General Electric FlexEfficiency 50 Power Plant: A Solution to Germany’s Energy Dilemma?

Gordon T. Little

Master’s Thesis Center for Global Affairs

New York University

Fall, 2011

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Abbreviations 3 Introduction 4 I. A review of existing literature 6

Post-nuclear Germany will turn to natural gas (and maybe coal) for its energy supply. Strong anti-nuclear sentiment in Germany More gas. More coal? Higher electricity prices More difficult to meet emission reduction targets

New “game changer” technologies are needed to reduce emissions while providing consistent electricity.

Existing technology is not enough to meet ambitious global emissions reductions Policy solutions for future energy innovation What’s next?

 II. Natural Gas Turbines and the GE FlexEfficiency 50 Power Plant 18

Natural gas 101 Drivers of natural gas usage: price, technology, security, carbon Operation of Natural Gas Power Plants

GE FlexEfficiency 50 Natural Gas CCGT Power Plant

A game changer? Hybrid technologies: hype-rid(den) technologies? Taking the GE plant global Competition

III. The German Energy Mix 31

The challenges for German energy policy German Electricity Supply

Power production Goodbye nuclear The hard (coal) facts Natural gas: nuclear replacement Renewables: growing and growing Oil: transportation heavy Electricity imports: growing and growing

Mapping the future

IV. The Market for GE FlexEfficiency Technology in Germany 47

Sixteen FlexEfficiency 50 Power Plants by 2022 Individual plant output Individual plant costs

Location Reality check

Conclusion 55 Bibliography 58

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Abbreviations Electricity production & consumption kW(h) kilowatt (hours). MW(h) megawatt (hours). 1,000 kilowatts. GW(h) gigawatt (hours). 1,000 megawatts. TW(h) terawatt (hours). 1,000 gigawatts. Natural gas BCM billion cubic meters. BCF billion cubic feet. BTU British thermal units. The amount of time it takes to heat one pound of water

by one degree Fahrenheit. CBM cubic meters. CFT cubic feet. 1cbm = 35.31cft LNG liquefied natural gas. TCF trillion cubic feet. Other terms CCGT combined cycle gas turbine CCS carbon capture and sequestration. CO2(-e) carbon dioxide (emissions) ETS emissions trading scheme EU European Union GHG greenhouse gas GT gigaton

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Introduction Energy has become a hot topic in the popular media. The Japanese nuclear disaster, BP

offshore oil spill and Arab Spring all have recently spurred global debate about the impact of

our energy usage or reliability of future supply. Scientific consensus around humankind’s

influence on global temperatures has led a drive to replace fossil fuels with renewable energy

technology.

But renewable energy technology is not yet in a position to overtake oil, gas, and coal,

especially in the medium term. According to the International Energy Agency, annual global

subsidies of US$180 billion to 2035 would only raise the (non-hydro) renewable portion of

global energy supply to 15%. Consequently, it is highly likely we will exceed the 450 parts-

per-million threshold for the amount carbon dioxide in the earth’s atmosphere. Increasing

temperatures and other environmental ailments are forecast to result.

Nonetheless, innovation away from high-emission fossil fuels is increasing. It just tends to

be gradual rather than transformational. One example of such innovation is the General

Electric (GE) FlexEfficiency 50 power plant that integrates a combined-cycle gas turbine

with concentrated-solar-power and wind turbines to efficiently produce electricity. It is the

first industrial-scale hybrid plant of its kind and combines the lowest-emission fossil fuel

with the most universal renewable technologies.

The global market for the GE FlexEfficiency plant is not yet defined. As the plant is so new

(it was announced in May 2011), little has been written about its global prospects. Around

the same time, the German government announced a policy to retire all of the country’s

nuclear power plants by 2022. That means that Germany will need to replace one-quarter of

its electricity generation with new sources in just over a decade. Because electricity from

nuclear is essentially zero carbon, the nuclear phase-out may undermine Germany’s

ambitious emissions reduction targets. The government has pledged to encourage more

renewables such as wind farms, but by 2022 renewables will not be able to replace nuclear.

That leaves natural gas, coal or imported electricity (generated by coal or nuclear) as the main

replacements. The German Chancellor has already conceded that “if we are getting out of

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nuclear quicker and into renewable energy, then we need fossil power plants for the

transition”.1

This report analyzes the potential opportunity for the new GE plant in Germany, concluding

that there is a strong market for gas-wind hybrid technology. More natural gas is flooding in

from Russia and the country already has 26 gigawatts (GW) of producing wind farms. The

GE plant could produce cost-effective electricity while providing a lower carbon alternative

to coal and decreasing reliance on imported electricity.

The structure of this report is as follows: first, the body of existing literature on likely energy

scenarios for a post-nuclear Germany has been examined, along with contemporary research

on the outlook for renewable and hybrid generation technologies. Chapter II contains an

overview of the role of natural gas in future global electricity generation and where the GE

FlexEfficiency power plant fits. The third Chapter reviews German energy policy and the

country’s energy mix, and the final Chapter builds on this to propose a market assessment

for the GE FlexEfficiency plant in Germany.

There is market opportunity for sixteen GE FlexEfficiency 50 power plants in Germany by

2022 (the year the last German nuclear plant will be shut down). Together, these GE plants

could replace 44% of electricity previously generated by nuclear power. The levelized cost of

energy would be between €45-56 per megawatt hour (MWh), which is cost effective in the

market. With GE already proposing substantial additional financial investment in its German

operations, and no local competing technology, there is strong market opportunity.

                                                                                                               1 Judy Dempsey, "Merkel Asks Lawmakers to Back Shift from Nuclear," New York Times June 9th 2011.

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Chapter I A review of existing literature

Chancellor Angela Merkel’s announcement to phase-out all of Germany’s nuclear power

plants by 2022, even though an about-face in policy, was never a complete shock. Plans for a

post-nuclear Germany have been percolating for decades, and there is a hearty body of

research on which to draw when forecasting the country’s post-nuclear energy picture. What

is especially interesting is how Germany will keep its ambitious 80% carbon emission

reduction goal if it is retiring its largest source of low carbon electricity.

Academic consensus is that a post-nuclear Germany will employ more natural gas and coal

for its electricity supply. This reversion to fossil fuels, however, threatens the country’s

ability to meet its emissions targets, unless some new form of energy technology enters the

picture, allowing a ‘post-nuclear Germany’ to truly become a ‘low-carbon Germany’. What

would this new technology look like? And are so-called ‘game changer’ technologies as

revolutionary as they first appear?

Post-nuclear Germany will turn to natural gas (and maybe coal) for its energy supply. “If we are getting out of nuclear quicker and into renewable energy, then we need fossil power plants for the transition”.

Angela Merkel.

Strong anti-nuclear sentiment in Germany A long history of analysis abounds on the effects of any potential nuclear phase-out in

Germany. Over a decade ago, Heinz Welsch wrote in Energy Economics that “with respect to

nuclear power, it is rather unlikely that capacity additions will occur in the foreseeable future,

unless a significant change in public perceptions takes place”.2 In the same year, Frank

Hoster’s analysis of the future integration of the European electricity market used a working

hypothesis that 40% of German nuclear plants would be shut down by 2000, “culminating in

a complete abandonment of operations by 2005”.3 These assumptions stem from a

persistent German opposition movement against nuclear power.

                                                                                                               2 Heinz Welsch, "Coal Subsidization and Nuclear Phase-out in a General Equilibrium Model for Germany " Energy Economics 20.2 (1998): 204. 3 Frank Hoster, "Impact of a Nuclear Phase-out in Germany: Results from a Simulation Model of the European Power System," Energy Policy 26.6 (1998): 508.

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Wolfgang Rudig has traced German nuclear opposition back to 1954 in Munich when

objections were raised in the town council about the location of a proposed nuclear research

reactor on the grounds that radioactive pollution could damage the hops plantations and

adversely affect the quality of local beer.4 According to Rudig, opposition that accompanied

the construction of most nuclear reactors originated in a shared feeling of a fundamental

threat to local livelihood and culture. It was not until 1975, when 28,000 people

demonstrated at a proposed nuclear site in Whyl (in Baden-Wurttemberg), that the nuclear

debate became national. Images of protestors and police clashing violently suddenly caught

public imagination. Indeed, the Whyl protests marked “the starting point of a national anti-

nuclear campaign with major political repercussions for the country as a whole”.5

Following the Chernobyl nuclear meltdown in 1986, anti-nuclear sentiment further

engorged. Time Magazine cited a survey at that time showing that 69% of Germans

questioned opposed nuclear expansion.6 Such feelings have persisted over time. By 2010,

according to the Economist, 56% of Germans still want a nuclear phase-out.7 After the

nuclear incident in Fukushima in March, 2011, 100,000 Germans demonstrated against

nuclear power in their own country. Such anti-nuclear passion is a driving force behind the

Merkel government’s decision to end nuclear power today.

More gas. More coal?

Globally, gas is expected to play an increasing role in world energy. An International Energy

Agency (IEA) 2011 special report entitled Are We Entering a Golden Age of Gas? estimated that

the share of natural gas in the global energy mix will increase from 21% to 25% by 2035,

overtaking coal by 2030. This is driven primarily by carbon consciousness on the part of

governments, improved extraction technology to reach gas deposits in geology formerly off-

limits and the economic competitiveness of gas vis-à-vis alternatives. As some governments

turn away from investments in nuclear power (such as Germany), the report indicates that

                                                                                                               4 Wolfgang Rudig, Anti Nuclear Movements: A World Survey of Opposition to Nuclear Energy (Essex: Longman Group UK Ltd, 1990) 119-20. 5 Rudig, Anti Nuclear Movements: A World Survey of Opposition to Nuclear Energy 135. For a list of anti-nuclear protests in Germany, see: http://www.spiegel.de/flash/flash-24362.html 6 John Greenwald, "The Political Fallout," Time 2nd June 1986. 7 The Economist, "Nuclear Power? Um, Maybe," The Economist 2nd September 2010.

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“natural gas is the fuel most likely to benefit from a switch away from nuclear, because of its

relative abundance, environmental benefits compared with other fossil fuels and lower

capital cost, though a greater drive towards renewable energy cannot be ruled out”.8

When Germany’s nuclear plants are retired by 2022, domestic electricity generation capacity

will most likely be replaced with gas or coal. Exactly which will be determined by political

decisions, for instance the implementation of carbon allowances. Estimating the average age

of Germany’s power plants at 22 years (back in 2005), Hans-Günter Schwarz concluded that

carbon allowances will likely drive modernization of existing gas and coal plants (if it is a

cheaper alternative to new construction), meaning an increase in relative gas or coal capacity.

He used several scenarios including a “baseline” scenario with a nuclear phase-out by 2022

and with “effective” carbon emissions allowances implemented as part of an EU-directive; a

scenario without allowances; and a scenario with allowances and with nuclear energy.

Schwarz concluded that, under the baseline scenario (nuclear phase-out; carbon allowances),

“the gas-based net power generation capacity expands from 15 currently to about 52

gigawatts (GW) for the year 2030” along with a reduction in hard coal-based net power

generation capacity from 23GW to 7GW and a decline in brown coal-based capacity from

almost 21GW to 11 GW thanks to the carbon allowances that impact coal more directly than

other conventional sources. Thus with a nuclear phase-out, “an effective CO2 allowance

model leads to the dominance of gas-based power generation”.9 Without carbon allowances,

coal-based power will remain “a central element” of power generation, as will nuclear if it is

not phased out. However, even with a carbon allowance scheme, the modernization of

existing plants (in contrast to construction of new plants) becomes economically more

attractive, with 18-32GW of existing generation capacity modernized by 2020.10 This

includes modernization of hard and brown coal-based power plants, implying that coal will

still play an important role in German electricity even with carbon allowances.

                                                                                                               8 Fatih Birol and John Corben, Are We Entering a Golden Age of Gas? (Paris: International Energy Agency, 2011), 16. 9 Hans-Günter Schwarz, "Modernisation of Existing and New Construction of Power Plants in Germany: Results of an Optimisation Model " Energy Economics 27.1 (2005): 135. 10 Schwarz, "Modernisation of Existing and New Construction of Power Plants in Germany: Results of an Optimisation Model ": 132.

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A more recent report by Deutsche Bank in 2007 concluded that “gas is now the clear new

entrant of choice in Germany” given the EU’s preference for an emissions trading scheme.

With an emissions price of €25 per tonne, a new gas plant could, according to the bank, earn

its required rate of return at a power price of €54 per MWh, versus €59 for coal or €60 for

lignite. Should the carbon price fall to €15 per tonne, there would be little difference

between gas and coal in terms of investment decisions. However, the report also noted that

even if a new base-load coal plant was subsidized to the effect that it had five years’ worth of

free carbon, over the plant’s lifetime “the very act of building the new coal plant would push

up the equilibrium carbon price…and hence make it less competitive to gas”.11

Recent industry analyses continue to support prior forecasts. Business Monitor

International’s (BMI’s) German Power Report for 2011 estimated that natural gas-fired

power generation would increase from 65 terawatt hours (TWh) in 2009 to 120TWh by

2020, and account for 19% of total power generation, up from 11.6% in 2009. While BMI

forecast coal to remain Germany's most prominent electricity fuel source for the foreseeable

future (given that it accounts for 43.4% of the country’s current electricity generation), BMI

argued that further coal investment would be “out of consensus within the European power

market” due to the implementation of an emissions trading scheme that would increase

production costs for owners and operators of CO2-intensive coal-fired power plants.12

Higher electricity prices

Alongside a likely shift to gas and coal, there are other implications that would accompany

the phase out of nuclear, such as a rise in electricity prices that may potentially dampen the

economy. In a decades-old article, Heinz Welsch posited that any “nuclear phase-out has

significant effects both on the sectoral and the macroeconomic level, with a resulting

decrease in GDP, and an increase in CO2 emissions”.13 Using a set of scenarios, he argued

that a reduction of nuclear power generation by 10% annually would lead to an increase in

electricity prices by 7-9% and a decrease in energy demand by 4-5%.14

                                                                                                               11 Mark Lewis, German Utilities: A New Look at New Entrants (Revised) (London: Deutsche Bank, 2007), 14. 12 BMI, Germany Power Report - Q3 2011 (London: BMI, 2011). 13 Welsch, "Coal Subsidization and Nuclear Phase-out in a General Equilibrium Model for Germany ": 205. 14 Welsch, "Coal Subsidization and Nuclear Phase-out in a General Equilibrium Model for Germany ": 221.

