Research Report on Renewable Energy Policies

~ Germany’s success and failure that Japan should learn from ~

March 21, 2015

Kazuo Ishikawa, Representative Institute for Industrial Growth and

Social Security Policy (NPO)

<Date>　March 9 – 14, 2015 <Visited sites>　A total of 10 sites including Germany’s federal government offices (5 departments), state government offices (2 states), industry organization, consumer organization and renewable energy business <Main research themes> (1)Energiewende (renewable energy expansion and nuclear power phase-out) movement (2)Renewable energy reform (transition from FIT to reverse auction) (3)“Nuclear power phase-out by 2022” (4)Transmission network development (Construction of north-to-south lines) (5)Increase of cost burden resulting from the introduction of renewable energies (6)Comparison between “Germany, the renewable energy superpower” and “France, the nuclear power superpower” (7)Relations with other countries with respect to “nuclear phase-out and renewable energy expansion”

(1)Energiewende (renewable energy expansion and nuclear energy phase-out) movement ❶

◎ The Energiewende (Energy Transition) movement began before the Chernobyl accident in 1986. ◎ The accidents in Chernobyl and Fukushima accelerated the trend. ◎ The target to phase-out nuclear energy by 2022 was adopted after the Fukushima accident. ◎ German people have a high regard for Energiewende. ◎ However, the price of fossil fuels did not rise as expected. Higher fossil fuel prices would have given a competitive edge to renewable energies.

◎ The FIT (feed-in-tariff system), introduced in 2000, contributed to mitigating CO2 emissions and improving the ratio of renewable energies (topping 25% in 2014). ◎ Yet, wind and solar energies have proliferated more than expected. Solar energy, in particular, has been bubble-inflated.

Photovoltaic bubble in Germany since 2010

(Source: Deutsche Energie-Agentur (German Energy Agency)

(1)Energiewende (renewable energy expansion and nuclear power phase-out) movement ❷

◎ Germany’s photovoltaic bubble since 2010 ◎ Sales expansion of cheap Chinese solar panels and FIT left too high 　　→　More-than-expected increase of renewable energy surcharge and renewable power generation beyond grid capacity ◎ Under certain weather conditions, solar power generates power greater than grid capacity. ◎ The grid must be reinforced to ensure supply stability. 　　→　In 2012, the government capped the total amount of solar-generated electricity it buys back. ◎ Allowing excessive proliferation of solar systems was a common cause of failure for Germany and Japan. 　　→　In Germany, new solar installations have decreased substantially since peaking in 2012 and will continue to tumble. 　　→　What should Japan do? ◎ For about ten years after FIT introduction, general public led renewable energy investments (over 30%). 　　→　Germany’s renewable energy proliferation was a “grass-root revolution” ◎ Future concerns include the costs of transmission infrastructures and facility upgrading. 　　→　Can individual consumers cover the cost of facility upgrading?

(2)Renewable energy reform (transition from FIT to reverse auction) ◎ Following the law amendment in 2014, the government aims to make a full transition into the reverse auction system by 2017. ◎ The current reverse auction system is “competition with each solar power supplier”. 　→　Turning “competition among solar power suppliers” into “competition between all power suppliers” in the future ◎ At present, electricity generated with renewable energies is fed into the market regardless of whether it is needed or not. 　→　Adopting the system of generating power only when needed 　　 ◎ The full transition into the reverse auction system means individual solar system owners and other small-scale solar businesses would not be able to compete with large-scale solar businesses. ◎ In the current situation, renewable energies are still too expensive and cannot compete against coal and natural gas. 　→　Requiring review of the carbon emissions trading system to add premium to fossil fuel, making renewable energies competitive ◎ The law amendment in 2014 adopted a substantial cut-back of FIT and shift toward FIP / direct retailing. ◎ Under the FIP (Feed-In Premiums) system, a lower wholesale price boosts the profit of renewable energy power suppliers, but also increases consumer burden accordingly. ◎ RPS is the best option for making renewable energies competitive, but it is politically impossible in Germany. *Japan used the RPS (Renewable Portfolio Standard) system before the introduction of FIT. ◎ In EU, renewable energy policies vary from country to country. The situation is far from market integration.

In EU, renewable energy policies vary from country to country.

