bans.

According to the coalition agreement, the following has been planned:

 
”We want to intensify the setting up of a nationwide charging and refuelling infrastructure. Our goal is to make at least 100,000 additional charging stations available for electric vehicles by 2020, where at least one third of them should be (DC) fast charging stations. Moreover, we want to promote the construction of private charging stations. We will facilitate the installation of charging stations for electric vehicles of tenants and flat owners by creating the corresponding legal framework.”

A positive aspect is that this creates opportunities to develop new business areas and/or expand the existing concepts. In particular in view of the plans to increase the existing funding for electric mobility, it may be assumed that this market is bound to grow. This development is supported by plans to begin battery cell production in Germany, which should also give the electric mobility market a boost. Also the goal of making the local public passenger transport more electrified should be positively assessed. The already launched ”Immediate Action Programme for Clean Air 2017 – 2020” [German: Sofortprogramm Saubere Luft 2017 – 2020”] will be continued; it will support the process of transition from combustion engines to electric drive systems in a variety of ways. The created ”Lotsenstelle Fonds nachhaltige Mobilität” [a contact centre advising municipalities in funding-related issues] is intended to help in keeping track of the complexities of the Electric Mobility Funding Guidelines and incentive programmes.

But scepticism is quite advisable, too: The original target set in 2009 of having one million electric vehicles driving on German roads by 2020 is still a long way off. By 2017, only a little more than one third of this target had been achieved. We can only hope that the future Federal Government will finally take steps to ensure compliance with the limit values – not least because the EU Commission has already threatened to file a lawsuit in this matter.

Conclusion

Even though many approaches are a step in the right direction, the coalition agreement is, of course, worded in very general terms. The coalition agreement does not specify in more detail how these goals are to be achieved in concrete terms, which allows huge leeway for interpretation.

Targets that have already been set by the prospective Federal Government itself, e.g. generating 65 percent of energy from renewable energy sources by 2030, show the right tendency but, unfortunately, they fail to consider a change in electricity demand, in particular due to electric mobility and electric heat pumps. As regards electric mobility, the Federal Government should quickly take action in order to at least get near the planned figure of 100,000 electric vehicles in Germany by 2020.

It remains to be seen which elements of the plans will survive the political process – this government has the opportunity to make its mark in quite a number of issues.

______________________________________

1 Targets of the energy concept and the sustainability strategy of the Federal Government: Reduction of primary energy consumption by 20% until 2020 and by 50% until 2050 (base year 2008).  
2 Fraunhofer, ”Jährlicher Anteil erneuerbarer Energien an der Stromerzeugung in Deutschland” [English: Annual share of renewable energies in power generation in Germany”], at: https://www.energy-charts.de/ren_share_de.htm?source=ren-share&period=annual&year=all (Retrieved as of: 13/02/2018)

3 ”Cornerstones of successful implementation of energy transition” dated 01/07/2015.

4 Federal Administrative Court‘s rulings dated 27/02/2018; file no. 7 C 30.17 and file no. 7 C 26.16.

Energy efficiency 

In the coalition agreement, the new Federal Government has made the following commitment:

”We will make Germany the most energy efficient economy in the world”, ”In the area of energy, we want to set the framework conditions in a way that energy transition will be the driving force behind energy efficiency, modernisation, innovation and digitisation in the power, heating, agricultural and transport sectors without putting the international competitiveness of Germany as a location of industry at risk.”

But how is energy efficiency evaluated in this context and how realistic are the goals of the future Federal Government?

Energy efficiency, to put it briefly, is equivalent to low primary energy consumption. The following chart shows the development of primary energy consumption in the past:

Therefore, also in the coalition agreement, energy efficiency remains one of the major goals. The chart presented above also shows that e.g. the ”2020 target”¹ is still a long way off even despite a marginal decline in consumption. In the current economic upturn it would be overconfident to assume that the required jump in energy efficiency is possible to achieve. Only with massive expansion of electrical mobility (the average energy efficiency of electric motor is 90%) could a lower primary energy consumption be achieved.

The simplest means of setting incentives for improving energy efficiency would be to increase energy costs, e.g. by way of a carbon tax, but this is known to be a politically unpopular solution.

Moreover, it is expected that the advent of electric mobility will trigger quite a significant increase in the sales of electricity (leaving aside the fact that this will pose substantial network-related challenges).

Energy transition 

According to the coalition agreement, the prospective future government has made the following commitment:

”We will continue to pursue the energy transition in an environmentally friendly and affordable manner ensuring the security of supplies: Targeted, efficient and increasingly market-oriented expansion of renewable energies synchronised with the grid. Under these conditions: The share of renewable energies will be increased up to 65 percent until 2030. The grid will be modernised”.

Moreover, a greater focus will be placed on wind power:

”Off-shore wind energy is significant for Germany in terms of industry policy and can also contribute to cost reduction. Therefore, we will support the creation of a national offshore-testing field which we will deploy to explore the off-shore potential for energy transition.”