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In line with Welsch’s argument, the International Council for Capital Formation estimated in

2005 that a phase out of nuclear, along with limits on CO2, would be detrimental to the

German economy. Looking specifically at Germany’s proposals to meet its Kyoto Protocol

targets, the Council predicted that German industry would pay 30% more for its electricity as

a result of an EU emissions trading scheme, with the economy suffering a loss of real GDP

of 0.8% between 2008-12 versus a baseline scenario, and as much as 1.4-1.7% below the

baseline by 2025.15 Moreover, they proposed that “under the assumption that Germany does

retire its nuclear capacity…the economic implications of the proposed policies to limit CO2

emissions would be even more severe”, with 627,000 fewer jobs by 2025.16

However, the idea that energy will become more expensive was recently disputed in a report

by a division within the German Ministry of the Environment (though not commissioned by

the ministry itself) that argued that if all nuclear power was phased out by 2017, there would

be only moderate electricity tariff increases between €6-8 per megawatt hour (€0.006 to

€0.008 cents per kilowatt-hour) on average until 2030.17

Power companies, as significant employers and contributors to the economy, will face

uncertainty as their decades-old nuclear investments come to a working end before their

operational (and profit-making) capacity is reached. Böhringer, Hoffmann and Vögele

analyzed the economic costs to power companies of three different nuclear phase-out

strategies: by full load year, by calendar year or by target year. The full load year (FLY)

approach is based on the total number of years a plant is expected to be able to operate (40)

and “considers the effective use of power plants, i.e. downtime due to fuel make-up…is not

accounted for”; the calendar year approach (CAY), in comparison, implies that power plants

exit the grid as soon as a set number of calendar years (eg, 30) has accrued since their initial

start-up; and the target year approach (TAY) simply sets a target year in which the last

existing power plant must exit from the grid.18 The latter is the Merkel government’s

                                                                                                               15 Mary Novak, Junya Tanizaki and Raj Badiani, Kyoto Protocol and Beyond: The Economic Cost to Germany (International Council for Capital Formation, 2005), 2. 16 Novak, Tanizaki and Badiani, Kyoto Protocol and Beyond: The Economic Cost to Germany, 17. 17 Umweltbundesamt, Umstrukturierung Der Stromversorgung in Deutschland ( Dessau-Roßla: Umweltbundesam, 2011) 4. 18 Tim Hoffmann Christoph Böhringer, Stefan Vögele, "The Cost of Phasing out Nuclear Power: A Quantitative Assessment of Alternative Scenarios for Germany," Energy Economics 24.5 (2002): 470.

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approach in 2011, setting 2022 as the target year for the end of nuclear electricity in

Germany.

The authors concluded that, in terms of costs to power companies, the TAY approach is the

cheapest, “because, at any given point in time, it provides a higher capacity for nuclear

power generation”. However, the authors note that, as each German nuclear plant has its

unique operating conditions, there are “large changes in the cost incidence across power

companies, depending on the regulatory approach…[suggesting that] the various companies

have different stakes in the negotiations with the government on alternative regulation

schemes”.

More difficult to meet emission reduction targets

Germany has ambitious emissions reductions targets. In 2010, the government lauded how

its greenhouse-gas emissions had fallen 22% between 1990 and 2008, effectively over-

achieving on its Kyoto Protocol reduction target. The country now aims to cut greenhouse

gas emissions by 40% (over 1990 levels) by 2020, though phasing out nuclear power is

widely believed to reduce the chance of success. The government’s earlier 2010 Energy

Concept, which was bullish about meeting targets, clearly stated that “nuclear energy is a

bridging technology” on the way to a renewable energy future and that the country will “still

need nuclear power for a limited period”.19 The 2011 policy of nuclear phase-out is now

clearly at odds with this statement.

Frank Hoster, who envisioned a nuclear phase-out by 2005, forecast that the volume of

post-nuclear CO2 emissions in Germany “rises significantly”, which by the time of complete

phase out would be 13.4% (35 million tons (mt)) higher than without a nuclear phase out,

and 27.4% higher (27mt) higher fifteen years later, primarily because of an increase in coal-

fired electricity.20 According to Deutsche Bank, phasing out German nuclear power would

mean a rise in carbon emissions to 293mt from 250mt over 2010-20, and “Germany would

                                                                                                               19 Energy Concept for an Environmentally Sound, Reliable and Affordable Energy Supply. 2010) 14. 20 Hoster, "Impact of a Nuclear Phase-out in Germany: Results from a Simulation Model of the European Power System," 12.

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therefore find it impossible to meet its aspiration of a 40% cut in GHG emissions”.21

According to PointCarbon, owned by Thomson Reuters, the total German phase-out of

nuclear power by 2022 will result in an increase in emissions in the order of 493mt between

2011 and 2020. The organization has also predicted this to raise carbon prices by €5 per

tonne between 2013-20.

Recent analyses by the Breakthrough Institute have likewise predicted that if nuclear were

phased out, Germany would require “an almost four-fold increase in electricity derived from

non-hydro renewables like wind and solar power” by 2022 to meet its emissions reductions

targets. By offsetting some of this generation through improved energy efficiency, the

country would require an average annual decrease in its electricity consumption-to-GDP

ratio of 3.92%, substantially more than the average of 1.7% achieved between 1990 and

2010!22

                                                                                                               21 Lewis, German Utilities: A New Look at New Entrants (Revised), 1. 22 Sara Mansur, "Analysis: Germany's Plan to Phase out Nuclear Jeopardizes Emissions Goals," Breakthrough Institute (2011), July 12th, 2011 <http://thebreakthrough.org/blog/2011/06/analysis_germanys_plan_to_phas.shtml>.

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New “game changer” technologies are needed to reduce emissions while providing consistent electricity.

“If you are anti-carbon dioxide and anti-nuclear, you are pro-blackout”. Robert Bryce. The quandary for Germany is to find a replacement to nuclear power that will help meet

aggressive national emissions reduction targets. The present consensus is that it cannot

succeed. But what about the role of ‘game changer’ technologies in the energy industry?

Would developing new technologies solve Germany’s quandary, and if so how can it be

achieved?

Existing technology is not enough to meet ambitious global emissions reductions

The idea of game changer technologies is reminiscent of Schumpeter’s theory of creative

destruction. For Schumpeter, capitalist innovation was a dynamic process that destroys old

economic structures, replacing them with new ones. Innovations occur as a “sequence of

vicissitudes, the severity of which is proportional to the speed of the advance”, but on the

whole they progressively raise everybody’s living standards.23 This is exactly the argument

behind energy innovation today: carbon-free energy technologies (new economic structures)

that harness inexhaustible natural resources such as wind or sunlight can replace

environment-destroying fossil fuels (old economic structures) and improve global welfare.

But while the analogy between Schumpeter and environmentalism is reasonable in theory, it

is widely understood that we are not yet at a point to displace fossil fuels or to improve

global welfare through energy reform. Neither existing low or zero-emissions energy

technology, nor policy devices such as emissions trading schemes (ETS) or carbon taxes, can

yet guarantee a low carbon future.

In an astute analysis of current renewable energy technologies, Robert Bryce has argued that

current renewable energy technologies are not up to the task of providing secure, reliable

energy. Bryce observed in his 2010 book Power Hungry that on an average day, a single

American coalmine – the Cardinal Mine in Kentucky – produces 75% of the raw energy

                                                                                                               23 Joseph Schumpeter, Capitalism, Socialism and Democracy, ed. Joseph E. Stiglitz (London: Routledge, 2010) 59-60.

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output of all the solar panels and wind turbines in the United States.24 Considering that there

are well over 50 coalmines in the United States alone, scaling up renewables to replace coal

would be a mammoth endeavor – and for Bryce an uneconomic one.

Applying what he calls the “Four Imperatives” (power density, energy density, cost and

scale) to compare renewable energy technologies, Bryce concluded that besides natural gas

and nuclear energy, “no other low-or–no-carbon form of electricity generation…can provide

relatively large amounts of new power generation at a relatively agreeable cost and do so

relatively soon”.25 This is because wind and solar technologies – the most popular renewable

sources presently available – fail the Four Imperatives test. Wind power requires about 45

times as much land to produce a comparable amount of power as nuclear, and solar

photovoltaic (PV) power requires about 8 times as much land as nuclear.26 Statistics from the

Nature Conservancy in 2009 conclude similarly that wind power requires 30 times as much

land as nuclear and solar PV 15 times as much.27 To build installations of this size requires

large amounts of concrete and steel (as much as 870 cubic meters (cbm) of concrete and 460

tonnes of steel) per each megawatt of wind power capacity, versus 27cbm and 3.3 tonnes

respectively for a combined-cycle gas turbine power plant. Such use of resources, not to

mention vast land required for these energy sources, makes them uneconomic compared to

lower-priced gas or nuclear facilities.

While Bryce is one of the more critical analysts of existing renewable technology, other

contemporary analyses draw similar conclusions. In an article for the Copenhagen

Consensus Center, Isabel Galiana and Christoper Green argued for a technology-based

approach to reduce global carbon emissions. They called it a “Herculean” task to reduce

global emissions to the levels suggested by the Intergovernmental Panel on Climate Change

(IPCC): if the world wants to reduce global emissions by 75% from current levels by 2100,

allowing for reasonable annual global economic growth (2.3%), then the world must reduce

its energy intensity by two-thirds from its 2000 level while simultaneously producing an                                                                                                                24 Robert Bryce, Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future (New York: PublicAffairs, 2010) Kindle Loc: 226. 25 Bryce, Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future Kindle Loc: 310. 26 Bryce, Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future Kindle Loc: 1506. 27 Robert I. McDonald, Joseph Fargione, Joe Kiesecker, William M. Miller and Jimmie Powell, "Energy Sprawl or Energy Efficiency: Climate Policy Impacts on Natural Habitat for the United States of America," PLoS ONE 4.8 (2009): Accessed: 14th July, 2011.

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amount of carbon-free energy 2.5 times higher than the total energy consumed globally in

2000.28 This formidable pursuit, the authors surmised, is a technological one rather than

socio-economic or political. But given the low or zero carbon technologies that exist

presently, such as hydro-electric, biomass, solar and wind, Galiana and Green concluded that

“we are nowhere near ready to reduce global emissions substantially by mid century, much

less achieve climate stabilization by the end of the century”.29

Even more bullish reports about a low carbon future rest heavily on the need for technology

innovation. For instance Blueprint Germany, a study commissioned by the World Wildlife

Fund, analyzed what Germany would have to do to achieve a 95% emissions reduction by

2050 (over 1990 levels). The report called for “radical progress” in energy efficiency and a

“huge increase” in the use of renewable energy technology, but also argued that “substantial

innovations still have to be achieved in terms of technology, costs, system

integration/infrastructure, market and business models”.30 Amongst a raft of policy

measures around improving energy efficiency, the report found that carbon capture and

sequestration (CCS) technology will be “essential” (despite not yet being proven viable on a

large scale!), highlighting the importance of game changer innovation to achieve a low

carbon future even if that future is centered on efficiency and renewables.

In the same vein, Nigel Lawson, former United Kingdom Chancellor of the Exchequer,

argued in his 2008 book An Appeal to Reason that technological breakthrough is the most

logical solution to reducing carbon emissions. Because humans have always adapted to

climate in the past, it is illogical to assume they won’t in the future: but what hampers them

doing so is poorly formulated climate policies. Lawson argued that any nation that “cuts

back on its emissions in the near future, is bound to lose out competitively, [while] a nation

which achieves a technological breakthrough is likely to benefit competitively – even

if…there is rapid technology transfer”.31 Although he pillories public angst of global

warming as a “religion” based on but a grain of truth buried within “a mountain of

                                                                                                               28 Isabel Galiana and Christopher Green, An Analysis of a Technology-Led Climate Policy as a Response to Climate Change (Frederiksberg: Copenhagen Consensus Center, 2009), 5. 29 Galiana and Green, An Analysis of a Technology-Led Climate Policy as a Response to Climate Change, 13. 30 Almut Kirchner and Felix Matthes, Blueprint Germany: A Strategy for a Climate-Safe 2050 (Basel/Berlin: WWF, 2009), 386. 31 Nigel Lawson, An Appeal to Reason: A Cool Look at Global Warming (London: Duckworth Overlook, 2008) 96.

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nonsense”, his logic on the need for adaptation spurred by innovation conforms to the

mainstream.