(Source: Deutscher Industrie- und Handelskammertag (Association of German Chambers of Industry and Commerce))

(3)Nuclear energy phase-out by 2022 ❶

◎ Prior to the Fukushima accident, the current Merkel government had adopted the policy of extending the lifespan of nuclear power stations. ◎ After the Fukushima accident, Germany began moving toward nuclear phase-out as a solid policy. ◎ However, nuclear power operations could not be “immediately shut down”. 　→　Until the Fukushima accident, nuclear power accounted for 20 – 30% of total power generation. 　→　Immediate shut-down was not possible in terms of economy and employment. 　　→→　Japan’s sudden nuclear shut-down was shocking and unimaginable. 　→　Heavily power-consuming industries are bound to suffer from power shortages. 　→　Since nuclear power station are privately operated, sudden shut-down would require a justifiable reason and compensation. 　→　The government decided to phase out nuclear operations. →　The 2022 deadline for nuclear phase-out was a political decision. ◎ There is no power shortage in EU as a whole. ◎ Germany trades electricity with neighboring countries.

Germany’s electricity trading

(Source: Die Energiewende im Stromsektor: Stand der Dinge 2014)

(3)Nuclear energy phase-out by 2022 ❷

◎ Germany shut down all coal mines by 2018 and will have to rely on imported coal in the future. ◎ Coal is more expensive than nuclear energy, but is one of the nuclear alternatives. ◎ 90% of natural gas is imported from Russia, etc. It is another nuclear alternative alongside coal. ◎ Using coal and natural gas as nuclear alternatives would create the issue of CO2 emission. 　→　Germany is capable of resolving this issue. Succeeding in this “experiment” will make Germany a role model for other countries. ◎ In practice, the road to nuclear phase-out by 2022 is very tough. ◎ Thermal power generation will play an increasingly important role in a lead-up to the 2022 nuclear phase-out. ◎ However, the price drop attributable to the increase of renewable energy operations continues to adversely affect thermal power generation businesses. ◎ At this rate, the stability of power supply may deteriorate. ◎ Thermal power stations would not be forced into closure for economic reasons alone. 　→　Specific countermeasures are to be formulated in the future.

Germany’s nuclear phase-out

Complete nuclear phase-out by 2022

(Source: Energy Agency of the German State of Nordrhein-Westfalen )

(3)“Nuclear energy phase-out by 2022” ❸

◎ There is debate over the introduction of a “Capacity Market”. 　　(* Capacity Market: Market for trading power supply capacity (kW) instead of supply volume (kWh) to ensure supply stability after market liberalization) ◎ This concept is widely supported by the power industry but opposed by power users. 　→　The government has yet to decide how to deal with the matter. ◎ If a capacity market is to be introduced in EU, it is unclear whether other countries trust Germany’s supply capacity. ◎ Germany uses renewable energies at a higher ratio, and may pose concerns in terms of supply stability to participate in a capacity market. ◎ France and Britain have already decided to establish a capacity market, while other countries are still debating on the idea. ◎ It is only large-scale utilities with a relatively extensive facility portfolio who can participate in a capacity market. Renewable energy-based utilities and small-scale operators have no chance of participation. ◎ Renewable power is more widely used in northern Germany, where they have “priority” on the grid over power generated with nuclear energy and fossil fuels. ◎ However, wind and solar energies cannot be base-load power sources as they do not have supply stability.

Germany’s power source composition by state

Kohle: Coal Erdgas: Natural gas Kernenergie: Nuclear energy Erneuerbare Energien: Renewable energies Sonstige: Others

Source:https://www.destatis.de/DE/ZahlenFakten/Wirtschaftsbereiche/Energie/Erzeugung/Erzeugung.html

(4)Transmission network development (Construction of north-to-south lines) ❶

◎ Power transmission lines (total length of 5450km) must be newly developed, running north to south. 　　→　Increasing wind power generation in northern Germany and transmitting it to the south to expand renewable power 　　→　Sending abundant excess electricity in the north to southern Germany, which is set to experience power supply shortages after nuclear phase-out in 2022 　　→　The construction of transmission lines attracting large opposition from the residents of southern regions including the state of Bayern 　　→　Persistent negotiations and compensation measures needed to gain the understanding of local residents 　　→　Unclear whether the construction can be completed by the nuclear phase-out deadline

◎ Following the Fukushima accident, 8 German nuclear power stations have shut down, including 5 in the south. ◎ Bayern will see further 3 plants shut down by 2022. ◎ There is a proposal to use thermal power generation fueled with natural gas, but it is not profitable and cannot be sustained. ◎ As far as the government is concerned, the construction of the north-to-south transmission lines is the only solution. ◎ One of the factors that caused Germany’s failure was its promotion of renewable energies before developing such transmission lines. 　　→　Japan must not repeat Germany’s mistake if it is to promote renewable energies. 　　　→→　Firstly, select regions suitable for power generation with wind and solar energies (i.e. resources). 　　　→→　Then, develop transmission lines there before introducing wind and solar power operations. 　(Coal-fired thermal plants are often developed close to coal-producing regions because of their proximity to the resources.)

