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#222October 2019

On the Verge of Imbalance

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Germany has set a target of reducing carbon dioxide emissions by 40% by 2030 and 80–95% by 2050 as compared to the 1990 level. To achieve this target, the German government has been supporting the development of renewable power sources since the 2000s. The Renewable Energy Sources Act (EEG) adopted in 2000 declared renewables to be a primary tool to reduce greenhouse gas emissions.

At Easter 2019, Germany was happy to learn that renewables generated over 40% of all electric power supplied to the national grid. The results of 2018 and the first half of 2019 were, however, far from being that optimistic.

In September 2019, consulting company McKinsey published its regular semiannual report analyzing Germany’s success in achieving its climate targets in 2018. The verdict was damning: Germany did not meet most of its targets, including those in cutting emissions.

According to McKinsey, only six out of 14 target indicators in question had been either stable or changed positively since 2012. One is a share of renewables in the total power consumption (37.8% in 2019 vs. 2020 target of 35%). The number of jobs in the renewables segment remained relatively flat at around 338,000. Energy prices for industrial consumers had decreased since 2014 and were only 6.2% higher than the European average as compared to 14.2% in 2012. The report emphasized, though, that CO2 emissions in 2018 were still 116 million tons above the target despite a 4.5% reduction in 2017. Emissions from power generation alone decreased 15%. It means that the growing share of renewables in power generation (from 23.5% in 2012 to 37.5% in 2018) accounted for only 7% of cuts in carbon dioxide emissions.

The situation evolving over the past few years makes it very unlikely that drastic changes will occur.

The report concluded that carbon dioxide emissions in power generation could not be reduced with only a broader use of renewable power sources. Measures in other industries like transport and heating are necessary. This is easily proved by comparing the charts of GDP, emissions and power consumption growth. They demonstrate a clear correlation between the growth of GDP and growth of energy – specifically, electrical energy – consumption.

Initiating changes in the transport segment turned out to be a real challenge. The package of measures introduced by the German government to increase tariffs on transport and heating fuel was criticized as not providing sufficient incentives.

The decisions made thus far assume that the remaining seven nuclear power plants with a total power capacity of little more than 10 GW (PRIS data as at October 17, 2019) will be shut down by 2022. Coal generation will be reduced by 29 GW by 2030, with the remaining capacity (17 GW) to be shut down by 2038.

Energy mix mixed improperly

The report contains another, perhaps a more important conclusion. “Reliability of supply will be put at risk in the medium term after phasing out nuclear energy and coal unless the phased-out capacity is replaced and grid infrastructure expands faster”.

According to McKinsey analysts, reliability of power supply in Germany is under threat left without compensatory measures. “Based on model calculations, Germany will need 17 GW of new capacity by 2030 to compensate for shut-down capacity and fluctuations of renewable energy output, and relieve peak loads. Otherwise ‘bottlenecks’ will appear already in the middle of the next decade, with the situation to get worse by 2030,” the report reads.

It is not just McKinsey that is concerned with the ongoing government’s measures, as it is not unlikely that conventional power plants will be disconnected from the grid even earlier. Professor Harald Schwarz from the Brandenburg University of Technology analyzed a report prepared by an expert group, which is often called the Coal Commission, established by the federal government in the spring of 2018. The report was submitted to the government in late January 2019. One of its provisions stipulates that not only nuclear power plants but also coal-fired stations (12.5 GW) might be switched off by 2022.

“Unfortunately, the Coal Commission has not investigated the relevant technical parameters to ensure a secured electric power supply based on Germany’s national resources,” Schwarz wrote in his article Will Germany Move into Situation with Unsecured Power Supply? published in Frontiers in Energy in September 2019. He warned that only 10 out of 366 pages in the report were devoted to security of supply. There are three points made in the report. First, security of supply is important for Germany; second, each European country had used to satisfy its domestic demand independently; and third, the new concept of secured supply, as it is viewed by the German Ministry of Economy and which is likely to become a long-term strategy, is based on the so-called loss-of-load expectation.

“Instead of using only national parameters of peak load and secured generation capacity, this model will take also into account free generation capacities in neighboring countries, which possibly will be traded on the energy market,” the professor says. Harald Schwarz is upset that the Coal Commission did not analyze whether Germany would be able to cover a cold season (November to February) shortage of electric power when other European countries were also at the peak of consumption.

Professor Schwarz is also surprised at Germany’s plans to increase the share of renewables to 65% of the energy mix. According to him, there was no public discussion of how the share of renewable energy could be increased to the level declared, with stability of the system maintained. “The fact that generation has to follow the demand minute by minute due to the lack of large energy storages in the electric power system, as well as the missing grid capacities to absorb the temporarily huge renewable overproduction, is simply neglected in the public discussion and in the above mentioned governmental Coal-Commission,” he stressed.

The key point is that ‘installed capacity’ and ‘secured supply’ are totally different things. If the new plan to increase the share of renewables to 65% is adopted, the retiring ‘conventional capacity’ can be easily replaced with new ‘installed capacity’. Luckily, power consumption in Germany is relatively stable, with a slight growth owing to the Trade and Services segment. Such a situation is typical for developed countries, for example the USA.