Policy solutions for future energy innovation

Galiana and Green argued that to overcome the intermittency and variability of wind and

solar power, new breakthroughs are required in electric storage and grid integration

technologies, as well as investing in new transmission lines that link wind/solar farms and

major population centers. Rather than relying on emissions targets or carbon pricing

schemes, which the authors believe drive only the uptake of existing on-the-shelf

technologies rather than energy innovation, the authors made a case for integrated global

research and development (R&D) investment that they termed the “incentive compatible

technology race”. Their solution is to install a very low but global carbon tax that transfers

revenues to a clean energy trust fund managed by trustees who are a mix of public and

private individuals (and thus not subservient to government influence) who will select energy

R&D investments. Although presented as superior in the authors’ economic cost-benefit

analysis, their solution lacks much policy description. Nonetheless, focusing on R&D-

initiated technology change instead of emissions reductions targets would be an interesting

direction for existing climate policy.

A call for R&D investment in new technology was also recently echoed by David Victor and

Kassia Yanosek in their Foreign Affairs article “The Crisis in Clean Energy”. The authors

decry the “boom-and-bust cycle of policies” in clean energy that encourage “quick and easy

to build” projects over investing in “more innovative technologies”.32 In contrast to Galiana

and Green, however, Victor and Yanosek argued that the problem is not innovation per-se,

but commercialization of it. Erratic government support through subsidy programs (German

solar subsidies in particular) encourages private industry to minimize investment risk,

depriving investment from flowing to new, creative ideas, and leaving it in conservative

technologies such as wind and solar. Their mix of solutions include moving away from

subsidies; setting clean energy standards (in the US) that allow other clean sources of energy

                                                                                                               32 David Victor and Kassia Yanosek, "The Crisis in Clean Energy: Stark Realities of the Renewables Craze," Foreign Affairs 90.4 (2011): 113.

  17  

into the supply mix; backing more fundamental research in universities and government labs;

improving and expanding loan guarantee programs for innovative technologies; and

launching international partnerships for clean energy development.33

What’s next?

Policy solutions and technological innovation are complementary. A policy that supports

diversity in energy technologies is more likely to encourage game changer innovation. Bill

Gates captured this sentiment by stating that “to have the kind of reliable energy we expect

and to have it be cheaper and zero carbon, we need to pursue every available path to achieve

a really big breakthrough… our probability of success is much higher if we're pursuing

many, many paths”.34 One of these paths is to take existing technologies and marry them

together. That is what General Electric has done with its new power plant that combines

natural gas with wind and solar inputs at a high level of efficiency. It is an example of gradual

innovation building on existing technology and infrastructure. It is lower carbon than some

alternatives, but will it be revolutionary? The next Chapter takes an in-depth look at how

natural gas, the cleanest-burning fossil fuel, has been combined with existing zero-carbon

renewables to contribute to solving the problem of reliable energy supply without significant

environmental cost.

                                                                                                               33 Victor and Yanosek, "The Crisis in Clean Energy: Stark Realities of the Renewables Craze," 117-20. 34 Jeff Goodell, "The Miracle Seeker," Rolling Stone 2010.

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Chapter II Natural Gas Turbines and the GE FlexEfficiency 50 Power Plant

Natural gas 101

Natural gas is a fossil fuel, in other words originating from leftover remnants of plants,

animals and microorganisms of the very distant past. It is located globally in geological rock

formations underground (“conventional” gas is found at less than 15,000 feet;

“unconventional” gas deeper). Originally viewed as a useless by-product of oil exploration

and production, technology and transmission developments have since allowed natural gas

to be extracted and converted into electricity at scale. Daniel Yergin describes how natural

gas was, in the late 1940s, little more than something “seen at night, along the endless

highways of Texas, in the bright spears of light that shot up from the flat plains. It

was…considered a useless, inconvenient by-product of oil production… Natural gas was the

orphan of the oil industry”.35 Yergin attributes the early flaring of natural gas to a lack of

ability to transport it, rather than to any complex engineering processes required to convert

it into electricity. The construction of pipelines, commencing in the United States in 1947,

spurred by a desire to reduce the country’s reliance on foreign oil, is what began the trend

that has made natural gas a mainstream energy source.

Today, natural gas has a wide variety of uses from heating and cooking, to being the

dominant fuel in industries such as paper manufacturing, chemicals, petroleum refining, glass

production and food refining.36 The world’s natural gas reserves stand at 6,621.2 trillion

cubic feet (tcf), with about two-thirds in the Middle East and Russia. With technology

improvements in exploration and production, producible gas reserves have grown by as

much as 50% since 1989. Conventional gas reserves exceed another 120 years at current

consumption levels. The IEA forecasts natural gas to increase from being 21% of the

world’s fuel mix in 2008 to somewhere between 22% and 25% in 2035. In their estimation,

                                                                                                               35 Daniel Yergin, The Prize: The Epic Quest for Oil, Money & Power (New York: Free Press, 2009) 411. 36 Joseph Tomain and Richard Cudahy, Energy Law in a Nutshell (St. Paul: West Publishing Co., 2004) 193.

  19  

natural gas may overtake the demand for coal before 2030 to become the second-largest fuel

in the primary energy mix (after oil).37 Major energy companies like ExxonMobil concur.38

Drivers of natural gas usage: price, technology, security, carbon

This emerging “global age of gas” is driven – broadly – by low prices, improved extraction

technology, energy security concerns and carbon consciousness. About one-third of gas

produced globally is exported while the remainder is consumed by producing countries

(primarily in North America, Europe and Eurasia). The global financial crisis of 2008-09

drove down global energy demand, coinciding with a pre-planned 100bcm of new liquefied

natural gas (LNG) liquefaction capacity coming online. The combination of lower demand

and excess capacity contributed to lower prices. NYMEX natural gas spot prices fell from

US$7.50/mmBTU in September 2008 to below $3/mmBTU by mid-2009.39 BMI now

forecasts US benchmark natural gas prices to remain below US$5/mmBTU into 2012.40

These depressed price levels can also be attributed to technology improvements in

unconventional gas extraction within the United States that has increased global gas supply

levels. North America, which accounts for one-quarter of natural gas consumption globally,

has pioneered a horizontal drilling and hydraulic fracturing (“fracking”) technology allowing

vast deposits of shale gas to be cost-effectively extracted. Shale gas is natural gas from

porous shale rock formations, historically off-limits on a commercial scale until the mid-

2000s. Shale production has since jumped from less than 1% of US production ten years ago

to over 23% in 2010.41 According to Amy Myers Jaffe, “shale gas will revolutionize the

industry—and change the world—in the coming decades. It will prevent the rise of any new

cartels. It will alter geopolitics”.42 Robert Bryce concurs, believing that “companies no longer

have to look hard to find gas. When the United States and the rest of the world needs more

gas, drillers will simply dial up the number of shale gas wells that they drill and fracture”.43

                                                                                                               37 Birol and Corben, Are We Entering a Golden Age of Gas? , 19. 38 See: Shiela McNulty, “ExxonMobil expects energy use and emissions to soar”. Financial Times. January 28th, 2011. 39 http://www.metalprices.com/FreeSite/metals/ng/ng.asp#NYMEX_Natural_Gas_Summary 40 BMI, "Industry News - Lng Imports Tail Off Amid Shale Boom and Strong Asian Demand," Business Monitor International 2nd September 2011. 41 Toni Johnson, "Global Natural Gas Potential," Council on Foreign Relations 24th August 2011. 42 Amy Myers Jaffe, "Shale Gas Will Rock the World," Wall St. Journal 10th May 2010. 43 Bryce, Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future 242.

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Whether this is true remains to be seen, but to date it has resulted in the United States

pulling back on imports in favor of locally produced shale gas. For example, according to the

EIA, US LNG imports through to July for 2011 were just 6.42bcm, down about 20% from

the same period in 2010.44 Shale gas is being explored in Poland and Ukraine, where

expected reserves could reach 42.5bcm.45 As a result, excess conventional natural gas is

swirling around international markets.

The advent of shale gas means that more countries may be able to supply their electricity

needs from sources at or closer to home as opposed to sources like oil where supply is

heavily concentrated in the Middle East. For example, Europe and Eurasia account for

33.7% of global natural gas reserves, while their proven oil reserves make up only 17.3% of

global supply.46 Add in unconventional gas reserves and the result is further in Europe’s

favor. This plays well for national energy security proponents, who argue that reliance on

foreign energy is detrimental to a country’s national security. That said, many countries,

including Germany, will continue to be reliant on imported natural gas because their local

reserves are small, and cheaper natural gas is copious in nearby Russia. In these instances,

even though coal – another abundant energy supply source whose reserves are evenly spread

across Europe and Eurasia, Asia Pacific and North American regions – provides a “secure”

alternative to meet future energy demand, growing carbon consciousness means that

renewables, increased energy efficiency or imported gas have become the major future

trends. (More on this in Germany’s case in the following Chapter).

Gas is a cleaner burning fossil fuel than coal because it has a carbon to hydrogen ratio of 1:4

atoms, while petroleum products have a 1:2 ratio and coal is predominantly carbon with

minimal hydrogen.47 This means that gas is still “nowhere near being a zero emissions

technology”, because it has “total emissions of around 450kg/CO2 per MWh”.48 Still, this is

up to 60% less CO2 than coal.49 Natural gas also is cleaner than coal in respect to sulfur

dioxide and nitrous oxide emissions. So switching from coal to natural gas can “substantially

                                                                                                               44 BMI, "Industry News - Lng Imports Tail Off Amid Shale Boom and Strong Asian Demand." 45 Rowena Mason, "Shell to Search for Ukraine Shale Gas," The Telegraph September 1st 2011. 46 BP, Statistical Review of World Energy (BP, 2011), 7. 47 Mark Jaccard, Sustainable Fossil Fuels (New York: Cambridge UP, 2005) 184. 48 Jon Stanford, Power Generation in a Carbon Constrained World (Deloitte, 2009), 7. 49 ExxonMobil, The Outlook for Energy: A View to 2030 (ExxonMobil, 2010), 29.

  21  

reduce emissions even while fossil fuels retain a dominant role in the global energy

system”.50 In other words, natural gas is now the short and medium term energy

arrangement that comes the closest to meeting the bifurcating desires of supply reliability

and low emission energy at an acceptable cost.

Operation of Natural Gas Power Plants

Typically, combined cycle gas turbines (CCGT) spin an electricity turbine with their exhaust,

which then produces steam for a steam turbine that also generates electricity (or heat,

depending on the purpose). This has the effect of producing more energy output per unit of

input. Efficiencies of CCGT can reach up to 60%, while a stand-alone steam turbine is about

35%.51

A common trade-off in turbine design is flexibility versus efficiency. To build a CCGT plant

cost around US$1,100/kW in 2009.52 Generally, a 1% percent increase in efficiency yields

3.3% more capital for investment.53 Hence, a higher efficiency plant is preferable right from

the start. The development of new materials (in blade alloys and coatings) and cooling

schemes has increased the range of possible turbine firing temperatures, which leads to

higher turbine efficiencies. Turbine firing temperatures have increased at roughly 10% per

year since 1950, such that they are now over 1,300 degrees Celsius (up from 472 degrees in

1950).54

Flexibility refers to the situations in which a turbine can be used: either for baseload or

peaking electricity. Baseload power is that which meets the minimum level of electrical

demand over a 24-hour period. Plants producing baseload electricity generate dependable

power consistently. The catch is that such plants typically require a long time to start up on

top of which they are relatively inefficient at less than full output. To maximize their

efficiency, they are run at all times throughout the year except in the cases of repairs or

                                                                                                               50 Jaccard, Sustainable Fossil Fuels 186. 51 Jaccard, Sustainable Fossil Fuels 186. 52 A. Seebregts, Gas-Fired Power (International Energy Agency, 2010), 1. 53 Meherwan Boyce, Gas Turbine Engineering Handbook, 3rd ed. (Burlington: Gulf Professional Publishing, 2006) 5. 54 Boyce, Gas Turbine Engineering Handbook 47.

  22  

scheduled maintenance.55 CCGT plants are sometimes used as baseload power but it

depends on local conditions. According to Con Edison, “with gas-fired plant technology,

since labor costs are low and it has low emissions compared to other fossil sources, most of

the cost of running a unit is based simply on the input price of the natural gas burned”.56

Thus if natural gas is expensive, it costs more to run the plant and an alternative, mainly

nuclear, hydro or coal, is substituted. Generation costs for CCGT plants range between

US$65-80/MWh, of which $30-45MWh is the fuel.57 The IEA’s official survey of levelized

energy costs shows that no single source is cheapest in all situations.58

On the other hand, peak load power plants provide power during periods of high (“peak”)

demand. They are highly responsive to changes in needed power output, can fluctuate the

quantity of electrical output by the minute, and can be started up or turned down relatively

quickly. They are smaller than baseload plants, and only operate about 10-15% of the time.59

Single cycle gas plants (which lack the ability to capture electrical or heat output from steam)

are useful for peak power because they have lower efficiency (about two-thirds of CCGT),

but they also have higher nitrous-oxide and carbon emissions (hence why they are not used

as baseload).

                                                                                                               55 Matthew Cordaro, Understanding Base Load Power (New York City: New York Affordable Reliable Electricity Alliance, 2008), 2. 56 Con Edison, Electric System Long Range Plan 2010-2030 (Con Edison, 2010), 59. 57 Seebregts, Gas-Fired Power, 1. 58 IEA, Projected Costs of Generating Electricity 2010 Edition (International Energy Agency, 2010), 17-25. 59 Cordaro, Understanding Base Load Power, 3.

World Levelized Cost of Energy Estimates Low (per MWh) High (per MWh) Coal $54 (Australia) $120 (Slovakia) Nuclear $42 (South Korea) $137 (Switzerland) Gas (CCGT) $76 (Australia) $105 (Italy) Wind $70 (Switzerland) $101 (USA) Solar Thermal $136 $243

  23  

GE FlexEfficiency 50 Natural Gas CCGT Power Plant

“It’s a game changer. What is special is that it’s a whole plant design”. Jim Donohue, GE.