North-to-south transmission lines: Total length of 5450km (2650km to be newly constructed and 2800km to be extended)

(Source: Bundesnetzagentur (Germany’s Federal Network Agency))

(4)Transmission network development (Construction of north-to-south lines) ❷

◎ Southern Germany’s power source shortages after nuclear phase-out would not cause a major issue if the region bought electricity from France (generated with nuclear energy) or operated thermal power plants fueled with natural gas from Russia. Southern Germany has natural gas pipelines from Russia. ◎ However, the increase of renewable energies in the wholesale electricity market is having a negative impact. 　　→　Thermal power operations are becoming less profitable. 　　→　This has damped investor enthusiasm about thermal power generation. ◎ It is not easy to build a renewable power plant at a former site of a thermal power plant. 　　→　Wind power requires favorable wind conditions. 　　→　Solar power requires favorable solar conditions. ◎ Even if the north-to-south transmission lines cannot be completed by 2022, the nuclear phase-out deadline will not be postponed. 　　→　Germany will have to buy excess power from within the EU. 　　→　This is an appealing scenario for electric utilities with facilities capable of producing excess power. ◎ Germany’s power supply capacity should be considered in the context of the EU as a whole, rather than the country itself.

(5)Increase of cost burden resulting from the introduction of renewable energies ❶

◎ Electricity charges account for around 2 – 4% of household finances. ◎ There is general acceptance for electricity price hike attributable to increased use of renewable energies in order to achieve Energiewende. ◎ After the Fukushima accident, 10 – 20% of consumers switched to 100% renewable energy despite its relatively high price. 　　→　This trend lasted for 1 – 2 years, but subsequently disappeared. ◎ The increase of renewable energy surcharge is the main factor of increasing power charges for both residential and industrial use. 　　→　The “energy poverty” issue has emerged among residential users. 　　→　Industrial hollowing-out became evident among industrial users. Germany has one of the highest electricity prices in the EU.

◎ Only relatively wealthy people with a detached home can have solar power facilities installed. 　　→　Everyone else, especially low-income earners, cannot afford solar panels. This is unfair. ◎ This disparity is observed on the state level as well as the personal level. 　　→　The amount of renewable energy surcharge totaled 23.6 billion euros (approx. 3 trillion yen) in 2014. This was levied on all the German states (their residents). 　　　→→　Southern states (their residents), where renewable power is not widespread, are paying more surcharge. 　　　→→　Collected surcharge becomes the revenue of northern states (their renewable energy utilities), where renewable power is actively generated.

(5)Increase of cost burden resulting from the introduction of renewable energies ❷

◎ Power generation with renewable energies saves around 10 billion euros (approx. 1.3 trillion yen) per year in the cost of fossil fuels. ◎ However, excess power generated through renewable energy operations is flowing into the wholesale electricity market. 　　→　This has lowered thermal plants’ capacity factor, triggering the increase of thermal plant closures. This is a serious issue. 　　→　The situation could be rectified if it became possible to store generated power. However, there is no knowing when this will come about. ◎ Nuclear power stations and coal-fired thermal plants cannot be simultaneously shut down as thermal plants must provide backup power for renewal power operations. 　　→　No solution has yet to be found. ◎ The renewable energy surcharge exceeded the cumulative total of 100 billion euros (approx. 13 trillion yen) between 2000 and 2014. 　　→　This money could have been invested in technological innovation.

Transition of household electricity charges in Germany

Source: German Association of Energy and Water Industries(BDEW)

Erzeugung, Transport, Vertrieb: Costs of power generation, transmission and distribution, 　MwSt.: Value-added tax Konzessionsabgabe: Concession delivery (public road use), EEG-Umlage: Renewable energy surcharge, §19-Umlage: Section 19 surcharge, KWK-Aufschlag: Combined Heat and Power Act levy, Stromsteuer: Environment tax

Transition of industrial electricity charges in Germany

Source: German Association of Energy and Water Industries(BDEW)

Erzeugung, Transport, Vertrieb: Costs of power generation, transmission and distribution, 　MwSt.: Value-added tax Konzessionsabgabe: Concession delivery (public road use), EEG-Umlage: Renewable energy surcharge, §19-Umlage: Section 19 surcharge, KWK-Aufschlag: Combined Heat and Power Act levy, Stromsteuer: Environment tax

Germany’s industrial electricity price is substantially higher than those of other countries.

(Source: Deutscher Industrie- und Handelskammertag (Association of German Chambers of Commerce and Industry))

(6)Comparison between “Germany, the renewable energy superpower” and “France, the nuclear power superpower”

－－　What are the impact of Germany’s high energy costs on its industrial competitiveness?

