Danish export success story continues despite new German rules

"We have entered the age of green energy," declared German Chancellor Angela Merkel in the aftermath of the Fokushima nuclear power plant disaster in 2011, which prompted the decision to phase out all of Germany's nuclear reactors by 2022. This policy reversal further boosted Germany's ambitious switch to green energy, the so-called Energiewende.

The legal basis for this switch is the Renewable Energy Sources Act (Eneuerbare-Energien-Gesetz, or EEG), a piece of legislation that has been instrumental in ensuring that renewables today make up more than 25 per cent of Germany's energy mix.

While the EEG is often highlighted as a success both domestically and abroad, Germany's green transition has not been without hitches, and the German government has recently changed its tune on energy policy. After several months' political negotiations, a reform of the EEG entered into force in August 2014. The overall goal of the new act is to increase the percentage of power from renewable energy sources to 40-45 per cent by 2025, 55-60 per cent by 2035 and 80 per cent by 2050. The reform lowers the targets for offshore wind from 10 GW to 6.5 GW by 2020 and from 25 GW to 15 GW by 2030.

Core market for Danish exporters

The combination of favourable framework conditions for renewable energy and the strong winds, good seabed conditions and reasonable water depths in the German North Sea have previously made northern Germany a core market for the Danish offshore wind turbine industry.

“We were pleased to note that Danish exports of energy technology to Germany – most notably wind turbine technology – really regained momentum last year, and we have indications that this trend has so far continued into the first half of 2014,” said Anders Stouge, deputy director general of the Danish Energy Association. “We have reason to believe that Germany will remain an important customer for suppliers of wind turbines and other energy technologies.”

Accordingly, Germany has also become an important market for many of the companies that form the energy cluster at the Port of Esbjerg, which specialise in installation, logistics, servicing, repair and maintenance of offshore wind farms.

“The installation of offshore wind energy in the German part of the North Sea is hugely important to the companies at the Port of Esbjerg,” said Ole Ingrisch, port director at the Port of Esbjerg. “Offshore wind turbines with a combined capacity of just under 1.3 GW have already been shipped to Germany from Esbjerg, almost 1 GW of which are already in operation and producing power, and more are being built.”

EEG amendment

“Germany lowering its renewable energy ambitions is a result of several factors – one of them being that the Germans' willingness to pay for the switch to green energy is reaching its limit,” explained Mr Stouge.

German consumers presently pay the highest electricity prices in Europe. While private consumers are suffering, Germany's high energy-consuming companies are complaining that the high cost of power is undermining their international competitiveness.

In addition, Germany's worn-out power grid is struggling to keep up with the renewable energy expansion, which requires far more in the way of infrastructure than coal and nuclear power plants.

Accordingly, the reform of the EEG is in large part designed to meet consumer demands and ease the pressure on the power grid. The reform focuses strongly on reducing the cost of sustainable energy by creating market-based subsidy structures and a new tender model. Also, the adjustments are aimed at ensuring a more efficient and systematic expansion of sustainable power.

Dong Energy: More realistic goals

Trine Borum Bojsen, managing director of Dong Energy in Germany, is not worried about the German change of course. She was appointed shortly before Dong Energy decided to construct the offshore wind farms Gode Wind 1 and 2 in the German part of the North Sea – then the Danish energy company's greatest-ever offshore wind investment.

“The new 2020 goal of 6.5 GW is more realistic than the original 10 GW and is adjusted to the expected market capacity. The German offshore market is still relatively immature. To date, Germany has installed less than 1 GW, so 6.5 GW is still a fairly ambitious goal,” said Ms Bojsen.

Dong Energy has already started on the construction of the offshore wind farm Borkum Riffgrund I, and preparations for the construction of Gode Wind 1 and 2 in the spring of 2015 are well underway. According to Ms Bojsen, the new goals are not affecting these projects. She is less enthusiastic about the 2030 goal than the 2020 goal, however.

“We would like to have seen a more ambitious goal than the 15 GW for 2030. The 2030 goal is important in obtaining the volume and scale necessary to reduce costs. In that respect, ambitious goals are vital,” said Ms Bojsen.