General Electric, that quintessential American multinational corporation, has substantial

financial investments across the energy spectrum including oil and gas transmission, nuclear

power, renewables innovation and electricity generation. The company boasts over 10,000

implementations of its steam and heavy-duty gas turbines, representing over a million

megawatts of installed capacity in more than 120 countries.

A game changer?

GE has now made the attempt to bridge

between renewables and fossil fuels. On June 7th,

2011, GE announced the sale of its first

FlexEfficiency power plant that generates electricity

from a combination of natural gas, solar thermal

energy and wind. The company refers to its FlexEfficiency 50 power plant as “an innovative

total plant design that defines a new standard for high efficiency and operational flexibility.

The plant also reduces fuel costs and carbon emissions, creates additional revenue sources,

and improves dispatch capability”.60 This is the first power plant that can combine both

renewables and fossil fuels for electricity generation.

GE’s FlexEfficiency Plant consists of a 50 Hertz single shaft combined cycle power plant

that utilizes GE’s 9FB Gas Turbine (version .05), a design based on GE’s jet engine

technology, a separate department within the corporation. The turbine technology is

powerful because of the short time – 30 minutes – within which it can be ramped up or

down without harming efficiency. GE claims its plant reaches 61% baseload efficiency,

calling it “a new standard in operational flexibility”.61

                                                                                                               60 Guy DeLeonardo, Marcus Scholz and Chuck Jones, Flexefficiency 50 Combined Cycle Power Plant (General Electric, 2011), 1. 61 GE Flexibility, Flexefficiency 50 Combined Cycle Power Plant, 2011, Available: http://www.ge-flexibility.com/products/flexefficiency_50_combined_cycle_power_plant/index.jsp, September 14th 2011.

GE’s Illustration of its 9FB Gas Turbine

  24  

The new combination of high efficiency plus fast ramp-up time provided by GE’s 9FB gas

turbine now allows GE to “push the envelope in both directions”, according to Jim

Donohue, Manager of GE Power and Water’s Heavy Duty Gas Turbine Marketing

division.62 Where rapid cycling has formerly

been damaging to parts of CCGT plants, the

fast ramping 9FB turbine, when combined with

input from highly variable sources such as wind

and solar (used as peak power), now allows a

more efficient yet flexible solution to electricity

supply.

The first FlexEfficiency plant will be

constructed in Karaman, Turkey, by 2015. The

plant will have a nameplate capacity of just

under 530MW: 450MW gas, 50MW

concentrated solar power (CSP) and 22MW

wind. CSP is a process of concentrating solar

energy onto a heat receiver at high

temperatures. No silicon is involved. This heat

is then transformed into mechanical energy by

turbines or other engines and subsequently into

electricity.63 GE will be manufacturing the wind

turbines as well as providing the CSP

technology through it’s licensing agreement

with Californian company eSolar.

According to GE, the Turkey plant represents the optimum amount of wind and solar

nameplate capacity that can contribute to the overall electrical output. Adding excessive

amounts of CSP or wind (above 50MW CSP, or 22MW wind) will start to reduce efficiency.

This is because efficiency is lost at lower load levels on the natural gas turbine, the result of                                                                                                                62 Interview with Jim Donohue, Manager - GE Power and Water - Heavy Duty Gas Turbine Marketing. 8th September, 2011 63 IEA, Technology Roadmap: Concentrating Solar Power (Paris: International Energy Agency, 2010), 9.

Key Features of GE’s latest power plant Efficiency • 60% efficiency down to 87 percent load • Greater than 50 MW/minute while

maintaining emissions guarantees • 40 percent turndown within emissions

guarantees • One button push start in under 30 minutes Total Plant Design • High start reliability with simplified digital

controls • Plant-level flexibility and maintainability • Two-year construction schedule Leading Baseload Efficiency • More than 61% baseload efficiency • Integrated Solar Combined Cycle (ISCC)

greater than 70 percent baseload efficiency Full-Load Validation • $170 million gas turbine validation facility • Full-speed, full-load, dual-fuel capability • Variable speed, variable load — not grid

connected Ecomagination Certified (compared to prior technologies) • Reduced fuel burn — 6.4Mm3 natural gas per

year • Smaller carbon footprint — 12,700 metric tons

of CO2 per year • Reduced NOx emissions — 10 metric tons of

NOx per year Low Life-Cycle Costs • Designed for twice the starts and hours

capability compared to current GE technologies

Source: GE-Flexibility.com

  25  

higher solar or wind inputs. GE publishes that the turbine can achieve its highest efficiency

down to 87% of the plant baseload power output, after which there are diminishing returns

to adding solar or wind. In terms of emissions, GE says its FlexEfficiency plant “could

achieve an annual fuel savings of 6.4 million cubic meters of natural gas, equivalent to the

annual natural gas consumption of approximately 4,720 EU households”.64

Hybrid technologies: hype-rid(den) technologies?

It is important to note that GE’s claims about its turbine efficiencies are more idealistic than

real world conditions will allow. First, 88% of the plant’s capacity comes from gas, so wind

and solar are only smaller contributors to the final output. Because wind and solar produce

on average 30% and 20% of their nameplate capacities respectively, the overall plant output

in terms of MWh (the measure of actual electricity generated) will be even more dominated

by gas. One independent analysis puts the proportion of MWh generated by gas exceeding

95%.65

Second, 510MW nameplate capacity is the new and clean condition, based on the

assumption that the plant would be burning pure methane. So a decrement must be taken

out for a plant that burns lesser-grade natural gas, which is around 75% methane and far

more commonly burned for electricity. Third, the plant is assumed to be at sea level, which

offers moderate temperatures and winds that act as natural coolants to the plant. Colder

water and ambient air achieves higher efficiency. Higher altitudes have lower ambient

pressure, which affects compression and expansion, lowering efficiency.66

In Karaman, where GE’s first FlexEfficiency 50 plant is being constructed, elevation is 1,039

meters and the climate features hot, dry summers and cold winters. It numbers within

Turkey’s top 10 regions (of 81) with the longest sunshine duration.67 These are fairly optimal

                                                                                                               64 GE Flexibility, 9fb Gas Turbine, 2011, Available: http://www.ge-flexibility.com/products/9fb_gas_turbine/index.jsp, September 15th 2011. 65 Geoffrey Styles, Marrying Gas and Renewables, 2011, Available: http://theenergycollective.com/amelia-timbers/59359/marrying-gas-and-renewables, September 16th 2011. 66 David Bellman, Brett Blankenship, Joseph DiPietro, Charl Imhoff, Barry Rederstorff and Xuejin Zheng, Electric Generation Efficiency (National Petroleum Council, 2007), 5. 67 Karaman, Karaman Belediyesi Degisim Basliyor, Available: http://www.karaman.bel.tr/karaman/ing-karaman.aspx, September 15th 2011.

  26  

conditions. The plant is projected to provide electricity to more than 600,000 homes. But 79

million Turks consume 198.1 billion kWh of electricity annually, while a similarly populated

country with higher economic development consumes far more. For example, 81 million

Germans consume 547.3 billion kWh of electricity.68 So the actual output of the plant will

differ on geographic and climatic conditions, and the number of households it powers will

depend on consumption levels.

GE claims the FlexEfficiency plant emits a “smaller carbon footprint” of 12,700 metric

tonnes of CO2 per year. Lower emissions are a product both of CCGT technology and the

addition of renewables to the plant’s output. A 1997 academic study points out that while

hybrid power plants in general have high potential for CO2 mitigation at reasonable costs,

the strategies to achieve reductions are what count. Using a solar-CCGT mechanical design

as an template, the authors found that a “maximum power strategy” that prioritized output

without regard to emissions would, in theory, show very little difference in carbon emissions

compared to a “maximum efficiency strategy” – 114-120kg/m2 CO2 for the maximum

power strategy vs 101-106kg/m2 CO2 for the efficiency strategy.69

There is also dispute about the cost of emissions avoided. Using GE’s FlexEfficiency plant

as a reference, analyst Willem Post examined the hypothetical cost of emissions avoided for

a GE CCGT plant attached to a 200MW wind farm in New England, USA. He concluded

that a “high-efficiency CCGT facility with a moderate-efficiency wind turbine facility will be

less efficient than the CCGT facility in base-loaded mode and daily-demand-following

mode” because the wind farm would add only 12.2% to the plant’s total electrical

production, but would add 55.9% to the cost of reducing emissions.70

Economic conditions differ locally though, and the cost of natural gas, cost of capital and

available renewables incentives will play a role in determining the true cost of emissions

avoided. Additionally, social and environmental factors affect decision-making, as does                                                                                                                68 CIA, The World Factbook, 2011, Available: https://www.cia.gov/library/publications/the-world-factbook/index.html, September 15th 2011. 69 Y Allani, D Favrat and M von Spakovsky, "Co2 Mitigation through the Use of Hybrid Solar-Combined Cycles," Energy Conversion and Management 38.Supplement 1 (1997): S667. 70 Willem Post, Ge Flexefficiency 50 Ccgt Facilities and Wind Turbine Facilities, 2011, Available: http://theenergycollective.com/willem-post/59747/ge-flexefficiency-50-ccgt-facilities-and-wind-turbine-facilities, September 16th 2011.

  27  

politics. An independent analysis of the FlexEfficiency plant in Germany will be carried out

in Chapter IV.

Taking the GE plant global

GE’s market opportunity for its energy technology is global, though not in all cases for

FlexEfficiency. The 9FB turbine produces electricity at a frequency of 50 Hertz, so it is

directed toward locations using that frequency (note: the USA operates on a 60 Hertz

frequency).71 In other regions:

• Middle East: gas prices in some countries are projected to rise, resulting in probable

need for more high efficiency turbines. Producible gas reserves are not evenly

distributed within the region, many fields face huge logistical production barriers (in

Iraq, for example), and others (such as the United Arab Emirates) are dependent on

gas imports from Qatar that may in the future be restricted due to growing demand

at home.72 Extrapolating from this, CCGT demand will likely be for baseload

machines, rather than highly flexible plants. Bahrain and Saudi Arabia are 60Hz

countries in this region.

• Western Europe: driven by climate consciousness, a turn away from nuclear in

Germany, and new gas pipelines from Russia (Nordstream) and potentially

Turkmenistan, gas is part of the future here. Flexibility and efficiency will play well.

Competition is rife in these markets, however, with homegrown companies like

Siemens competing intensely with GE.

• Asia: according to the EIA, this region will see the fastest growth of natural gas

consumption, which will account for 35% of the total increment in natural gas use by

2035.73 Primary countries for expansion are India and China, where four 9FB

turbines will be sold by the end of 2013. However, South Korea, Taiwan, and parts

of Japan are 60 Hertz countries.

                                                                                                               71 US Department of Commerce - International Trade Administration, Electric Current Worldwide, 2011, Available: http://www.trade.gov/mas/ian/ecw/all.html, September 16th 2011. 72 Philip Weems and Farida Midani, "A Surprising Reality: Middle East Natural Gas Crunch," Who's Who Legal 2009: 15. 73 EIA, International Energy Outlook 2010: Natural Gas, July 27th 2010, Energy Information Administration, Available: http://205.254.135.24/oiaf/ieo/nat_gas.html, September 16th 2011.

  28  

Where GE does implement its technology internationally, typically its customers demand

turn-key solutions, in other words: ready to go. In these cases, GE leads a consortium of

companies in which they provide the gas/steam technology (HRSG), or may pair with an

engineering, procurement and construction (EPC) company to actually build the plant. In

contrast, within the home market of the United States, GE tends to provide its equipment

directly to the end customer who in turn hires the EPC. This is GE’s typical model for

energy deployments in Western Europe. In other cases – particularly China, India and Japan

– GE engages local business partners to handle the investments. For example, in Turkey, the

GE plant will be owned by a Turkish project developer called MetCap Energy Investments.

In China, GE has signed a memorandum of understanding (MOU) with Harbin Electric to

sell and install two 9FB turbines with FlexEfficiency technology by 2013.

Competition

GE’s major competitor is Siemens, a German-headquartered manufacturing conglomerate

with worldwide operations. Siemens offers fifteen gas turbine models across 50 and 60 Hertz

frequencies, with capacities from 4 to 375MW. Siemens’ single-shaft SCC5-8000H CCGT

power plant, which uses the SGT5-8000H natural gas turbine, boasts an output of over

570MW and an efficiency level exceeding 60%.74 It was approved after testing in September

2010, and there are two of these CCGT plants operating in Germany, with 60 Hertz versions

expected to come online in Florida, USA, in 2012 and South Korea in 2013. According to

the company, their new turbine reduces annual CO2 emissions by approximately 45,000

metric tonnes compared to existing CCGT plants, equivalent to the annual emissions of

25,000 mid-range cars clocking up 20,000 km a year.75

Siemens, to date, possess no renewables input technology equivalent to GE’s FlexEfficiency

plant. However, it weathered the global financial crisis better than GE. In 2010, when the

company released “the best operating results our company has ever achieved”, Siemens’

energy operations revenue was €25.52 billion (a 1% decline on prior year) with profit of

                                                                                                               74 Siemens, Siemens Gas Turbines, 2011, Available: http://www.energy.siemens.com/hq/en/power-generation/gas-turbines/sgt5-8000h.htm, September 16th 2011. 75 Gerda Gottschick, Trail-Blazing Power Plant Technology (Erlangen: Siemens, 2011).