　→　Renewable energy-oriented Germany has lower industrial competitiveness even compared to nuclear energy-oriented France. 　→　The condition is tough especially for companies that are exposed to international competition or have high energy consumption. 　→　They find electricity prices too high even with exemption from renewable energy surcharge for industrial users, and are driven to off-shore transfer. 　→　Increasing the use of natural gas in place for coal has only highlighted the risk surrounding the supplier, Russia. 　→　There is no change to the nuclear phase-out policy, while France and Britain maintain their nuclear energy operations. －－　What is the true reason behind Germany’s drastically different stance on nuclear energy compared to the neighboring France?

(1) There is a lingering Cold War mentality. 　　・・・Concerns for military use of nuclear resources; Germany would be the first battleground if a war should break out. (2) After Chernobyl, Germany experienced radioactive rain, while France didn’t. (3) Change of political framework before and after the Fukushima accident 　　・・・France’s Social Democratic Party did not change its nuclear promotion policy. 　　・・・Germany’s Social Democratic Party switched its policy from nuclear promotion to opposition, and partnered with the German Green Party, which always opposed nuclear energy. (4) France’s nuclear energy program is government-run, while Germany’s program is privately-run. (5) France has centralized administration, while Germany has decentralized administration. (6) France has a small number of large-scale plants to supply power, while Germany has a large number of small-scale plants. 　→　Japan’s circumstances surrounding energy policies appear closer to those of France rather than Germany.

(7)Relations with other countries with respect to “nuclear phase-out

and renewable energy expansion”

－－Does Germany plan to ask other countries including EU nation to adopt nuclear phase-out and renewable energy expansion?

　→　Germany has no plan to recommend nuclear phase-out to other countries. 　→　Germany does not have such influence over other countries. －－ What is Germany’s view on the “nuclear promotion policy” of surrounding countries including France?

　→　Nuclear power generation is effective for reducing CO2 emissions. France, Belgium and Switzerland will continue to promote nuclear energy. 　→　Germany opts to renewable energy expansion and energy use reduction to mitigate CO2 emissions. 　→　Each of the countries should adopt its own energy policy in view of its own circumstances. 　→　Considering carbon emission trading, coal use is expected to edge down while nuclear power is to be promoted. 　→　This may be a factor in the promotion of nuclear energy in Britain, Finland and Hungary.

－－ What is Germany’s perception of the global trend toward CO2 emission reduction?

　→　The biggest issue of Germany completing nuclear phase-out is the amount of CO2 emissions. 　→　Germany has raised the ratio of renewable energies, while reducing the ratio of nuclear power. 　→　This has caused the increase of carbon emissions from the use of coal and natural gas as alternatives to nuclear power.

Suggestions and proposals to Japan ❶

2−1) Learn not only from successes but also from failures.

2−2) Have an overview of the EU including Germany’s neighbor, France.

2−3) Recognize the fact that wind and solar energies could not be true alternatives to nuclear and thermal power generation for the meantime.

Suggestions and proposals to Japan ❷ 2−4) Recognize the fact that the transmission capacity that becomes available after the closure of nuclear power stations might not necessarily be used for electricity generated with wind and solar energies. 2−5) Seek coexistence with nuclear power to promote reliable power supply with renewable energies. 2−6) If nuclear power stations are to be closed down, phase them out over a sufficient period of time rather than closing them suddenly.

~Off-the-record comments~

◎　Energiewende invalidates market principles. It is the same as converting capitalism into communism. ◎　The cost of achieving Energiewende would be more expensive than that of German reunification. ◎　FIT is the worst system. It is a crazy mechanism of the rich taking from the poor. It is a form of idealism. ◎　The phrase “German Angst” describes German mentality well. The Fukushima accident has made all Germans very nervous and concerned. Mothers with small children, in particular, are afraid of nuclear power. This is one of the reasons behind the success of Energiewende. Even if the German government declares the safety of nuclear power, German citizens would never believe it (laughs). ◎　If ten out of 100 people are scared, media would take it up and make a big story out of it. ◎　The mentality of civic groups is that they just don’t want a waste disposal facility in their own backyard. They are telling us to shut down nuclear plants because they are dangerous, stop thermal power generation because it emits CO2, close down wind power farms because low-frequency noise is a concern, and stop building solar plants because their vast scale compromises good view. That’s the nature of the general public. ◎ Other countries must think Germans are crazy to pursue Energiewende. Yet, despite that, the country will undoubtedly continue to work toward achieving Energiewende. ◎ In a non-anonymous survey, no German would answer “No” to the question, “Do you support nuclear phase-out by 2022?” However, if the same question is asked in an anonymous survey, 20 – 30% of Germans would say they oppose the complete phase-out of nuclear power.