But: The expansion of renewable energies is directly linked to energy transition and climate policy. Already in January, the 2020 climate target (reduction in carbon emissions by 40 percent as compared to 1990) was ”dropped” as being beyond reach. But, after all, measures should be taken that, at least, will make it possible to achieve the target in the early 2020s. In concrete terms, this will be supported by an extended volume of auctions in onshore wind energy and photovoltaics. But when looking at e.g. the expansion in photovoltaics during the recent years, it can be seen that the expansion has significantly deviated from the expansion path of 2.5 GWp set out in the EEG [German Renewable Energy Resources Act]. Thus, the planned additional 4 GWp for the expansion of photovoltaics also compensate for the non-increase in the auction volume in the recent years.

Nevertheless, the volume of auctions is set to increase in the years to come and project developers will be faced with challenging work. In Bavaria, however, only few activities are expected because of the ”10-H-rule” applicable in the wind power sector so that, here, the development of sites in Northern Germany should also come to the fore.

Installed solar power capacity in Germany in GWp
(1,000 MWp)

But another question that arises is whether the respective arrangements made harmonise at all. In the coalition agreement ”a share of renewable energies of about 65 percent until 2030” has been mentioned. This probably refers to electricity. In 2017, the share of renewable energies in the generated net energy was already 38.3 percent². Thus, the target of 65 percent seems not so far away, for now. But still, this would mean almost doubling of the installed capacity (with power consumption remaining at the same level and considering the almost exhausted hydropower).

It may prove treacherous that the rise in electricity consumption (despite higher energy efficiency) should be significant by that time. The main reason for this will also be the expansion of electric mobility and decarbonisation in the heating sector. The latter will be implemented, in the first place, by using heat pumps instead of individual furnaces. The used electricity is, therefore, likely to boost the demand so that a significant increase in the required installed capacity must presumably be assumed. This fact has been identified also in the coalition agreement but, unfortunately, without any further conclusions or any further impetus for a major decentralised expansion.

District heating

As regards heating infrastructure, the coalition agreement provides as follows:

”To reform the planning and financing of energy infrastructure – including the existing gas and heating infrastructure for integrated energy – so as to further develop various infrastructures in a coordinated and cost-efficient manner, and in compliance with the energy transition process [German: ”energiewendetauglich”]

Moreover, the Federal Government wants:

 ”to further develop and extensively modernise the combined heat and power technology (CHP) so that it has a future within the framework of energy transition; […] to make the combined heat and power technology lower carbon and more flexible;  […] to expand CHP plants and district heating infrastructure and increase their efficiency”.

It is evident that a strong focus has been placed on integrated energy. With the incentive programme ”Heating networks 4.0”, the Federal Government has already presented in great detail how it sees the future of district heating. But it would have been desirable that alternative technologies already being used, e.g. in Denmark, had been mentioned: solar thermal energy, long-term energy storage and, in particular, geothermal energy, are technological solutions that already exist and have already proven their technical feasibility. Decarbonisation of the CHP technology seems difficult as long as primarily natural gas is used in this area. A return to the increased use of biomethane seems rather impossible to enforce.

Nevertheless, multivalent district heating systems which supply housing and industrial facilities in a manner adjusted to the conditions and needs of a given community and which, at the same time, use waste heat and environmental energy are an important topic for the future of the energy market. In light of the expansion of the district heating structure and the implementation of the concept ensuring compliance with the energy transition, it can be expected that corresponding financing programmes will be made available here. Enterprises should seek collaboration with local providers and jointly implement projects in this area.

Networks

Population, municipalities and enterprises should be involved in the process of structuring the energy transition. The intention is to create more acceptance for the necessary expansion and modernisation of the energy network in general, and, in particular, to take account - more intensively - of nature conservation and legitimate interests of citizens, e.g. by increasing underground cabling. The aim is to harness – in collaboration with the federal states – the benefits of Smart City and Smart Rural Area that arise for the community. With smart grids and smart metering technology, sustainable energy production and supply should be structured in a secure and demand-based manner.

An ”ambitious action plan” still to be developed should lead to the optimisation of the existing networks and accelerated expansion of the power grids. The capacity utilisation of the existing networks should be increased by the use of new technologies, greater digitisation and also thanks to better collaboration between network operators. Here, the intended simplification of the Grid Expansion Acceleration Act [German: Netzausbaubeschleunigungsgesetz] is expected to have a positive effect. But also economic incentives have been recognised as being necessary for network optimisation.

Political arrangements already made³ should continue to apply in the prospective new edition of the coalition. Thus, it is planned to immediately elaborate the regulation on implementation of the already adopted uniform transmission network charges in all federal states. A reform of the network charges should distribute the costs in line with the costs-by-cause principle and in due consideration of the benefits for the grid; this should allow more flexibility for power consumers while maintaining competitiveness. Due to the identified growing responsibility of distribution network operators, the regulatory framework should be further developed so as to support investments in intelligent solutions (digitisation), especially in the area of distribution networks. The occurrence of network bottlenecks will be subject to annual reviews; starting from the beginning of 2019, the necessary action to be taken will be determined on this basis (so-called stress tests).