  29  

€3.562 billion (up 7%).76 In comparison, GE’s Energy Infrastructure unit saw decreased

revenues by 8% in 2010 and 6% in 2009 “as the worldwide demand for new sources of

power, such as wind and thermal, declined

with the overall economic conditions”,

though profit was up by US$200 million

(3%).

Like Boeing versus Airbus, GE and

Siemens are international rivals that have a

natural advantage on their home turf, but

continue to make inroads in the other’s

court. Siemens has sold its CCGT

technology to the United States, and GE

designs, manufactures and sells wind turbines from a location in Salzbergen. In September

2011, GE announced a more aggressive strategy toward competing in Germany, where it will

invest €86 million and add 450 people to its workforce of 7,000 in the country. According to

GE’s German representative there, “if you are not strong in Germany you really have

difficulty growing in the European market”.77

A smaller competitor is Alstom, a French multinational conglomerate self-billed as a world

leader in transport infrastructure, power generation and transmission. The company has recently

announced updates to its GT24 60 Hertz “next generation” turbine. Installed as part of a

KA24 CCGT plant, Alstom claims it can achieve more than 700MW nameplate capacity

with efficiencies over 60%. The plant is being tested in 2011. It also claims a start-up time

similar to GE, at 30 minutes. It makes an equivalent 50 Hertz GT26 turbine for European

markets.

***

                                                                                                               76 Siemens, Annual Report 2010 (Munich: Siemens, 2010), 13,78. 77 James Langford and Niamh Ring, "Ge to Invest $118 Million While Hiring 450 with Germany Strategy," Bloomberg Businessweek September 16th 2011.

GE’s Illustration of its FlexEfficiency 50 Plant

  30  

Specific country needs are the final determinant for the construction of new utilities. All

elements have to be right – political, economic, technological, social and environmental – for

new plants to be built. The following Chapter examines these elements in the case of

Germany.

  31  

Chapter III The German Energy Mix

The Federal Republic of Germany has 81.5 million people at a median age of 45 years with a

life expectancy of 80. It is an ageing population that could decline by 20% to around 65

million by 2060.78 The country, bordering nine other countries and with a small coastline, is

administratively divided into sixteen regions (Länder). Angela Merkel has been the

Chancellor (head of government) since 2005, and her Christian Democratic Union party

governs in coalition with two other parties. Germany is the economic powerhouse of the

European Union (EU) with the biggest economy in terms of purchasing power and was

second only to Poland in terms of real GDP growth (3.5%) in 2010.

Today, Germans consume only 15% as much energy as Americans every year. They

comprise 1.2% of the world’s total population and consume 2.7% of the world’s energy

(versus Americans, who consume 19%). This ratio will likely decline, as Germans are

extremely energy conscious and the government is pursuing multiple programs to improve

energy efficiency and boost renewables. According to the World Bank, each German emitted

9.6 tonnes of CO2 in 2007, the 29th highest where statistics are available, a 2% decline on

prior year.79

                                                                                                               78 The Local, "Germany's Ageing Population Heading for Massive Decline," The Local.de November 18th 2009. 79 World Bank, Co2 Emissions (Metric Tons Per Capita), 2011, Available: http://data.worldbank.org/indicator/EN.ATM.CO2E.PC?order=wbapi_data_value_2007+wbapi_data_value+wbapi_data_value-last&sort=asc, September 23rd 2011. 80 BP, Statistical Review of World Energy. 81 Sourced from EIA (too small for BP to register it)

BP’s German Energy Statistics, 201080

2010 Coal

Natural Gas

Nuclear Hydro Oil

Proven reserves 40,699 m tonnes

100bcm - - 276m barrels

Production 43.7 mtoe

10.6bcm - - 54.5t bpd81

Consumption (million tonnes of

oil equivalent- mtoe)

76.5 73.2 31.8 4.3 115.1

  32  

The challenges for German energy policy

“One can no longer speak of reliable political framework conditions in the energy industry”. Jürgen Großmann, RWE

What makes Germany such an intriguing country from an energy perspective is that the

government has saddled itself with the challenge of replacing all of its low-emission nuclear-

generated electricity with other sources within eleven years, while simultaneously pledging

large overall carbon emission reductions. The table below outlines major policy objectives of

the current government.

Germany is on track to exceed its

Kyoto Protocol target of 21%

greenhouse gas (GHG) emissions

reduction by 2012 (over 1990

levels). According to the

government, national GHG emissions had already fallen by 28.7% by 2009.82 On top of this,

Germany has set itself a more zealous target of 40% reduction by 2020.

This is a tall order, due to a muddled German energy policy. In a nutshell, Germany has

pledged a clean energy future, but is unhappy with its major source of clean electricity

generation, nuclear power. So it will stop nuclear electricity generation at home, and partially

replace it with nuclear imports from France and the Czech Republic. The country will grow

its renewables generation, but that’s small compared to fossil fuel sources, and nobody wants

blackouts. So the alternatives are coal, which is dirty but plentiful, or natural gas, which is

clean but must be imported. If Germany shuts down its coal industry, it will still end up

importing coal-fired electricity from Poland while at the same time importing more and

more gas from Russia.

Given these diverging demands, it is not surprising that Germany’s energy policy is

confused. The CEO of RWE, the number one power producer, published in his firm’s latest

annual report that “one can no longer speak of reliable political framework conditions in the

                                                                                                               82 Nature Conservation and Nuclear Safety (BMU) Federal Ministry for the Environment, Kyoto Protocol, 2011, Available: http://www.bmu.de/english/climate/international_climate_policy/kyoto_protocol/doc/41823.php, September 30th 2011.

Germany’s Environmental Targets Ambition 2020 2050 Cut greenhouse gas emissions by… 40% 80% Reduce primary energy consumption by… 20% 50% Cut energy consumption by… 20% 50% Grow renewably-sourced electricity to… 35% 60% Cut electricity consumption by… 10% 25%

  33  

energy industry”.83 Indeed, the country lacks a single German Department of Energy, with

competing demands originating from different departments: responsibility for renewables,

the environment and nuclear are lumped under the Federal Environment Ministry (BMU);

other energy responsibilities come under the Ministry of Economics (BMW); and natural

resource management is stewarded under its own sub-directorate (BGR). Navigating these

influences on energy policy is a complex task for utilities and energy technology companies.

German Electricity Supply

Germany has 143.5GW of electricity generation

capacity, producing 582.88TWh annually. Given its raw

materials supply situation, Germany’s electricity sources

are not surprising: almost half from coal, a quarter from

nuclear, and the remainder shared between natural gas

and renewables. By 2020, BMI forecasts this to change

in favor of increased gas and renewables at the expense

of coal.

Power production

Germany has a highly regulated but liberalized electricity market. The demand for electricity

is met by multiple utilities, and price is determined by short-term marginal cost (ie, the

lowest cost of generating the next demanded watt of power). As demand rises, more capacity

is brought online; vice-versa if it falls. German law dictates that renewable sources are given

priority. After that, marginal cost determines what sort of plant is brought online (typically

the order would be nuclear, coal, gas and, finally, oil). On average in 2010, German spot-

market electricity sold for €44/MWh and peak-load at €55/MWh. The average residential

consumer paid €0.23-0.25/kWh, and industry €0.09-0.12kWh, some of the highest rates in

the EU.

                                                                                                               83 RWE, Annual Report 2010 (RWE, 2010), 38. 84 BMI, Germany Power Report - Q3 2011, 29.

Source of German Electricity84 2010

(%) 2020

(% est.) Coal 43 34

Nuclear 25 8 Natural gas 12 23

Hydro 4 4 Non-hydro renewables

15 30

Oil 1 1

  34  

The power production market is an oligopoly of multinationals, with the four largest utilities

representing 85% of market share.85 They also own much of the country’s transmission

infrastructure, which is divided across four transmission system operators (TSOs) that act

independently of each other.86

RWE is the number one German electricity producer with 34GW of capacity across

24 large-scale power plants and several smaller generating facilities. In 2010, 63% of

RWE’s 165TWh of electricity sold in Germany came from coal, 27% from nuclear,

7% from gas and less than 1% from renewables. Globally, the conglomerate aims to

raise its renewables capacity to 30% by 2025, up from 6% today.

E.On has 23GW of electricity capacity in Germany, of which 37% is nuclear, 30% is

coal, 16% is gas and 10% is renewables (mostly hydro). Its production in 2011 has

been hampered by the closure of Isar and Unterwesen nuclear plants.

Vattenfall, with headquarters in Sweden, is part-owner of the non-operational

Brunsbüttel and Krümmel nuclear plants and is the third largest electricity generator

in Germany. It produced 69TWh in 2009, 89% from coal, 6% from gas, 4% from

hydro. It has two new coal power plants (over 2GW total capacity) under

construction, though has pledged no further coal investment until carbon capture

and sequestration (CCS) technology can be applied.

Energie Baden-Württemberg (EnBW) is the fourth largest electricity provider in

Germany, producing 60TWh. Its portfolio (which is dominated by Germany, but

assessed globally), is 51% nuclear, 34.5% fossil fuels and 10.5% renewables.

                                                                                                               85 Marco Nicolosi, "Wind Power Integration and Power System Flexibility - an Empirical Analysis of Extreme Events in Germany under the New Negative Price Regime," Energy Policy 38.11 (2010). 86 Frontier Economics, Options for the Future Structure of the German Electricity Transmission Grid (London: Frontier Economics, 2009), 1.

  35  

Goodbye nuclear

Today, Germany has seventeen nuclear power plants, the majority of which are pressurized

water reactors (PWR). Total capacity is 21.5GW, contributing about a quarter of the

country’s electricity consumption. On March 14th, 2011, Chancellor Merkel put on hold for

three months plans previously approved by the Bundestag (German parliament) in late 2010

to prolong the life of the country’s nuclear reactors by an average of 12 years. On May 30th,

Environment Minister Norbert Röttgen went further, announcing the government’s decision

to phase-out all reactors by 2022, as well as permanently placing the country’s seven oldest

reactors offline immediately (representing 8.4GW, or 6%, of total electricity generation

capacity).

Current Status of Germany’s Nuclear Power Plants

Nuclear Power Plant87 Type Gross

capacity (MW)

Net capacity (MW)

Gross electricity generation

(2010 MWh)

Active until (according to

original Nuclear Exit Law)

Biblis A* PWR 1,225 1,167 5,042,097 2010 Biblis B* PWR 1,300 1,240 10,306,260 2010 GKN-1 Neckar* PWR 840 785 2,207,634 2010 GKN-2 Neckar PWR 1,400 1,310 10,874,050 2022 KBR Brokdorf PWR 1,480 1,410 11,945,182 2019 KKB Brunsbüttel* BWR 806 771 0 2012 KKE Emsland PWR 1,400 1,329 11,560,347 2020 KKG Grafenrheinfeld PWR 1,345 1,275 7,938,413 2014 KKI-1 Isar* BWR 912 878 6,543,273 2011 KKI-2 Isar PWR 1,485 1,410 12,006,506 2020 KKK Krümmel* BWR 1,402 1,346 0 2019 KKP-1 Philippsburg* BWR 926 890 6,790,514 2012 KKP-2 Philippsburg PWR 1,468 1,402 11,582,804 2018 KKU Unterweser* PWR 1,410 1,345 11,238,640 2012 KRB B Gundremmingen BWR 1,344 1,284 9,953,737 2015 KRB C Gundremmingen BWR 1,344 1,288 10,953,801 2016 KWG Grohnde PWR 1,430 1,360 11,416,876 2018 Total 21,517 20,490 140,556,452 * = Plants immediately shut down in response to Fukushima. Brunsbüttel has been offline since 2007, Krümmel since 2009.

                                                                                                               87 Nuclear Power Plants in Germany, 2011, European Nuclear Society, Available: http://www.euronuclear.org/info/encyclopedia/n/nuclear-power-plant-germany.htm, August 2nd, 2011.

  36  

The decision to phase out nuclear power was not unexpected, as the future of Germany’s

nuclear industry has been up for grabs for over a decade. The newly elected Social

Democratic Party and Green Party coalition agreed in 1998 to change the law to establish

the eventual phasing out of nuclear power by 2021. By 2010, the Merkel government (a

coalition between the CDU, Christian Social Union and Free Democratic Party) argued in

favor of extending the life of nuclear plants by up to twelve years past the 2021 deadline. An

agreement was reached to give 8-year license extensions to reactors built prior to 1980, and

14-year extensions for later ones. (The map below shows locations and current status of

Germany’s nuclear plants.88)

But then came Fukushima. In March 2011, an

earthquake and tsunami cut the supply of off-site

power to the Fukushima Daiichi nuclear power plant in

Japan, resulting in a partial meltdown. Over one

hundred thousand people were evacuated. 770,000

terabecquerels of radioactive materials were released

into the atmosphere. The event was rated as bad as

Chernobyl on the IAEA International Nuclear Event

Scale, though Chernobyl radiation expulsion was ten

times greater.89 This galvanized the German public’s

skepticism against nuclear power, growing the ranks of the 56% of citizens who already

favored a nuclear phase-out.90 With a regional election looming in Baden-Württemberg

(homestate of Germany’s first major anti-nuclear protests), there is little doubt that Merkel’s

post-Fukushima about-face on the 2022 phase-out was politically motivated. But while

history tells us that the fate of nuclear power may again change before the eventual phase-

out, public antagonism toward nuclear makes it unlikely.

