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A new start in the energy sector? What the traffic light coalition is planning

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Simon Göß studied Environmental and Resource Management (B. Sc.) at the Brandenburg University of Technology Cottbus and Sustainable Energy Technology (M. Sc. Honours) at the Delft University of...

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The high prices on the energy markets were the main topic of the past few weeks. The long-term development of the energy industry will, however, be shaped much more by the coalition negotiations currently taking place between the SPD, the Greens and the FDP. Here we present the first results and potential points of conflict on the energy and climate policy agenda of the future German government.

 

Climate protection report 2021 shows a large gap

The current status of reports on climate protection and the energy transition can be found in the 2021 climate protection report . The Federal Cabinet adopted this with a delay on November 3, 2021. The report includes the expected greenhouse gas reduction through measures that were decided by mid-2020.

Despite the coal phase-out law and the introduction of a national emissions trading scheme for the heating and transport sectors, Germany would miss its climate targets without further efforts. At a CO 2 price of EUR 60 / ton in the European emissions trading system (EU ETS), only a 51 percent reduction in greenhouse gas emissions would be achievable by 2030.

Under pressure from a ruling by the Federal Constitutional Court in spring 2021, the grand coalition tightened the Climate Protection Act - as one of its last energy and climate policy accents. Specifically, they name a mandatory reduction in greenhouse gas emissions of 65 percent by 2030. However, the new traffic light coalition must manage to implement the new goals.

 

Strong expansion of renewable energies

The energy and climate policy goals cannot be achieved without a dramatic expansion of renewable energies. In their exploratory paper from mid-October 2021, the three coalition parties set themselves overarching goals in the area of ​​expanding renewables:

  • Planning and approval procedures are to be accelerated considerably.
  • There should be a solar requirement for the roofs of commercial new buildings and incentives for more PV on private new buildings.
  • Two percent of the land area is to be designated for the use of wind energy on land.
  • Municipalities should have a better financial stake in wind farms and larger ground-mounted PV systems.
  • The capacities for offshore wind energy are to be increased considerably.

The designation of new areas for onshore wind farms in particular offers potential for conflict. Two percent of the federal territory is required as a backdrop for the necessary expansion of wind energy. The most recent report of the federal-state cooperation committee from the end of October 2021 makes it clear that nationwide only just under one percent of the area is currently legally designated for wind energy.

So far, only a few federal states have achieved high designation values. Meanwhile, Bavaria, Baden-Württemberg, Saxony, Thuringia and North Rhine-Westphalia in particular land at well below one percent. Disputes between the federal states about land designation are preprogrammed here. Figure 1 shows the designated areas (partially unfinished regional planning) of the federal states in relation to their state area.

Share of the designated area for onshore wind energy by federal state

Figure 1: Proportion of the designated area for onshore wind energy by federal state (source: Energy Brainpool, 2021)

 

Phase out coal by 2030?

Furthermore, the new coalition in the federal government is aiming for an accelerated coal phase-out, ideally by 2030, as stated in the exploratory paper. To this end, the political actors should review the coal phase-out law for the first time during this legislative period and not until 2026. The massive expansion of renewable energies and new gas-fired power plants are cited as a prerequisite for an earlier phase-out. The latter should already be built to be hydrogen-powered.

Even if coal is phased out earlier, there could be conflicts between the federal states concerned, the federal government, as well as trade unions and the operators of coal-fired power plants. The exploratory parties are therefore also holding out the prospect of early or accelerated measures for the affected regions.

In order to meet the obligations under the Climate Protection Act, however, an exit before 2030 will be inevitable ( you can find our analysis here ). Figure 2 shows the modeling results of an early coal phase-out in comparison to the sector target of the energy industry in the Climate Protection Act.

Figure 2: Energy industry emissions in 2030 according to different scenarios in million tons of CO2;  EE: Renewable Energies, BK: Lignite

Figure 2: Energy industry emissions in 2030 according to different scenarios in million tons of CO 2 ; EE: Renewable Energies, BK: Lignite (Source: Energy Brainpool, 2021)

If CO 2 certificate prices continue to rise due to the tightening of European emissions trading, some of the coal-fired power plants could leave the electricity market for economic reasons alone.

 

Abolition of the EEG surcharge and a new electricity market design?

Another important point in the exploratory package is the timely end of the EEG surcharge financing via the electricity price. According to the calculations of the transmission system operators, the EEG surcharge for 2022 is already 43 percent lower than in 2021. At just 3.723 ct / kWh, this is the lowest level in over ten years. The high electricity prices and thus the increased market values ​​of renewable energies this summer and autumn play a major role here. Figure 3 shows the development of the EEG surcharge since 2011.

Figure 3: Development of the EEG surcharge 2011-2022 in ct / kWh

Figure 3: Development of the EEG surcharge 2011-2022 in ct / kWh (source: Energy Brainpool, 2021)

 

The further financing of the EEG surcharge is likely to come in part from the income from the national emissions trading system (nEHS). This should also be adapted to the specifications of the European Fit-for-55 package . This makes higher prices for the certificates in the nEHS more likely.

The development of a new electricity market design as part of the expansion of renewable energies is also mentioned in the exploratory paper. However, the coalition parties are not getting any more specific here. Various studies assume that by 2030 an additional 15-25 GW of gas-fired power plants will be required. So far, however, it is not yet clear how the market will expand the secured capacity from gas-fired power plants.

The development of a new electricity market design could mean the introduction of a capacity market. Or just changes to the remuneration of renewable energies and their further introduction into an unsubsidized system through PPAs.

On this point, too, there is likely to be conflicts between the coalition parties regarding the precise design of the new system. At the same time, the EU Commission always has a say in this matter.

 

Positive outlook for the energy industry

The transformation of the energy industry will accelerate in the coming years. The already passed climate protection law in Germany, the new regulations in the Fit-for-55 package of the EU, rising CO 2 prices and possibly higher energy prices are some of the drivers.

The energy industry has made particularly positive comments about the results of the coalition negotiations so far. If the new coalition of the SPD, Greens and FDP succeeds in waking politics and business at all levels from the slumber of energy and climate policy of the past few years, Germany could actually become a pioneer again in the expansion of renewables and in climate protection by 2030.

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Matt Chester's picture
Matt Chester on Nov 24, 2021

If CO 2 certificate prices continue to rise due to the tightening of European emissions trading, some of the coal-fired power plants could leave the electricity market for economic reasons alone.

How do you foresee the energy crisis going on right now impacting these trends? 

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