Dong Energy has a clear target of cutting new offshore wind farm costs by 35-40 per cent from 2020. Despite Germany lowering its green energy targets, thanks to the country's historical strength in development and production, the German market is still contributing to the important reduction of the cost of offshore wind power, explains Ms Bojsen.

Under the new EEG rules, one unknown quantity remains: the auction models to be used if the demand for grid connections surpasses capacity after 2020. The auction models come into force on 1 January 2021, but the legislative procedures for their administration have yet to be determined. Ms Bojsen would like to see the rules in place by 2017, well in advance of the deadline.

In general, however, she is happy that political ambitions have settled for now.

“What's most important with the new energy legislation is that the goals have been laid out. We now know what the tariffs will be until 2020 and what we can expect to see after 2020. In other words, we have an actual framework to work with.”

Pressure on power grid to be eased

In addition to meeting the demands of consumers and businesses, a declared purpose of the EEG reform was to ease the pressure on the German power grid, which has bottlenecked the switch to green energy. Therefore, the success of the planned expansion of the power grid is essential if the reform is to ensure a smoother roll-out of renewable energy. So far, connecting offshore wind turbines to the power grid has proven particularly challenging for the industry. In 2012, a delayed cable connection made it necessary to use diesel engines at the Nordsee Ost offshore wind farm in order not to damage the mechanical workings of the turbines before they could be commissioned.

“We have experienced some challenges in the past few years in relation to the offshore grid. Most delays and challenges have been a question of planning and financing,” said Ms Bojsen, emphasising that Dong Energy has its grid connections in place for the projects in progress.

The expansion of the grid is expected to cost EUR 16 billion. This is the most contentious factor in the switch to green energy, as many Germans are protesting against the large power masts to be constructed across the country. Germany's grid agency has made it clear that an expansion of the power grid with 1,900 kilometres of new cable is necessary in order to transport wind power from the North to the South.

The poor condition of the German power grid has generated problems not only in Germany, but also in neighbouring countries like Denmark that want to transport power across the German borders.

“The lagging expansion of the grid is already affecting Denmark. There is a border control on the cable that runs between Jutland and Germany, which means that the cable is only available a third of the time. This is equivalent to constructing a six-lane motorway and keeping just two lanes open. It affects the export of Danish power and ultimately the value of the wind power we produce in Denmark. With the border control, it is more difficult to export, said Mr Stouge.

Danish Climate Minister: The more expansion, the better

The German power grid is a cause for concern in Europe, Germany and Denmark alike, according to Denmark's Minister for Climate, Energy and Building, Rasmus Helveg Petersen (Social Liberal Party).

“We are addressing the issue at the European level. Germany actually has a good market for purchasing and selling energy, but the problem is that it does not have the grid to transport the power away from northern Germany. The Germans are aware of this, and they are working on it; it just takes time,” said the minister.

“Meanwhile, we are pleased with our strong, expanded connections to Norway and Sweden and a planned cable to the Netherlands, the Cobra cable, which is already in the works, and with the fact that we are also laying that cable to Germany: not across the border, but down through the Baltic Sea. This will allow us to avoid the north German bottleneck. Strong international connections are essential, and we have a lot of them.”

Generally speaking, the Danish energy minister is not worried about the amendments to the German EEG.

“Obviously, Danish industry is dependent on a strong export market being available. That's why it is important for the entire industry that other countries continue the expansion and technological development. The more expansion, the better. I'm not worried about the current market, however. I believe that the market will continue to grow in Denmark as well as abroad.”

Facts: New German framework conditions

• The new German rules entered into force on 1 August 2014.
• For offshore wind, the targets have been lowered from 10 GW to 6.5 GW by 2020 and from 25 GW to 15GW by 2030.
• If demand for offshore wind grid connections surpasses capacity after 2020, these will be offered for sale using an auction model.
• Turbines put into operation before 2020 have the choice of either a fixed compensation of 15.4 ct/KWh for the first 12 years or 19.4 ct/KWh for the first eight years. After the first 12 or eight years, the compensation will be reduced to 3.9ct/kWh.

The overall goal is to increase the percentage of Germany's power generated by renewable energy sources to 40-45 per cent by 2025, 55-60 per cent by 2035.