                                                                                                               88 Map courtesy of Der Spiegel http://www.spiegel.de/flash/flash-24364.html 89 Toshihiro Bannai, Ines Rating on the Events in Fukushima Dai-Ichi Nuclear Power Station by the Tohoku District - Off the Pacific Ocean Earthquake (Japan Ministryof Economy, Trade and Industry, 2011). 90 Economist, "Nuclear Power? Um, Maybe."

German Nuclear Power Plants

  37  

The 21.5MW gaping hole left where uranium once was king will not be easy to fill. The

Government’s own Energy Concept in 2010 affirmed that “we still need nuclear power for a

limited period” and “extending the operating lives of nuclear power plants will lower

electricity prices”.91 Now, at the dusk of nuclear, Germany will have to source anew at least

one quarter of its electricity consumption by 2022. It could in reality be much higher – up to

56.4MW – if Deutsche Bank estimates that take into account retired fossil fuel plants are

correct, though their estimate doesn’t account for efficiency improvements.92 This will come

from local coal, gas and renewables or an increase in imported electricity.

The hard (coal) facts

The coal industry has been an integral part of Germany’s history. The New York Times

reported in 1921, that Germany’s economic revival following the Great War was due to

“hard work plus cheap raw materials, artificially cheap coal and labor”.93 Production in the

Ruhr, the most prolific coal region, reached 400,000 tonnes per day before World War II,

and coal fueled the manufacturing and industrialization of West Germany’s post-war

economic recovery. At its post-war peak, the coal industry employed 607,000 miners, though

that number has declined ever since. In the 1970s, natural gas and oil began to enter the

electricity supply mix, then nuclear in the 1980s. At reunification in 1989, more gas-powered

plants entered the electricity market, having previously been supplied by Russian natural gas.

                                                                                                               91 Energy Concept for an Environmentally Sound, Reliable and Affordable Energy Supply. 14. 92 Lewis, German Utilities: A New Look at New Entrants (Revised). 93 Cyril Brown, "German Industries Entering on a Boom," New York Times July 25th 1921.

  38  

Today, the coal industry (hard & lignite) employs around 35,000 workers.94 Annual

production falls short of coal electricity generation capacity. In 2009 Germany had to import

41.2 million tonnes to cover its consumption of 226.5 million tonnes.95 These inputs

contributed to an excess of electricity, allowing Germany to become a net exporter to

Europe. The long-term future of the coal industry may be in jeopardy, but it’s hard to tell

given previous policy wavering on the issue. Take the government’s proposed 4+10 and

4+14 rules as an example. Effectively, these rules would have given extra emissions permits

to new and retrofitted coal plants, keeping them competitive with cleaner alternatives once

carbon was factored in as a price. For instance, a retrofitted 1000MW lignite plant would

have received all of its emissions permits for free for the first eight years, and 81% of its

emissions permits for free for a further six years, incentivizing the building of lignite plants

over natural gas, despite this being incompatible with carbon reduction targets.96 The rule

was struck down by the European Commission in 2006 on the grounds that some plants

“should not be subject to a less stringent, i.e. more favorable, compliance factor”.97

Currently the government’s intention is to close the country’s remaining eight coalmines by

2018, though this decision will be reviewed in 2012. The government’s 2010 Energy

Concept, which aims for reduced greenhouse gas emissions of 40% over 1990 levels within

the decade, still calls for more coal plants.98 In the medium term, BMI forecasts coal to

remain the country’s most prominent electricity source through 2015, at 69% of thermal

generation (249TWh), but falling to 34% by 2020. But the uncertainty of coal’s future is

captured by looking at two headlines from the same newspaper over a five year period: in

2007, Deutsche Welle claimed that “the death knell finally sounded for the country's

unprofitable coal industry”. By 2011, its opinion is that “Germany's nuclear exit strategy has

made coal's future look much rosier than before”, highlighting how political decisions can

swiftly alter the energy picture.99

                                                                                                               94 Michael Pahle, "Germany's Dash for Coal: Exploring Drivers and Factors," Energy Policy 38 (2010): 3432. 95 http://www.eia.gov/countries/country-data.cfm?fips=GM 96 Lewis, German Utilities: A New Look at New Entrants (Revised). 97 Commission of the European Communities, Commission Decision Concerning the National Allocation Plan for the Allocation of Greenhouse Gas Emission Allowances Notified by Germany in Accordance with Directive 2003/87/Ec of the European Parliament and of the Council. (Brussels, 2006) 12. 98 Energy Concept for an Environmentally Sound, Reliable and Affordable Energy Supply. 16. 99 See: http://www.dw-world.de/dw/article/0,,2331545,00.html and http://www.dw-world.de/dw/article/0,,15065249,00.html

  39  

Developments in carbon capture and sequestration (CCS) technology that would strip coal

emissions of their environmentally harmful qualities could change the game again. With CCS

technology installed, coal would become a low-emission fossil fuel, but only when carbon

pricing was still involved as CCS adds significant capital cost. The technology has not been

demonstrated at commercial magnitude yet, and the cost of carbon would have to be in the

€35-55/tonne range (it is currently around €10) for coal to regain cost-effectiveness.100 Even

so, considering that capturing a single gigaton (GT) of CO2 would take up the same volume

as one-quarter of the world’s current annual worldwide extraction, and given that annual

global emissions are at 30GT, there is an enormous scaling issue.101 So while CCS may be

waiting in the wings, its entry will probably be too late in the medium term to bring low

carbon credentials to coal.

Natural gas: nuclear replacement

In 2010, Germany was a significant importer of natural gas, producing 10.6bcm but

consuming 81.3bcm. This ratio of consumption to reserves is the highest outside of Japan.

Gas is expected to grow in terms of electricity generation from 12% today to 23% by 2020.

Indeed, new fossil fuel power capacity brought online between 2001 and 2008 was

dominated by natural gas (5.5GW of a total 7.4 GW).102 There are two main reasons for this:

climate legislation that favors low emissions sources, and geography.

Under the EU Emissions Trading Scheme (ETS), covering the 27 EU member states plus

Iceland, Liechtenstein and Norway since 2005, utilities must buy emissions permits,

enhancing the likelihood that cleaner power becomes the most cost effective. The total

quantity of greenhouse gas emission allowances that countries may issue is set according to

national allocation plans (NAPs). These are divided into two phases: 2005-07 and 2008-12.

For Germany, overall greenhouse gas emission limits are dictated by the Kyoto Protocol (a

reduction of 21% on 1990 levels by 2012). To meet this requires an annual cap at 982Mt                                                                                                                100 Katja Schumacher and Ronald Sands, "Innovative Energy Technologies and Climate Policy in Germany," Energy Policy 34.18 (2006): 3941. 101 Douglas Arent, Alison Wise and Rachel Gelman, "The Status and Prospects of Renewable Energy for Combating Global Warming," Energy Economics 33.4 (2011): 567. 102 Pahle, "Germany's Dash for Coal: Exploring Drivers and Factors," 3432.

  40  

CO2-e of greenhouse gas emissions between 2005-07, and 962 Mt CO2-e between 2008-12.

For Germany’s energy industry in particular, CO2 emissions (which make up most of total

emissions) are capped at 503 Mt CO2-e annually between 2005-07, and 495 Mt CO2-e

between 2008-12.103 The cap is achieved by issuing only enough permits as the target allows.

They are provided free in first-time allocations (in 2005, then again in 2008), and can be

traded in an EU-wide system. A Deutsche Bank study in 2007 found that, at an emissions

permit cost of €25/tonne, a new German CCGT plant would earn its required rate of return

at a power price of €54/MWh, while coal would require €59-60/MWh.104 Hence, emissions

trading should preference lower emissions plants such as gas.

However, the way the ETS was originally devised in Germany led to a short-term increase in

coal plant construction. According to Michael Pahle, because free permits were issued to

existing plants in the first instance – and because coal plants received more of them given

their higher emissions – they received a glut of permits (which they may later trade on the

market). In other words, policy-makers “designed an allocation scheme which in the end

created perverse incentives and massively promoted investments into emission-intensive

hard coal plants”.105 The evidence is that ten new coal power plants are currently under

construction despite the role of emissions permits, with the potential for another 12 in the

works. In the longer term, market pricing of carbon permits will favor gas or renewables as

any excess carbon permits are eaten up by higher emission plants, in line with the bulk of

future projections.

The second reason that natural gas plants are likely to proliferate in the long run is a copious

supply from nearby sources. Germany has always relied on imported gas. In the mid-2000s,

Germany produced about 18% of the gas it consumed, and this fell to 16% in 2009. Imports

come mainly from Russia (44%), Norway (26%) and the Netherlands (19%).106 Production in

these countries continues to grow, reaching 588.9bcm, 106.4bcm and 70.5bcm of natural

gas, respectively (while Germany produced 10.6bcm).

                                                                                                               103 National Allocation Plan for the Federal Republic of Germany. (Berlin, 2004) 15-18. 104 Lewis, German Utilities: A New Look at New Entrants (Revised), 6. 105 Michael Pahle, Lin Fan and Wolf-Peter Schill, How Emission Certificate Allocations Distort Fossil Investments: The German Example (Berlin: Deutsches Institut fur Wirtschaftsforschung, 2011), 25. 106 John Duffield, "Germany and Energy Security in the 2000s: Rise and Fall of a Policy Issue?," Energy Policy 37.114284-4292 (2009): 4285.

  41  

Russian gas is likely to dominate the future of German gas imports. The Nordstream

Pipeline, due to reach full capacity in 2013, will directly link Russian natural gas to Germany

at a rate of 55bcm per year, without transiting other countries in between. This amount is

enough to replace half of the electricity formerly generated by nuclear power. According to

Stratfor, “all that has to be done is the construction of additional natural gas burning power

plants…the fuel is already there”.107 Strengthened German-Russian political ties in the last

few years imply that reliance on Russian natural gas seems ever more likely. Even

commercial cooperation is increasing. In July 2011, RWE (Germany) and Gazprom (Russia)

signed a memorandum of understanding with the intention to establish a joint venture to

bring together existing or newly built gas and coal power plants in Germany, the United

Kingdom and the Benelux countries.

Geopolitical factors are behind this. Russia seeks access to German expertise in energy

technology as well as a willing buyer for energy exports. With the Eurozone in financial

crisis, Germany has become the economic leader and key decision-maker in bailout decisions

for countries such as Greece, Portugal, Spain and Italy. Thus it makes sense for Russia to

seek partnerships with Germany, as a strong Russian-German relationship ensures political

cover in Europe while it continues unpopular political meddling its near-abroad countries

such as Ukraine. Additionally, the operational Nordstream pipeline means Germany may

finally lose interest in the counter-project Nabucco pipeline that would bring non-Russian

gas into the EU.

There is still one another supply possibility for Germany: shale gas within Germany’s

borders. There are possibly 230bcm of recoverable shale gas reserves there (versus 100bcm

conventional).108 ExxonMobil has licenses covering several million acres where they are

currently drilling and evaluating coal bed methane and shale gas resources. Other companies

involved in shale exploration include Wintershall, Gaz de France, BNK Petroleum, BEB,

and Realm Energy of Canada. While the overall possibility is not vast on a global scale (for

instance, France and Poland might have twenty times Germany’s shale reserves), it is enough                                                                                                                107 STRATFOR, "Portfolio: The Future of German Energy," STRATFOR. 1st June 2011. 108 EIA, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States (Energy Information Administration, 2011).

  42  

to provide some “energy security” cover for the country’s politicians and will only serve to

increase the role of gas fired electricity generation at home.

Renewables: growing and growing

In some senses, Germany is the poster child of renewable energy. In 2010, the country

ranked second to China in terms of renewables capacity investment.109 Globally, Germany

owns 13% of global wind powered electricity capacity, 43% of solar PV capacity and 8% of

biomass capacity. Overall this means Germany holds 16% of global renewable electricity

generation capacity (or 4% if hydro is included).110 Ninety-four percent of citizens say it is at

least “important” or “very or extremely important” to develop more renewable energy

sources.111

Germany’s renewables focus comes from the conflicting

desires for clean energy but homegrown energy. Because 40%

of Germany's greenhouse gases originate from electricity

production, in particular from coal-fired power plants, meeting

Germany’s carbon reduction targets requires boosting

renewable generation. The most recent data from the German

federal government (August 2010) states that renewable energy

in 2009 contributed 10.4% of total final energy consumption and 16.3% of electricity

consumption.

Wind and hydropower are Germany’s primary renewable sources, with gross wind capacity

at 25,777MW (generating 38.6TWh – this is low given a standard capacity factor of 30%) in

2009. In comparison, hydropower generated 19.1TWh, while solar PV only 6.6TWh.112 To

give a size of the government’s future ambitions, the government intends for offshore wind

                                                                                                               109 REN21, Renewables 2011 Global Status Report (Paris: REN21 Secretariat, 2011), 15. 110 REN21, Renewables 2011 Global Status Report, 73. 111 Alena Mueller, Umfrage: Bürger Befürworten Energiewende Und Sind Bereit, Die Kosten Dafür Zu Tragen, 2011, Agentur für Erneuerbare Energien, Available: http://www.unendlich-viel-energie.de/de/detailansicht/article/4/umfrage-buerger-befuerworten-energiewende-und-sind-bereit-die-kosten-dafuer-zu-tragen.html, September 29th 2011. 112 Dieter Böhme, Wolfhart Dürrschmidt and Michael van Mark, Renewable Energy Sources in Figures: National and International Development. (Berlin: Silber Druck oHG, 2010). Data update for the electricity sector (http://www.erneuerbare-energien.de/files/english/pdf/application/pdf/ee_zahlen_einleger_en_bf.pdf)

“Make way for wind energy”

  43  

capacity to be 250 times bigger by 2030, growing from 0.1GW today to 25GW. This may be

quixotic: waters in the Baltic and North seas are 20-40 meters deep and up to 20km away

from the nearest land. No offshore wind farm globally faces such challenging conditions.