The problem is different, though. According to Professor Schwarz, renewable energy sources have a very low security of supply. For example, solar farms have a zero level of secured power supply. Just to compare, nuclear power plants offer the highest security of power supply among ‘conventional sources’ of electric power (93%). In other words, one can build ten solar farms, but neither of them will be able to reliably supply industrial facilities, electric vehicles and electric heat pumps with power on a cold winter evening.

Situations like this have happened in other countries and have dealt painful blows for both consumers and power producers. One happened in the UK last August as a result of power loss at a wind farm and a gas-fired power station. Around one million people were left in the dark. “The system operator, already under investigation by the energy watchdog, faces criticism from within the industry that it has not done enough to guard against the risk of blackouts,” The Guardian wrote.

Another blackout occurred in Texas. “Texas power prices jumped from less than $15 to as much as $9,000 a megawatt-hour this month as coal plant retirements and weak winds left the region on the brink of blackouts during a heat wave,” Bloomberg said.

Near-blackouts have happened in Germany, too. “Technical experts are simply terrified and ask, ‘What will we do after the remaining seven reactors are stopped in 2022?’ They are still supporting renewables, but it is already a disaster what is happening in the grid,” Mikhail Chudakov, Head of the IAEA Department of Nuclear Energy, told Rosatom Newsletter’s correspondent.

A Nuclear-free Price

An imbalanced energy mix can cause power costs to fluctuate. “We expect the highest price hike to happen in 2022 when the last nuclear reactor in Germany will be shut down,” says Jörg Steglich from strategy consulting firm Oliver Wyman. According to the forecast, the price may rise from EUR 40 to EUR 65 per megawatt-hour. Experts from Friedrich–Alexander University Erlangen–Nürnberg are even more pessimistic: the wholesale price of electric power may reach EUR 136 per MWh (13.6 eurocents per KWh) by 2023.

It is not yet clear what technology Germany will use to solve the problem of safe and secure power supply and emission cuts. According to the media, Germany can either increase natural gas-based generation (but gas-fired power plants emit carbon dioxide) or increase solar generation and build hydrogen energy storage facilities (other media say, though, that projects involving hydrogen storage have been postponed). McKinsey assumed that the country had three options. First, Germany can negotiate power supply from neighboring countries. The second option is to rely on its own resources even if it requires large capital investments because new renewable power plants will be built on less attractive (in economic terms) sites. “It is worth mentioning that extending the lifetime of nuclear power plants in Germany (no new builds) would reduce overall system cost, but it would not overcome the challenge in the long term since all existing German nuclear power plants would be decommissioned by 2050,” says the report. The year 2050 is mentioned here because even if the decision to phase out nuclear by 2022 is reversed and the service life of Germany’s existing nuclear stations is extended to 60 years, the newest station (Neckarwestheim 2) will have to be decommissioned in 2050, analysts explain. The third option is a combination of the other two.

Political will

The example of Germany shows how a large share of renewables affects the power industry, and so do examples of other countries that have already experienced power outages. In order to avoid emergencies, one should not bring the energy system to the brink of imbalance. Renewable sources of power have proved to be a tool to reduce carbon dioxide emissions, but they do have known limitations. Taken separately, renewable generation does not tackle the problem of emissions, for example, from vehicles. Besides, renewable sources are not yet capable of securing power supply and need power stations that can be reliable generators of base load electricity. This is where nuclear power plants are the most effective.

International practice shows that decisions in the power industry are politically motivated. The nuclear phase-out in Germany by 2022 was a political decision, just like the other one to increase end user tariffs on electric power from renewable sources. These decisions change the structure of entire industries and areas of expertise on the national scale. One of the problems that Germany faces today is a growing shortage of industry professionals able to maintain the decommissioned nuclear power plants properly.

A life-and-death struggle over each nuclear station is taking place in the USA. The latest example is a situation in Ohio where the state government decided to support nuclear generation. “In late July 2019, Ohio became the fifth state in the United States to enact policies that provide for compensation or other assistance for in-state nuclear generating plants. Connecticut, Illinois, New Jersey, and New York have implemented similar support programs for some of their nuclear power plants since 2017,” reads a press release published by the US Energy Information Administration in early October 2019. The power plants operated by FirstEnergy Solutions were on the verge of bankruptcy (the company filed for bankruptcy protection in March 2018). The new governor of Ohio saved it by signing a nuclear subsidy bill.

Situations like this do not occur every day. Much more important is the widespread and continued recognition by top government officials that nuclear energy can be a carbon-free and secure source of electric power. If it is in place, ways to finance development of the industry will be found. “The future of nuclear energy is not limited to the dilemma of whether “the government provides finance” or “the government does not provide finance”. It is important to create conditions that will support the development of nuclear. It is up to each country to decide what support measures will be taken. The UK has introduced the so-called contract for difference. Turkey has signed an agreement with Rosatom that the country will be purchasing a certain amount of electric power from Akkuyu NPP at a fixed price. Some other countries sign agreements to jointly support new build projects. There are many options, but involvement of the government is necessary,” Rosatom’s First Deputy Director General Kirill Komarov said in an interview to Rosatom Newsletter.