EU trends: implementation in Germany
By Dr. Sabine Schulte-Beckhausen and Alexander Dartsch
Introduction
“Clean Energy for all Europeans – unlocking Europe’s growth potential” is the title of the legislative package the European Commission presented on November 30, 2016. Up to now, European energy policy has focused on the large-scale project of connecting, liberalizing and regulating the European energy markets on the basis of three legislation packages released between 1996 and 2009. Now the natural next phase is just around the corner: To achieve the ambitious greenhouse emission goals set in connection with the Paris Agreement, the energy market itself will have to be revamped – a transformation that will affect the whole economy.
Against this backdrop, we provide an overview of the recently proposed legislative changes at the European level and subsequently identify certain effects in the German power market that illustrate the predefined path.
Clean-energy package
The Clean Energy for all Europeans legislative package proposes revisions to existing directives and regulations as well as new legislative acts. These are complemented by a number of EU Communications, evaluation documents, impact assessments and other accompanying documentation. The Commission’s proposals will be consulted among the stakeholder’s in the upcoming months. An outcome to negotiations might already be presented over the course of next year, which would make implementation of the new regulations on national level feasible in 2020.
The main goals pursued by the legislative package are: “energy efficiency first,” “achieving global leadership in renewable energies” and “providing a fair deal for consumers.” These key phrases set the direction of the respective legislative measures.
Energy efficiency first
According to the Commission, unused energy is “the cheapest and cleanest source of energy.” To reduce costs and mitigate the adverse effects on the environment therefore, optimizing energy consumption will be an important element for defining the economy of the future.
The Commission has identified buildings as a major factor influencing increased energy efficiency as building stock accounts for 40% of total energy consumption in the EU. For this reason, a revision of the Energy Performance of Buildings Directive is planned, stipulating obligations for renovating building stock. One noteworthy amendment is the envisaged obligation that electric charging points be installed in commercial and residential buildings with more than 10 parking spaces. The goal here is for building modernization to support the low-emission mobility strategy and thus serve as a driving force to spur sectoral coupling.
Digitization is considered crucial to such sectoral coupling, therefore the use of smart metering devices will be one of the key factors in transforming the power market. Within this context, the Commission is proposing changes to regulations on metering and billing in order to give consumers access to information about their energy consumption. The regulations on smart metering are intended to stimulate competition among energy-supply companies by enabling customers to transparently identify and compare costs as well as the environmental impact of their energy consumption.
Achieving global leadership in renewable energies
The second pillar of the clean energy package has a much bigger impact on a global scale than the regulations on energy efficiency mentioned above. Europe is the global leader in wind energy, with almost half the wind turbines installed worldwide produced by European companies. Still, the renewable energy sector continues to grow and already more than 1 million people in the EU are employed by companies active in wind energy, solar power or biomass. However, European manufacturers of renewable technologies are facing growing international competition due to progress in technologies and related rising cost pressures. This has already led to a steep decline in the European photovoltaic sector over the last couple of years.
To retain and defend the EU’s leading role in the renewable energy sector, the clean energy packages aims to incentivize development of innovative technologies. The rationale behind this is that innovations in this technology may then be used to exploit the full growth potential within and, especially, outside Europe. It is estimated that the worldwide long-term decarbonization objectives will offer a EUR 6.8 trillion market through 2035.
The package neither raises nor translates the objective for market shares of renewable energy being consumed, which is currently set at 27% for 2030, into national binding targets. Instead, the Commission plans to introduce a governance system based on peer pressure, encouraging member states to follow voluntary national energy and climate plans to collectively achieve the EU target.
The package will modify the power market to support the transition to a green energy system. Production of electricity from renewable sources of energy is generally more volatile than production from fossil energy sources. Focusing on flexibility will therefore be necessary to efficiently integrate renewables into the power market. Demand-side management and innovative storage solutions will be key factors as will shorter-term trading options on electricity wholesale markets. In addition, the power market is to provide a level playing field for all technologies. This provision includes actions to remove fossil fuel subsidies that may create economic inefficiencies.
Providing a fair deal to consumers
The third key phrase, “providing a fair deal to customers,” addresses the transparency mentioned above concerning energy consumption and costs through the increasing use of smart metering devices. Consumers are to be empowered to make informed choices about their contractual relationships, and this is to translate into greater competiveness on the energy market.
The other aspect of providing a fair deal to consumers is creating the opportunity for them to participate in the energy market by producing, consuming and selling electricity. This emphasizes the transition of consumers into “prosumers” who play an integral role in transforming the power sector into a flexible, demand-side-controlled and decentralized network.
Outlook for Germany
The legislative proposals made in the clean energy package will not be implemented before 2020; however, the general direction of the package suggests important cornerstones for the future development of the energy system. Pioneering the integration of renewables into the electricity market, Germany constitutes one of the most developed European countries in this respect. Therefore, examining trends in Germany’s current energy sector may illustrate the challenges and opportunities that will be found on the European level.
In response to demands for a level playing field for all technologies, a mandatory auction procedure for renewables, including offshore wind energy, is being introduced to enhance market integration and reduce financial support for renewable energies. This means the European Commission’s objective for all technologies in direct competition with each other is already becoming reality in Germany. Due to ambitious goals having been set for renewable energies’ market share and slowly declining subsidies, demand for competitive technologies in the renewable sector continues to rise.
Flexibility has been a talking point in Germany in recent years as well. Mostly, this refers to flexibility in demand and supply; it also, however, concerns grid flexibility. In 2016, new regulations on introducing smart metering were implemented that will lead to the adaptation of distribution grid operators’ business model as well as enable new service providers to enter the market in upcoming years. in keeping with the clean energy package’s goal of providing a fair deal to customers, the power market in Germany is developing into a decentralized and digitized market, giving energy suppliers and consumers multiple roles.
Upcoming years will likely be characterized by new technologies establishing themselves in the market. One of the most interesting of these new technologies involves storage solutions in particular for electricity produced from renewable sources. Prosumers have been feeding their locally produced energy into the system for some time already. Recently, private households have begun to step up completion of existing and new photovoltaic systems that have battery storage devices. The opportunities to optimize energy consumption by linking production, storage devices and electric vehicles within private homes are growing. These storage devices may also be used to market frequency response to transmission grid operators. Such innovative business models not only meet customers’ demand for self-sufficiency, but also create new markets and contribute to a low-carbon power sector that meet European goals.