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Energy Security and the Energiewende

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For some time, the big electricity firms in Germany have been in trouble. In 2013, RWE wrote its first losses in 60 years. E.on has cut staff by a third. They have been the losers of Germany's “Energiewende”, the energy transition that aims to generate 50 percent of Germany's electricity needs from renewable sources by 2030. To drive the transition, Germany is using a feed-in tariff (the “EEG”) that guarantees a fixed price payment to renewable energy generators. The result has been a significant accumulation of distributed solar and wind electricity-generating capacity.

This increase in renewable electricity generation has resulted in a drop in the wholesale price of electricity, and has squeezed the profit margins of the big traditional electricity producers. The wholesale price has dropped so much that it provoked an investigation by the European Commission's competition unit, that the feed-in tariff payments were in some way a form of state-aid. Many of Germany's high-tech flexible gas-fired plants have become no longer economical to run, and baseload generators such as coal are also becoming less profitable. As demand has remained constant, this has provoked the question of whether energy security can be guaranteed under the current system.

The Merit-order effect

The tendency of renewables to lower wholesale electricity costs is known as the "merit-order effect", a term that comes from the way that electricity is bought and sold on the “spot market”, which in Germany is at the EPEX exchange in Leipzig:
At 12 noon each day, an auction each for the 24 hours of the following day takes place... The spot market price for each hour is then determined by the marginal plant that is needed to satisfy electricity demand in that respective hour. (The Merit Order Effect of Wind and Photovoltaic Electricity Generation in Germany p. 7)
The day is divided up into hourly chunks, as demand and supply can vary greatly over one day. The key part of the spot-market is that it is the power-generator with the lowest marginal costs that is the first to meet the supply, so that customers can get the lowest price for their electricity. This is the “merit order” and it is the renewables who are first in line. When renewables are producing electricity, they are the ones to receive the payment on the spot market, while the rest of the power plants are left to stand idle, increasingly unable to recoup their operating costs.

The story is made more complex, however, as the market is not entirely determined by supply and demand, as the EEG guarantees small-scale electricity generators a fixed-in tariff rate for their electricity. This rate is the same, whether the spot market price is higher or lower than the tariff amount. There has been some talk of encouraging renewable electricity generators to be more responsive to market demand, such as moving to a TGC (tradable green certificate) model, but it is difficult to image such an uptake of small-scale electricity production under such schemes. For smaller investors, there would no longer be the security in knowing that they can calculate that their investment is guaranteed a return under the feed-in tariff.


If you want ensure energy security, then there has to be some way of ensuring that conventional generators are still available when you need them. This has brought about discussion of a “capacity market”, which is different from the current “energy-only” market, as power plants would be paid based on how much electricity they produce, but also their electricity-generating capacity. However due to the way that renewables have flattened-out the spot-market price, the capacity market would want to focus on the large rumbling based-load generators, rather than high-tech generators such as gas-fired powerstations. As renewable generators are based around environmental factors, there are correlations that mean demand and supply cancel each-other out, such as on hot days when photovoltaics generate more power, which is then met with more demand as people turn on the air conditioning.

There may be a need for some flexible power generators, but RWE's experience with their gas-fired stations is that they are no longer to take advantage of peaks and troughs in the electricity market in order to generate a profit. RWE's gas-fired station in Emsland can deliver 1,800 megawatts of electricity within ten minutes, which could power a whole city, but despite using the “most modern of technologies there is no way for it to earn its fixed costs in the current energy market.” It is a similar story for RWE's gas station at Gersteinwerk, which in 2011 only came on for a short period during the winter months. The flattening of the spot price suggests that a capacity market will be needed to support constant baseload power, rather than flexible generators.

Renewable transportation and storage

It is uneasy to think that the Energy Transition has lead to the prospect of paying for baseload fossil fuel power stations when they are turned off, so that they remain economical to run after renewables have eaten into their profit margins. The alternative, however, is that the lights go out.

If using power generated by renewables is to remain the goal, the challenge now for the Energy Transition is to find ways of storing renewable energy, so that it can be released more predictably over the course of a day (or many days). In the UK we already do this by using pumped storage, however these facilities are used more to earn money over a shorter period of time. This is done by pumping water into a reservoir using cheap electricity during the night time, to release it when there is a demand and a higher price for electricity during the day. (Sustainable Energy Without the Hot Air p. 186) However these projects only generate a profit over a short period of time. A system designed to function over a longer period of time may well require either a new market that compensates for the time it is not in operation, or require funding from the government.

Whichever the economic arrangements, there remain physical challenges to creating such large storage facilities. Pumped storage depends a lot on suitable geography, so a development in pump storage would also require the ever-recurring need to invest in the European electricity grid infrastructure. Although a capacity market paying fossil fuels to keep the lights on in the short term, it is in storing and transferring where more money, and new ideas are further needed.

