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PV solar in Germany: too much of a good thing?

By Dave Elliott

An interesting study from the German Development Institute (DIE) of Germany’s ambitious green energy policy asks whether its support for PV solar, and its subsequent rapid expansion, has been a good idea. PV has expanded to over 38GW to almost match wind, now at 40GW, but it has been a costly exercise, since PV was much more expensive than wind. As a result PV has received the lion’s share of support, up to 3 times more than wind, in part since it expanded under the Feed-in Tariff much faster than expected. And although its costs have dropped dramatically, it is still getting proportionately more of the subsidy. Too much some say.


In terms of overall energy industry policy, the DIE report notes that, while on the one hand, Germany has succeeded in building up world-class renewable energy technologies and has captured large segments of the world market, on the other hand, it has been argued that ‘German households have, through the renewable subsidies they pay, made the world a gift of solar technology which China has now been happy to exploit’.

In the end, the report says ‘it is hard to escape the conclusion that the deployment of solar PV in particular has in recent years been out of line both with its long-term expansion potential and its reasonable relative weight within the renewable energy mix – in a country with less-than-ideal climatic conditions for heavy reliance on solar energy’.

Wind turbines usually have much higher load factors than PV systems (typically 2-3 times more), and wind looks a better deal in the short to medium term. The report says ‘the wind energy sector is leading in all performance dimensions: employment creation, competitiveness, technological innovation and avoided CO2 emissions – and does so with lower subsidy levels’. And ‘in terms of medium-term projections of the levelized cost of electricity (LCOE) for wind energy and solar PV in Germany, onshore wind plants are considered to remain the most cost-effective renewable energy technology. Currently at 8 €ct/kWh (at 2000 full-load hours per year), the LCOE for onshore wind energy is forecast to marginally decrease further to 7 €ct/kWh in 2030. Solar PV systems are expected to remain more costly, however, they are coupled with much faster cost decreases due to a steeper technological learning curve. Overall, this would lead to onshore wind plants becoming cost competitive with a conventional (fossil plus nuclear) electricity mix by 2017, while the same would apply for ground-mounted solar PV systems by 2022’.

So wind continues to win, but PV could catch up. That may all be to the good since, as the report adds, they can be complementary: ‘at the broader level of the energy system, and within a supply scenario increasingly based on renewable energy, a variety of different intermittent sources in the electricity grid are required to support overall grid stability – the sun may shine when the wind does not blow’ and ‘the generation potential of onshore wind energy alone will not suffice to cover the full requirements of German electricity demand’.

A similar point was made in a Fraunhofer report on PV: ‘due to the particular climate in Germany, high solar irradiance and high wind strength have a negative correlation’. So they can often compensate for each other’s variations. In which case, ‘a balanced mix of solar and wind capacity is markedly superior to the one-sided expansion that would be brought about through the introduction of a competitive incentive model’ i.e. the competitive market quota/auction model being introduced, as a replacement for the FiT in Germany, which would favour wind as the currently cheapest option. http://www.ise.fraunhofer.de/en/publications/veroeffentlichungen-pdf-dateien-en/studien-und-konzeptpapiere/recent-facts-about-photovoltaics-in-germany.pdf

Then again, that’s not the whole story: there are wider market issues. Germany is still burning fossil fuel, in part to balance the variable renewables, although that is becoming problematic within the German energy market, since, with low marginal cost renewables like PV on the grid, gas plants are no longer able to compete in peak demand periods. A compensatory Capacity Market may be needed to give gas plants an incentive to stay available and to support the development of other grid-balancing facilities. In addition, in the wider export market, coal-generated power is currently competitive, so Germany exports it. It is claimed by some that Germany is using coal to replace nuclear, but the data seem to show otherwise: renewables are filling the gap, aided by a fall in overall demand, while the output from coal plants is increasingly being exported. See: http://arnejungjohann.de/wp-content/uploads/German-Coal-Conundrum-2.pdf and http://reneweconomy.com.au/2015/the-myth-of-the-dark-side-of-germanys-energiewende-94542.
This may be lucrative, but it is clearly not good news in terms of carbon emissions and there have been calls for cutbacks, and dismay at plans for new coal plants – although some of those are long-planned lower-emission replacements for less-efficient older plants.

The DIE report says some of these problems could be resolved if the price of carbon was higher, so that coal became less attractive, but the EU Emissions Trading System (ETS) is depressed (there has been resistance to setting tougher carbon caps from heavy energy-using countries) and there is a perverse interaction between it and the FiTs: ‘Any FiT-induced lowering of CO2 emissions reduces demand for [EU-ETS] certificates, cuts their price, and thus discourages investments in emission reductions elsewhere’. In essence, ‘the parallel operation of FiT and ETS will crowd out most of the former’s emission reduction benefits’. But it’s not all hopeless: ‘the lower price of certificates opens political space for tighter ETS caps without threatening the competitiveness of companies. Without such tighter caps, however, the parallel operation of FiT and ETS will crowd out the former’s emission reduction benefits – at least for those emissions traded under the ETS’.

Another dimension of wider policy interaction is related to national boundaries. The DIE report says: ‘Quite obviously, the multiplicity of national FiT schemes, for example in the European Union, is an ineffective response to the potential of a unified European energy policy. A unified European, or even trans-Mediterranean, grid could largely balance out inherent grid instability caused by intermittent renewable energy sources. At the same time, there is a danger of a conceivable common approach being designed as the lowest common denominator of conflicting country interests. As a result, the more ambitious energy policy of Germany as a lead market for renewables may be severely compromised.’

All of which means that PV may get squeezed. The DIE report clearly sees that as a possibility, but its main concern is the wider policy framework. It looks to rationalisation of the FiTs and EU-ETS as part of a wider move to an integrated pan-EU energy system and energy market. Quite an agenda!

 

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