Good news to public utility companies is that they have been assigned a ”key role in the integrated energy” under the coalition agreement. The intention is to combine, in the first place, heating, mobility and electricity together with storage technologies. This should be achieved, in particular, by adjusting the framework conditions. Public utility companies and distribution network operators should evaluate this as positive in so far as it allows to hope that storage facilities – recognised by the regulatory framework – can be used in an intelligent manner in the future. This will create the basis for developing the existing energy networks into ”genuinely” smart grids and making them ”fit for the future”. Start ups venturing a business model in this area may, therefore, hope for a more secure regulatory framework. This is because network plays a key role in the context of integration of renewable energies and is extremely important for achieving the set climate protection targets and integrating greater volumes of generated volatile energy.

Mobility

The issue of mobility has been addressed in the coalition agreement several times.

The chapter entitled ”Liveable cities, attractive regions and affordable housing” conceals another essential issue: ”Passenger transport law, local public passenger transport [ÖPVN] and mobility in rural areas”. The key word ”mobility” is mentioned also in other places. Thus, the future Federal Government wants to make the ”the leap to mobility 4.0”. The aim is to achieve this by, among others, developing a uniform nationwide ”eTicket” for local public passenger transport and by developing a legal framework for new mobility concepts such as car sharing with a possibility of municipal control. However, keeping up with the tradition of ”Germany being an automotive nation”, the targets for public transport have been juxtaposed with the two targets for private transport; thus, it is obvious which one will remain the focus of attention. This is reflected not least by the fact that the avoidance of driving bans has been placed in a prominent place as part of the introduction. This will be implemented by promoting electric mobility, above all. The intention is, in particular, to make local public passenger transport more environmentally friendly and to boost car sharing.

But this plan has been meanwhile overtaken by reality. The rulings of the Federal Administrative Court dated 27/02/2018⁴ increased the pressure on the prospective Federal Government to reduce the exposure, in particular in the cities. Although the Federal Minister of Transport is committed to ensure compliance with the existing limits also without any driving bans, the Federal Ministry of Transport and Digital Infrastructure is currently working on creating a legal basis for selective driving bans.

According to the coalition agreement, the following has been planned:

 
”We want to intensify the setting up of a nationwide charging and refuelling infrastructure. Our goal is to make at least 100,000 additional charging stations available for electric vehicles by 2020, where at least one third of them should be (DC) fast charging stations. Moreover, we want to promote the construction of private charging stations. We will facilitate the installation of charging stations for electric vehicles of tenants and flat owners by creating the corresponding legal framework.”

A positive aspect is that this creates opportunities to develop new business areas and/or expand the existing concepts. In particular in view of the plans to increase the existing funding for electric mobility, it may be assumed that this market is bound to grow. This development is supported by plans to begin battery cell production in Germany, which should also give the electric mobility market a boost. Also the goal of making the local public passenger transport more electrified should be positively assessed. The already launched ”Immediate Action Programme for Clean Air 2017 – 2020” [German: Sofortprogramm Saubere Luft 2017 – 2020”] will be continued; it will support the process of transition from combustion engines to electric drive systems in a variety of ways. The created ”Lotsenstelle Fonds nachhaltige Mobilität” [a contact centre advising municipalities in funding-related issues] is intended to help in keeping track of the complexities of the Electric Mobility Funding Guidelines and incentive programmes.

But scepticism is quite advisable, too: The original target set in 2009 of having one million electric vehicles driving on German roads by 2020 is still a long way off. By 2017, only a little more than one third of this target had been achieved. We can only hope that the future Federal Government will finally take steps to ensure compliance with the limit values – not least because the EU Commission has already threatened to file a lawsuit in this matter.

Conclusion

Even though many approaches are a step in the right direction, the coalition agreement is, of course, worded in very general terms. The coalition agreement does not specify in more detail how these goals are to be achieved in concrete terms, which allows huge leeway for interpretation.

Targets that have already been set by the prospective Federal Government itself, e.g. generating 65 percent of energy from renewable energy sources by 2030, show the right tendency but, unfortunately, they fail to consider a change in electricity demand, in particular due to electric mobility and electric heat pumps. As regards electric mobility, the Federal Government should quickly take action in order to at least get near the planned figure of 100,000 electric vehicles in Germany by 2020.

It remains to be seen which elements of the plans will survive the political process – this government has the opportunity to make its mark in quite a number of issues.

______________________________________

1 Targets of the energy concept and the sustainability strategy of the Federal Government: Reduction of primary energy consumption by 20% until 2020 and by 50% until 2050 (base year 2008).  
2 Fraunhofer, ”Jährlicher Anteil erneuerbarer Energien an der Stromerzeugung in Deutschland” [English: Annual share of renewable energies in power generation in Germany”], at: https://www.energy-charts.de/ren_share_de.htm?source=ren-share&period=annual&year=all (Retrieved as of: 13/02/2018)

3 ”Cornerstones of successful implementation of energy transition” dated 01/07/2015.

4 Federal Administrative Court‘s rulings dated 27/02/2018; file no. 7 C 30.17 and file no. 7 C 26.16.