Securing Supply Is the Key to the Success of Germany’s Energy Transition

The energy sector is currently undergoing a transformation. An opening-up of the markets, a mix of different energy sources and new levies have brought about sweeping changes in the sector in recent years. Energy providers are having to break out of old patterns in order to manage the balancing act between guaranteeing supply and ensuring both sustainability and affordability. But to what extent are these developments compatible with national and EU climate targets? How is Germany’s planned energy transition progressing economically, politically and socially? And what challenges does the energy sector still face? These are just some of the questions addressed by Dr. Rolf Martin Schmitz, CEO of the private energy supplier RWE on 20 February 2018 during the latest event in the series “First-Hand Information on Economic Policy” at the Centre for European Economic Research (ZEW) in Mannheim.

The energy transition has certainly left its mark on RWE. Having phased out nuclear energy sources at a relatively late stage in favour of renewable energy, the energy giant made a complete turnaround in 2016 by splitting up the company. “The energy sector has to reorganise, and RWE simply had to adapt,” said Rolf Schmitz in the opening of his talk, entitled “The Energy Transition – Quo vadis?”. The restructuring of RWE’s energy generation operations was shaped by the phasing-out of nuclear energy, increased safety measures regarding brown coal and capacity losses abroad. By keeping conventional energy generation and energy trading operations under the remit of the parent company and separating its renewable energy generation, power grid and retail operations into a subsidiary, Innogy, RWE has ensured that it is prepared for what the future holds. According to Schmitz, the company is already seeing the benefits of this restructuring decision, with the new subsidiary currently receiving around two billion euros in growth investment, from which RWE makes a profit of 2.7 billion.

In order to ensure the success of the energy transition at the national level, Schmitz believes that representatives from science and industry must also bring their expertise to the table of political debate. According to Schmitz, this is the only way to ensure that practical solutions for the phase-out of nuclear energy and coal are found in an objective and politically neutral manner. Securing energy supply is the key here – from the perspective of both the government and private firms. “Securing supply has a bright future as a field of business, since all areas of our society rely heavily on electricity,” explained Schmitz to the almost 130 guests in attendance from the realms of politics, industry and academia. However, securing supply involves having back-up facilities and reserve power plants in case of a “dark period”, i.e. a period when neither solar nor wind energy is available. In the coming years, the supply system will have to withstand a shrinking number of secured energy facilities.

Greater flexibility in the mix of energy sources in needed

“We see ourselves as an infrastructure service provider for all of society, even across national borders,” said Schmitz. In the future, Europe’s various nations may not be able to guarantee a secure energy supply for their people independently and may have to collaborate with neighbouring countries. Only once sufficient energy capacity has been guaranteed, can politicians begin to consider decommissioning nuclear power stations one by one. To this end, Schmitz seemed pleased that a new “Grand Coalition” of the CDU, CSU and SPD was on the cards for the next German government.

Schmitz also called for an adjustment of Germany’s climate change goals. “Conditions have changed and made it impossible for us to meet the climate change targets for 2020. From now on, we need more flexibility,” explained Schmitz. These new conditions include a significant increase in the security of supply, the decision to phase-out nuclear energy that has since been made, as well as high levels of electricity exports. According to Schmitz, the 80 per cent climate goal is still on the whole achievable, since it requires less additional investment than a 95 per cent reduction in greenhouse gases. The latter goal is not realistic and only even conceivable if all the major economic regions around the world made similar efforts to reduce their emissions. The RWE CEO recommended sticking to the current phase-out plan, given that “emissions trading shows us a model for how to restructure without disruptions.” According to Schmitz, anyone dreaming of isolated national solutions is deceiving themselves. Schmitz expects RWE to have reduced its CO2 emissions by somewhere between 40 and 50 per cent by 2030. He believes that double regulation, perhaps in the form of a minimum CO2 price would harm the system and be ineffective.

New storage technologies to gradually phase out coal as an energy source

According to Schmitz, the gradual phase-out of coal, without a simultaneous divestment from nuclear energy, should be a priority.  “In the future, none of our energy will come from coal. Coal will gradually be replaced by gas, biomass and new storage technologies,” said Schmitz. Companies are readjusting their outlook and start using new technologies now. Schmitz highlighted the enormous potential of disruptive innovations, including technological breakthroughs in the hydrogen economy. In order to further such innovations, however, companies need a research landscape which is open to technology, and to receive support from policy-makers.

The Q&A session with ZEW President Professor Achim Wambach and members of the audience at the end of the talk proved just how divided opinion on energy and climate policy can be. Isn’t a collective commitment to a minimum price for CO2 emissions in the European community integral to climate policy? Which “type of energy” will secure supply in years to come? Isn’t securing energy supply a task better suited for the international, European level? Do we need a capacity market in order to ensure the security of our electricity supply in the future? How great is Germany’s regenerative potential? These and further questions prove that discussions surrounding Germany’s energy transition cannot just be happening in the political realm, but must take place in academia, industry and wider society as well.