Germany has subsidized investments in renewables through electricity levies and feed-in-

tariffs. Forty-one percent of residential electricity bills consist of taxes and levies, with the

German Renewable Energy Act (REA) charging €0.035 per kWh consumed.113 Additionally,

the government has for over a decade implemented a feed-in tariff forcing utilities to

purchase (at a set rate) any energy produced from distributed renewable sources and fed into

the grid. This has resulted in increased deployment of distributed generation solar

photovoltaic (PV) panels on residences and commercial buildings, as well as commercial

wind farms. Solar capacity increased nine-fold between 2003 and 2009, and revenues from

installation and operation of renewable energy systems doubled to €25 billion between 2004

and 2007.114 Whether feed-in tariffs are an optimal approach for increasing employment

and/or decreasing carbon reductions is a subject of debate, but there is no doubt that they

have driven renewables take-up at a phenomenal rate.

Some accuse Merkel of using renewables purely as a political card, such as her about-face on

nuclear in the lead up to the Baden-Württemberg regional election where her party was

lagging. But boosting renewables is a sensible option for Germany because it ensures

homegrown energy from low carbon sources. Couching renewable energy policy under the

rubric of ‘jobs creation’ is also fairly easy although the nuclear phase-out decision means

nuclear industry jobs will come to an end. Since the nuclear decision, sharp profit declines

(up to 40%) for the major German utilities mean job losses are definitely on the agenda.

E.On has already announced it will lay off 11,000 workers (globally) “to make massive

investments to adapt to new sources of energy”.115 RWE is likely to follow. This highlights

the need to subsidize and support renewable energy so that it is not only seen to benefit the

environment and energy security, but the economy too.

                                                                                                               113 RWE, Annual Report 2010, 5. (average residential electricity prices in Germany are €0.23-0.25/kWh; industrial €0.09-0.12/kWh). 114 Uwe Buesgen and Wolfhart Derrschmidt, "The Expansion of Electricity Generation from Renewable Energies in Germany a Review Based on the Renewable Energy Sources Act Progress Report 2007 and the New German Feed-in Legislation," Energy Policy 37 (2009): 2539. 115 Frank Dohmen and Dietmar Hawranek, "'It Pains Me Too'," Der Spiegel August 16th 2011.

  44  

Oil: transportation heavy

Germans consume about the same amount of oil as Brazilians every year: 115.1 million

tonnes. This is indicative of the German love for cars, as despite the same oil consumption

between the two countries, Germany has less than half the population of Brazil. Germany is

a net oil importer, with crude production in 2009 at 54.55 thousand bpd, according to the

EIA. Oil is used primarily for transportation in Germany, not electricity generation, so

consumption is not directly affected by the nuclear phase out decision. Another reason is

that the global oil price is higher than regional gas prices, making it uneconomic to burn oil

for electricity (although some long-term gas contracts have been set according to the oil

price). With Germany reliant on imports for oil usage, oil meets neither the low carbon nor

energy security imperatives that the government desires. It is thus unlikely to play a larger

role outside of transportation in the future.

Electricity imports: growing and growing

In 2010, German power plants generated around 600TWh of electricity.116 In only two

months (June and August) did citizens consume more than was locally produced and even

then by not very much (a monthly average of 0.5TWh). The nuclear phase-out has changed

that picture. According to Spiegel Online, a German newspaper, “the country has gone from

being an energy exporter to an energy importer practically overnight”.117 Germany’s

imported electricity predominantly originates in France (40% of imports), Czech Republic

(22%) and Austria (15%). According to the European Transmission Systems Operator

(ENTSOE) in the first six months of June 2011, imports were 21% higher than over the

same period in 2010. Most noticeably, following the nuclear announcement and immediate

moratorium on the oldest seven plants, German monthly electricity imports surged to over

                                                                                                               116 Figures vary: the European Network of Transmission System Operators for Electricity (ENTSOE) puts it at 550TWh, BP puts it at 621TWh, BMI puts it at 583TWh. 117 Laura Gitschier and Alexander Neubacher, "German 'Energy Revolution' Depends on Imports," Der Spiegel 15th September 2011.

  45  

4TWh.118 Therefore in the future, as nuclear capacity is reduced, imports are likely to be

consistently higher.

Imported electricity means that Germany will still rely on nuclear power – it just won’t come

from local sources. The Czech Temelín nuclear power plant now sends 1.2GWh of

electricity daily into Germany.119 President Sarkozy of France has pledged to invest US$1.4

billion to develop new, fourth-generation nuclear electricity generation capability, the

product of which will flow into Germany (about 75% of the country’s 550TWh generation is

nuclear powered already).120 Monthly electricity imports from France jumped 23%

immediately following Germany’s nuclear phase-out decision.

More significant, from a clean energy standpoint, is that Germany has already started

importing more coal-fired electricity. Neighboring Poland, where coal fires about 90% of the

national electricity, increased its monthly electricity exports to Germany by 400% following

the nuclear announcement. The Polish Prime Minister has since been quoted affirming that

“from Poland’s point of view, this [the German nuclear decision] is a good thing, not a bad

one…It means coal-based power will be back on the agenda”.121

German Electricity Imports 2011 (GWh)122

Export Country Jan Feb Mar Apr May Jun Austria 788 442 447 386 549 647 Switzerland 71 55 128 288 422 345 Czech Republic 1309 819 1033 839 800 754 Denmark 97 123 140 457 241 France 1236 1275 1648 1819 2232 2201 Lithuania 140 139 197 123 49 0 Netherlands 11 61 86 228 542 250 Poland 71 14 72 27 121 77 Sweden 18 14 29 22 23 256 Total 3741 2942 3780 4189 4979 4530 Change on prior month (%)

27.4 -21.4 28.5 10.8 18.9 -9.0

                                                                                                               118 Data provided by ENTSO-E. https://www.entsoe.eu/resources/data-portal/country-packages/ 119 Gitschier and Neubacher, "German 'Energy Revolution' Depends on Imports." 120 STRATFOR, "France's Nuclear Energy Plans," STRATFOR 27th June 2011. 121 Marynia Kruk, "Poland Expects Benefits for Coal Sector from Germany’s Nuclear Exit," Wall St Journal 1st June 2011. 122 Data provided by ENTSO-E.

  46  

Of course, Germany can import low-carbon electricity too, but even in the most optimistic

scenario, this would involve nuclear and coal (with CCS) sources. For example, the

European Climate Foundation’s proposal for reducing all of Europe’s GHG emissions by

80% by 2050 calls for a tripling of transmission infrastructure – including annual capital

investments of €65 billion by 2025 – to allow low-carbon electricity to get from optimal

production zones (eg, solar from Spain, wind from Denmark) to where it is consumed. The

report proposes that such infrastructure could carry 4,900TWh of electricity around Europe

(a figure that is 40% higher than today) with 99.97% grid reliability. But even then,

production remains reliant on various degrees of coal-with-CCS (it’s “absolutely critical”)

and nuclear: by 2050, baseline power supply will be somewhere between 20-60% fossil fuel

and nuclear.123

Mapping the future

In sum, the nuclear phase-out makes gas, along with electricity imports, the most likely

medium term replacement. There is no consensus about when CCS technology for coal

plants will be viable at mass scale, meaning that at higher ETS prices it will be less economic

than gas. Renewables growth will continue apace but by 2020 it still will not have offset

existing coal generation, and most new coal generation will come in the form of electricity

imports, reducing Germany’s reliance on home-grown energy and enshrining its status as an

electricity importer. To balance against this precarious position, Germany needs new

generation utilities. How about combining the country’s existing renewables infrastructure

with new efficient gas turbines? That would meet the imperatives of local generation, clean

energy and reliable energy. The next Chapter will apply the GE FlexEfficiency technology to

Germany, assessing just how it would fit into the German market.

                                                                                                               123 European Climate Foundation, Roadmap 2050: A Practical Guide to a Prosperous, Low-Carbon Europe: Technical Analysis (European Climate Foundation, 2010), 51.

  47  

Chapter IV The Market for GE FlexEfficiency Technology in Germany

What role can GE’s FlexEfficiency power plant play in building a sustainable energy future

in Germany? If more renewables are the government’s prerogative and natural gas is the

most carbon-friendly fossil fuel option, perhaps a power plant that combines these two

inputs could be a suitable nuclear replacement.

To recap the scenario: Germany needs to replace 21.5GW capacity of nuclear power by

2022. By 2015 alone, Germany will have lost over 10GW in nuclear capacity according to the

phase-out schedule. According to Deutsche Bank, eventual power capacity required for

replacement could exceed 50GW, taking into account other fossil fuel plant requirements.

The GE FlexEfficiency CCGT

power plant combines natural

gas with wind and solar CSP. It

features 530MW nameplate

capacity (85% of which is

natural gas, 10% solar CSP and

5% wind). While wind power is

viable in Germany (25.7GW of

capacity already exists), solar

CSP to generate electricity at

commercial scale is not.124 Germany receives direct normal irradiance less than 2,000

kWh/m2 per year, not enough for CSP to be viable.

Even from these basic facts alone, it is not realistic to propose that the GE FlexEfficiency

plant is a panacea for Germany. Nominally, it would take 45 FlexEfficiency plants to equal

21.5GW in nameplate capacity by 2022. Or 19 plants by 2015 to cover 10GW lost nuclear

                                                                                                               124 Franz Trieb, Christoph Schillings, Marlene O'Sullivan, Thomas Pregger and Carsten Hoyer-Klick, "Global Potential of Concentrating Solar Power," SolarPaces Conference (Berlin: 2009), vol. 1 (Note how Germany has low DNI).

World Direct Normal Irradiance Annual Average

  48  

capacity by that time. Each plant takes 2 years to build, but permits, siting and other

arrangements lengthen the overall process.

However, the previous Chapter showed that natural gas (or hybrid gas-renewables) need not

be the only replacement for nuclear, with coal and other imports expected to contribute to

meeting the shortfall. So, using BMI’s forecast of a proportional rise in natural gas electricity

output from 12% to 23% by 2020, that would mean only 16 new FlexEfficiency plants would be

required.

FlexEfficiency makes sense as it combines natural gas – one of the most likely post-nuclear

energy candidates in Germany – with renewables, which are hugely popular. Unless an

unexpected breakthrough occurs in carbon capture and sequestration (CCS) technology that

would drastically reduce a coal plant’s carbon output, efficient and cleaner natural gas is the

most viable nuclear replacement in Germany’s medium term.125

Sixteen FlexEfficiency 50 Power Plants by 2022

Individual plant output

In terms of output, a single FlexEfficiency plant could optimally produce around 3.89TWh

of electricity per year for the first eighteen years, representing 0.7% of Germany’s annual

electricity generation (presently 583TWh). Over the remaining 22 years of operating life,

assuming a reduction to 40% load, a single plant would produce 1.84TWh of electricity

annually (0.3% of total national generation).

Production is calculated by multiplying nameplate capacity by 8,760 (hours per year) by the

load/capacity factor.

For the CCGT portion:

• First 18 years: 500MW x 8,760 x 0.87 = 3.81TWh annually.

• Last 22 years: 500MW x 8,760 x 0.40 = 1.75TWh annually.

                                                                                                               125 Remember, capturing a single gigaton (GT) of CO2 using CCS technology would take up the same volume as one-quarter of the world’s current annual worldwide extraction. Given that annual global emissions are at 30GT, there is an enormous scaling issue.

  49  

Assumptions for GE FlexEfficiency 50 Power Plant

Variable Assumption Capacity 530MW (500MW gas; 30MW wind) Capital cost €1,000/kW Gas price €6.64/MMBTU Efficiency rate 60% Fixed operating cost €12/kw Variable operating cost €2.25/MWh Carbon cost €25/tonne Load factor CCGT for first 18 years 87% Load factor CCGT for last 22 years 40% Wind capacity factor 32% Annual output for first 18 years 3.89TWh Annual output for last 22 years 1.84TWh

For the wind portion:

• 30MW x 8,760 x 0.32 = 0.841TWh annually. It is assumed that wind production is

consistent over the 40-year period, even though electricity production from gas falls

as newer plants or technologies come onto the market.

Cumulative new FlexEfficiency plant output: 16 plants between 2014-2022

Cumulative new FlexEfficiency plants

Year online

Cumulative capacity (MW)

Cumulative annual generation years 2014-2022 (MWh)

Plant 1 2014 530 3,894,696 Plant 2 2015 1,060 7,789,392 Plants 3-4 2016 2,120 15,578,784 Plants 5-6 2017 3,180 23,368,176 Plants 7-8 2018 4,240 31,157,568 Plants 9-10 2019 5,300 38,946,960 Plants 11-12 2020 6,360 46,736,352 Plants 13-14 2021 7,420 54,525,744 Plants 15-16 2022 8,480 62,315,136

So sixteen FlexEfficiency plants would replace 44% of the gap left by nuclear retirement,

making up 10% of annual German electricity generation.

Individual plant costs

Plant capital costs are estimated at €1,000/kW based on the price of the GE FlexEfficiency

50 plant being constructed in Turkey. Capital costs for that plant are €400 million for

  50  

nameplate capacity of 530MW (= €754/kw).126 An additional 32% has been added to

account for perceived higher costs in Germany such as union labor. It is important to

recognize that this price includes construction of the wind turbines, but excludes costs such

as permits. According to GE, there is no a priori reason why a FlexEfficiency CCGT turbine

could not be associated with an existing wind farm.127 If this were to be the case (no such

case exists yet so costs are unknown) it could significantly lower plant capital costs.