David Attenborough in the Smog

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David Attenborough
Earlier this month, a smog fell over Europe. Media attention, however, was focused on the latest International Panel on Climate Change report on Climate Change. Given that large numbers of the public are sceptical or indifferent to Climate Change, perhaps environmentalists should ensure that media attention is directed to local environmental degradation that people experience today.

When the smog came to my city it looked like a cloud had drifted down from the sky. It was not, however, made out of water vapour, but by pollution carried over by the wind with sand from the Sahara. While walking to work in the morning, I saw two joggers jogging past. Perhaps they thought the smog was early morning mist and stuck to their routine, but a little way in the distance they stopped, no longer able to run in the thick air. I walked past the traffic-jam of cars with people on their morning commute into work. Usually you can't see the fumes expelled from the exhausts, but today the fumes joined the thick air and looked like your breath on a cold winter's day. It was Beijing in South Yorkshire.

The smog came at around the same time as the April meeting of the IPCC. Listening to the news reports, it seemed that climate change was now unavoidable and now the focus was on mitigating the effects of climate change, rather than preventing it from happening, for example, by building more flood defences. "Let's have climate change," said many letters pages in the popular media, "if it will improve the awful UK weather."

It is arguable that however accurate, the IPCC's projections of doom and gloom are not enough to motivate the UK public. This is not altogether surprising. People want to be inspired rather than cajoled, and the Climate Change debate in itself does not point to any clear action: do we build more wind turbines? Insulate more homes? Use the car less? Eat less meat? Climate Change does not provide the answers, and the UK government's approach seems to jettison any policy at the first suggestion of unpopularity.

The problem is worsened as the idea of Climate Change arguably does not enjoy a wide acceptance amongst the general public. This has been caused not only by a campaign of doubt by those who have a vested interest in preserving the status quo, but also by the way the Climate Change debate has been covered by usually respected media, such as the BBC. Here, the media misguidedly creates a Climate Change debate, where in reality none exist.

Dearing examined this tendency back in 1995, and found that as journalists are trained to cover both sides of the debate, they give a voice to "maverick" scientists who have a minority belief in scientific theories. Even though these journalists may doubt the credibility of these "maverick" sources, the message doesn't get through to the public, with the effect that the mavericks are "lent
credibility in mass media stories" (Dearing, Newspaper coverage of maverick science: creating controversy through balancing).

If the Climate Change debate is uninspiring and tarnished in the media, then what can we do? Well, for one we could stop talking about Climate Change. Energy that is wasted on the generated controversy around Climate Change could be better spent by focusing on the local environmental issues. No one can say that they breathed deeply in the smog. No one can overlook the rubbish at the local duck pond. No one can calculate that green investment (not only wind and solar, but the much ignored biomass) doesn't create jobs. No one can say that they lost money through better insulation.

In order to make people care about the environment and Climate Change, it is necessary to inspire at a grass-roots level. Perhaps one day the grand Climate Change debate will be won, but it will be a hollow victory if met with indifference. Environmentalists therefore need to start capitalising on what people feel today, rather than focusing on the measurements taken over decades from a mountain top in Hawaii.

Controversy over Germany's renewable energy industry exemptions

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The driving force behind Germany's Energy Transition is the Renewable Energy Law (Erneuerbare-Energien-Gesetz). This adds a levy on top of consumers' electricity bill to support renewable energies. It has been seen by some, such as Fritz Scharpf as a success story for "positive" EU integration, paving the way for other countries to implement similar schemes, without receiving reprisals by the Commission. The law's legitimacy was proved in 2001, when the subsidy aspect of the levy attracted the attention of the EU Commission under competition law. The political scientist Fritz Scharpf said that the law, in the Commission's eyes, was about as "bad as it could be", as it "amount[ed] to a restraint to trade... [and] discriminates against foreign suppliers", but despite this, the ECJ ruled in its favour (C-379/98). Germany's Renewable Energy Law showed that the EU's environmental commitments could take priority over competition concerns.

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Your Ideas for Europe: Banks

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October to September is single market month at Your Ideas for Europe. You can contribute ideas, which will be discussed in online by MEPs, organisations and businesses. From 7-9 October, the focus is on banking reform. Ideas are supposed to be "innovative and feasible," but it seems like this isn't such a strictly enforced rule, for example with "Nationalize all the banks in EU!"

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The case for a European Supergrid

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Power lines in East Anglia
The modern day European Union evolved from an industrial energy project. In 1951, Robert Schuman proposed that the coal and steel of the Ruhr district should come under a common European control, so that the resources could no longer be used by one country to wage war. As intermittent renewable energy technologies supply an ever-increasing part of Europe's energy demands, the EU must once again coordinate efforts to ensure future energy security.

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The ECB, Sovereign Debt, and a Karlsruhe Constitutional Challenge

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In June, the German Constitutional Court was in session to rule whether Mario Draghi's assurance in 2012, that the ECB would buy debt from the states of the EU, is legal in terms of the German Constitution—not to mention the Lisbon Treaty. The case has been described as the "most comprehensive Constitutional challenge in history, with the support of more than 35,000 complainants." Read more +