Germany's great renewables challenge

Germany's switch away from nuclear and push toward 36 per cent renewables by 2020 is a bold one, but to be a success there are several hurdles it must overcome.

Germany will have to deploy a range of technologies and strategies to protect its grid from a continuing power supply overhaul, after shutting a swathe of its nuclear fleet and with a rapid rise in renewable power.

The country last year closed the country's oldest nuclear plants, shutting eight facilities, and accelerated a phase-out which sees its last power plant shut by 2022.

It is now poised for an even bigger shift, shutting gas and coal while adding a vast amount of renewable power, making the country a test case for a large country switching to more intermittent power.

It must counter two, related, threats.

First, it must first figure out how to smooth renewable generation volatility.

And second, in a related point, it must motivate fossil fuel back-up, to maintain power generation headroom at risk because of subsidies and priority grid access which favour wind and solar.

Solutions will include a combination of improved transmission capacity and voltage-smoothing technologies, plus a strategy to support gas.

Only then can the country continue to add renewable capacity and balance the demands of its increasingly integrated neighbours.

Next phase

It is not only nuclear power capacity that is shrinking in Germany.

From January 1 2013, all fossil fuel power plants in western Europe will have to pay for each tonne of carbon dioxide (CO2) emissions under the European Union's emissions trading scheme, after getting most emissions permits for free since the launch of the scheme nearly eight years ago.

Even at present low carbon prices, that will undermine the economics of marginal gas plants which are already deep in the red from a combination of high gas prices and low coal and power prices.

That contraction of gas and nuclear contrasts with massive additions of wind and solar power.

Under its National Renewable Energy Action Plan, the country aims to get nearly 40 per cent of its electricity from renewable power by 2020, from 52 gigawatts (GW) of solar power and 36 GW of onshore wind and 10 GW offshore.

From 2011-2015, Deutsche Bank analysts forecast a net addition of 33 GW of renewable power. The International Energy Agency (IEA) sees an extra 22 GW.

The same period will see a net drop in nuclear capacity (-9.7 GW); gas (-3.5 GW); lignite (-1 GW); and a net gain in hard coal of 2.2 GW, according to a Deutsche Bank analyst report, "German Power: Caught In The Undertow", implying a dramatic shift to intermittent power.

Back-up

There are two central problems: maintaining fossil fuel back-up, and strengthening the grid.

Fossil fuels are being undermined by the merit order of renewable power, where solar and wind get priority dispatch to the grid. The problem is doubled when combined with subsidies which make renewable power generators indifferent to wholesale market price signals.

That can inflict volatile and potentially very low or negative prices on the rest of the system.

And it is not helped where marginal renewable power generation is free, once plants are installed.

The net result is to push other sources out of the generation mix.

Germany's capacity margin will shrink to 10 per cent in 2015 from 19 per cent in 2010, estimate Deutsche Bank analysts.

That may start to undermine the country's ability to balance the grids of its neighbours including France, which is often under capacity on cold winter days because of dependence on electric heating.

One strategic solution option is a capacity payment mechanism, reportedly under consideration in Germany, following more definite plans in Britain and an existing scheme in the United States.

Under such a scheme, the government or regulator identifies a looming capacity shortfall and invites bids for flexible capacity in a technology-neutral auction where it pays the winning operator simply to be available.

In a scheme in northeastern United States, a system operator collects bids to meet planning targets for regional peak capacity needs and procures capacity at a market clearing price.

The forward auctions are held three years before the delivery year, to match the minimum lead time required for the construction or development of new capacity, as a reasonable construction period for new peaking (for example gas-fired) power plants, or ramp up period for energy efficiency projects.

A second, complementary solution is for the regulator to impose stricter grid interconnection requirements on renewable power generators, forcing them to limit voltage swings within a certain buffer by deploying battery storage or switching and voltage compensating devices.

Loop flows

The second main problem to be headed off is a lack of transmission capacity within Germany, with impacts on its neighbours.

One emerging threat, for example, is the mismatch between onshore and rapidly growing offshore wind installation in the north and load centres in the south, combined with insufficient internal grid connection.

The phase-out of nuclear power largely located in the south of Germany will further exacerbate the mismatch.

Unscheduled ‘loop flows’ have increased across the transmission system at times, where electricity flows through Polish and Dutch grids and then back into Germany.

Interconnector operators struggle to plan for this flow, given it stems from unpredictable wind power.

The flows can lead to cross-border capacity congestion, or conversely underutilisation when they are planned for and fail to materialise.

That in turn can cause price divergence across countries in central western Europe, and so more price volatility.

One solution is a more intelligent, flow-based market coupling between Germany and its neighbours France and the Netherlands.

Such a system, where market coupling algorithms determine the direction of flow of electricity to under-supplied areas, would improve efficient use of transmission capacity. Such intelligent coupling is planned from next year.

The problem can further be tackled by new transmission, internally and across borders.

The National Grid Expansion Acceleration Act (NABEG) of 2011 has been adopted to simplify and accelerate permitting procedures of national and cross-border lines while ensuring a high level of public participation, which will help.