Fuel costs are estimated at €6.64 per million BTUs (MMBTU), the day-ahead trading price in

Germany in July 2011.128 This is the equivalent to a price of €340/cbm. Annual fuel costs are

calculated by multiplying the CCGT output (in kWh), with the stated CCGT heat rate

according to GE, with the gas price.

• First 18 years: 3.81 x 108 x 5,595 x €6.64/1,000,000 = €141,481,557 annually.

• Last 22 years: 3.81 x 108 x 5,884 x €6.64/1,000,000 = €68,408,984 annually.129

Fixed and variable operational costs are

sourced from Deutsche Bank.130 Carbon

costs – another variable cost – are estimated

at either 0 (equivalent to no carbon tax)131;

€25/tonne; or €25/tonne rising to

€50/tonne after twenty years. Changing this value allows for sensitivity analysis. Adding in

carbon, the total annual MWh cost (levelized cost of energy) for a FlexEfficiency plant can

be estimated.

Considering that taxation makes up 41% of residential electricity prices in Germany, at a

retail price of €0.23/kWh or industrial price of around €0.10/kWh, there is ample cushion to

                                                                                                               126 Benjamin Romano, 530mw Turkish Plant to Use Ge Gas Turbines, Solar and Wind, June 7th 2011, Available: http://www.rechargenews.com/energy/solar/article260331.ece, 11th November 2011. 127 Interview with Jim Donohue, Manager - GE Power and Water - Heavy Duty Gas Turbine Marketing. 8th September, 2011 128 "European Gas Daily," Platts July 12th 2011. 129 According to GE, the base-loaded CCGT efficiency rate is 61%, and load-following is 58%. For more information on the BTU efficiency calculation see: Willem Post. “GE FlexEfficiency 50 CCGT Facilities and Wind Turbine Facilities”. TheEnergyCollective.com. June 20th, 2011. http://theenergycollective.com/willem-post/59747/ge-flexefficiency-50-ccgt-facilities-and-wind-turbine-facilities 130 Lewis, German Utilities: A New Look at New Entrants (Revised), 10. 131 This is considered an extreme scenario, though on October 4th, 2011, EU carbon trading prices reached an all time low of €9.82/tonne.

Levelized Cost of Energy for FlexEfficiency Power Plants

Carbon scenario Levelized Cost of Energy (LCOE)

Carbon price €0/tonne €44.72/MWh Carbon price €25/tonne €53.22/MWh Carbon price €25/tonne, rising to €50/tonne

€55.57/MWh

  51  

achieve an acceptable pre-tax required rate of return (about 10%). These estimated costs also

come in at the low end of global gas prices, according to the IEA.132 However, with fuel

costs representing 69% of total lifetime costs, the estimate is highly sensitive to fluctuating

natural gas prices.

For sixteen Flexefficiency 50 power plants, the total capital outlay would start at €8.5 billion,

a fraction of the government’s stated plans for €100 billion worth of renewables investment

over the coming five years.

Location

Considerations for location of new plants

include: proximity to supply source (natural

gas, wind); local Länder incentives and

social acceptance; and proximity to

transmission lines. Concentrating power

closer to population centres such as Berlin,

Hamburg or Munich – all of which are

located in different Ländern – is obviously a

priority. Germany’s Umweltbundesamt

(Environmental Agency) maintains a map

of power plant locations insightful for

planning.

The first consideration for any

FlexEfficiency plant would be to locate

it where nuclear generation facilities are

targeted for closure to make up for

some of the forecast generation shortfall. The south-western and western states of Germany

house the bulk of nuclear generation facilities, so these Ländern (Bavaria, North Rhine-

Westphalia, Baden-Württemburg) are prime sites. Bavaria (where Munich is located) also

                                                                                                               132 IEA, Projected Costs of Generating Electricity 2010 Edition, 23.

 

German power plants by type

  52  

represents an up-and-coming Länder for FlexEfficiency plants due to pre-existing wind

farms.

Bavaria’s wind farms total only 500MW capacity, though recently the Fraunhofer Institute

for Wind Energy and Energy System Technology and ForWind wind-energy research centre

have collaborated to research new locations for wind turbines within previously off-limits

Bavarian state forest.133 According to one industry group, the state could conceivably

support up to 41,000MW of wind power.134 Bavaria also already has gas storage facilities

maintained by RWE in Wolfersberg

(south-east of Munich), Inzenham-West

(near Rosenheim) and

Breitbrunn/Eggstätt (on Chiemsee).135

Moreover, General Electric already has

one of its five global research centers

just outside of Munich. Brandenburg in

north-eastern Germany, which already is

home to both wind and gas electricity

generation, also represents a prime

target. In 2010, Wind Power Monthly

rated the Lander as the top world region

where wind power has flourished.136

Given Germany’s size and its extensive

electricity and gas transmission

infrastructure, proximity to this infrastructure is not likely to be an insurmountable issue in

power plant planning.137 The largest German utility operators also own much of the

                                                                                                               133 Peter Meier, Wind Farms Adapat to Forest Conditions, 2011, Available: http://www.renewableenergyworld.com/rea/news/article/2011/06/wind-farms-adapt-to-forest-conditions, November 15th 2011. 134 Joydeep Guha, "Wind Energy Can Help Germany Meet 65% of Its Power Demand," EcoFriend April 8th 2011. 135 RWE, Storage Facilities in Barvaria, 2011, Available: http://www.rwe.com/web/cms/en/54852/rwe-dea/locations/storage-facilities-in-bavaria/, November 15th 2011. 136 James Quilter, "Brandenburg Is World's No 1 Region for Wind Energy Development," WindPower Monthly September 21st 2010.

Germany Gas Transmission Network

  53  

country’s transmission infrastructure and grid operators are, under German law, free to

conclude individual agreements with entities they choose. As for gas, there are 33,509km of

transit pipelines in Germany and 43 cross-border points for import/export. Gas is bought

and sold in two major hubs (NetConnect and GasPool) and transmitted accordingly.

Reality check

There are four obvious causes for

wariness regarding these

estimates. First, the output

estimates present a best-case

scenario only. As discussed in

Chapter II, a power plant’s actual

output (in terms of MWh)

depends on geographic factors

such as altitude as well as usage

factors such as whether it is used for base-load or cycling power. And even if sixteen

FlexEfficiency plants produce at maximum stated capacity (62.32TWh), that represents less

than half of the electricity generation that German nuclear plants produced annually in 2010

(140.56TWh). More electricity, whether it comes from domestic coal and renewables or

imports, will still be required to meet forecast demand. This means Germany’s ability to

continually reduce its emissions goals is threatened.

Second, with fuel costs absorbing about two-thirds of overall costs, fluctuation in gas prices

could drastically change the economics of these plants. A rise, even by a few dollars per

BTU, in the price of European gas would raise the cost to the utility and hence to the end-

                                                                                                               137 See the maps in this section. The Germany Gas Transmission Network map is provided by ENTSOG, the thick blue lines represent major pipelines; the Europe Interconnected Electricity Transmission Network is provided by ENTSOE. This red and green lines represent 500kV and 220kV transmission, respectively.

Europe Interconnected Electricity Transmission Network

  54  

user. This could reduce competitiveness in some energy-intensive industrial sectors such as

manufacturing.

Third, GE’s FlexEfficiency 50 plant is unproven. No hybrid gas-solar-wind plant has yet

been constructed and GE’s inaugural plant in Turkey is not due for completion until 2015.

Thus to propose the construction of sixteen plants in Germany by 2022 is highly ambitious.

Lead times would be dogged by permitting processes and delays inherent in utility

construction activities.

Fourth, with Siemens being the local competitor, it may be hard for GE to corner the

growing turbine market in Germany. Siemens’ single-shaft SCC5-8000H CCGT power plant

boasts 570MW capacity (vs 530MW for GE FlexEfficiency), though it does not incorporate

renewable inputs. GE CEO Jeffrey Immelt recently remarked on 60 Minutes that “everybody

in Germany roots for Siemens”.138 Local bias is not unexpected, and it is likely that both GE

and Siemens would apply pressure on local officials, labor and industry in the hope of

gaining sales advantage. In 2008, Siemens paid a US$800m fine for “systematic efforts to

falsify its corporate books and records” in relation to violations of the United States Foreign

Corrupt Practices Act, the largest penalty to date paid in the United States.139 General

Electric too has settled charges of foreign bribery in the millions of dollars. Despite all of

this, reliability of electricity generation is in part guaranteed through diversity of sources and

utilities. It is beneficial for Germany’s energy security to have utilities of different designs

and manufacturers, so GE could not hope to corner the German market completely.

Despite these three reservations, GE should pursue the opportunity for sixteen new hybrid

gas-wind plants in the German market. These plants would meet 44% of historical annual

nuclear electricity generation at a cost of €8.4 billion, while creating jobs and ensuring a

reliable replacement for nuclear power.

                                                                                                               138 Mark Finkelstein, Ge Immelt's Stunning Question to Stahl: Why Don't You Want Us to Win?, October 9th, 2011 2011, Available: http://newsbusters.org/blogs/mark-finkelstein/2011/10/09/immelts-stunning-question-stahl-why-dont-you-root-us-our-employees, November 16th 2011. 139 Department of Justice, Siemens Ag and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines. (Washington DC, 2008).

  55  

Conclusion The German government has set itself the challenge to replace all of its low-emission

nuclear-generated electricity with other sources by 2022, while simultaneously pledging large

overall carbon emission reductions. The country has to date been a leader in renewable

energy development, and possesses 16% of global non-hydro renewable power generation

capacity.

However, the country’s renewable electricity generation is low compared to coal and natural

gas, and retiring all German nuclear plants will leave a big gap to fill. In 2010, German power

plants generated around 600TWh of electricity, one-quarter of which was from nuclear.

Nuclear is the lowest-carbon existing mass-power source. German nuclear plants range from

800MW to 1.5GW, versus renewable alternatives such as wind farms that are in the range of

30-100MW. To replace nuclear entirely with renewables requires investment on a massive

scale of trillions of dollars, and it is dubious that the technology and/or political will power

is sustainable. To achieve Germany’s 80% emissions reduction by 2050 (over 1990 levels),

even the environmental WWF lobby agrees that “substantial innovations” are required in

everything from renewable technology itself, through to market and business models.

The smart money on nuclear’s replacement is natural gas. Gas is expected to grow in terms

of Germany’s electricity generation from 12% today to 23% by 2020 thanks to its lower

carbon output than coal (making it cheaper under the EU emissions trading scheme) and the

new NordStream pipeline from Russia that will supply up to 55.bcm of natural gas annually.

Renewable energy, particularly in wind, will also cover some of the generation shortfall.

However, coal will still play a bigger role than renewables until mid-century, and electricity

imports from other EU-members’ nuclear and coal plants will grow. Germany’s nuclear

phase-out policy is thus riddled with contradictions. What heretofore has not been publicly

assessed is the role of hybrid gas-wind-solar technologies as a solution to Germany’s energy

dilemma. Gas is cleaner than coal, and supply is plentiful for Germany. Combine this with

renewables in the form of wind farms – especially pre-existing wind farms – and hybrid

plants are a viable contender to play a significant role in Germany’s future.

  56  

GE’s FlexEfficiency 50 hybrid gas-wind-solar power plant is the first of its kind in the world.

The plant can generate electricity from a combination of natural gas, solar thermal energy

and wind, while still boasting high efficiency plus fast ramp-up time. The first working plant

is scheduled to come online in Turkey in 2015. Siemens, GE’s major in-market competitor,

has no equivalent technology. General Electric is a proven manufacturer of power plant

technologies that are used globally. The company recently increased its investment in

Germany by €86 million, and the firm employs over 7,000 workers there.

Opportunity exists in Germany for the construction of sixteen GE FlexEfficiency plants by

2022. Each plant would produce 3.89TWh of electricity per year for the first eighteen years

and 1.84TWh for the remaining twenty-two. Overall, sixteen plants would account for 44%

of the electricity demand no longer met by nuclear. The remainder would need to be met

through higher energy efficiency, new coal or renewable plants, or electricity imports from

neighboring EU countries. The total capital cost for sixteen plants would be €8.4 billion, a

drop in the ocean compared to the €100 billion slated to be spent on renewables

development. The GE plants capitalize on existing wind technology, while providing the

reliability of gas-driven power.

The cost of electricity generation for FlexEfficiency plants would range between €45 and

€56 per MWh, or of €0.05 to €0.06 per kWh, depending on the prevailing price of carbon.

Residential electricity sales averaged around €0.23/kWh in Germany in 2010. Forty-one

percent of this is eaten by taxes, meaning the pre-tax sales price to residences could be as

high as €0.138/kWh on average. The remaining €0.09 allows for more than enough profit –

10% – for the utility, as well as additional transmission costs. Put simply, the FlexEfficiency

plants would produce competitively-priced electricity.

Germany cannot look solely to renewables as a panacea for electricity generation when its

last nuclear plant is retired in 2022. To do so would be alles auf eine Karte setzen.140 Fossil fuels

will still play an enormous role (well over 50%) in generation, pushing up carbon emissions

and threatening to derail the country’s emissions reduction target. The logical solution is to                                                                                                                140 English equivalent: putting all your eggs in one basket.

  57  

harness existing technology – in the form of hybrid natural gas-wind plants – and install

them quickly. German utilities, and General Electric, could surely come to an arrangement

on this point.

  58  

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