Electricity Production

It’s all a bit more complicated than simply replacing nuclear and fossil fuels with renewable energy sources. Rather, the further expansion of renewable energies means a complete transformation of the entire system. The existing legislative framework and the role of the conventional power plants will change; in this new system they will have to adapt to the renewable energy sector, not vice versa.

Our economy and society are fundamentally dependent on energy – and electricity is the crème-de-la-crème of our current energy sources. Without electricity, the likes of communication technologies, many household appliances, lighting, most engines, and even most industrial production would be unthinkable. Even in the heat and transportation sectors, it may in the future make sense to replace oil and gas with renewable electricity. Electricity thus plays a critical role in the ongoing restructuring of Germany’s energy supply.

In order to hit Energiewende and climate-protection targets, a shift of power generation to renewable energy sources is elementary. In the meantime however, over a transition period, renewables (above all wind and solar) as well as existing conventional power (coal, gas, oil, and nuclear power until 2022) are going coexist. Renewable energies currently take precedence over conventional power in Germany’s power supply; this is not only stipulated in German law, it is because with their low operating costs, they undercut fossil fuels on the marketplace. 

That’s why conventional power plants are taking on a new role in Germany: They’re being used during the transition as back-up capacity. They jump in for renewables when the sun isn’t shining and the wind isn’t blowing and they balance the fluctuating residual load.

In Germany’s previous power system, conventional power plants did more than just fed electricity into the grid for purposes of end-user consumption. Indeed, conventional power plants also provided ancillary services for maintaining the power grid. For example, they supplied reactive (or idle) power, balancing energy, and so-called spinning reserves.

Renewable energy can also contribute to these ancillary tasks. In fact, today this is already the case, in part, through various schemes such as grid connection procedures, and special ordinance for wind power plants. In the future, renewable energy will shoulder the brunt of the power production in Germany, and thus also the aforementioned system services, either through renewable energy production itself or by other means, such as condensers. Also, the requirements for the production of electricity from renewable energy sources will have to change. The existing remuneration scheme for renewable energy, the Renewable Energy Sources Act (EEG) sets incentives in order to maximize the yield of clean energy generation. Following the successful and rapid expansion of renewable energies since 2000, the framework should now be further developed so that the costs of the whole energy system are minimized. This also means that compensatory measures (such as back-up power plants, load management, and storage) remain affordable.

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Core results

  1. 1

    New renewables generation sharply increased in 2017, with wind, solar and biomass overtaking coal for the first time.

    Since Europe‘s hydro potential is largely tapped, the increase in renewables comes from wind, solar and biomass generation. They rose by 12% in 2017 to 679 Terawatt hours, putting wind, solar and biomass above coal generation for the first time. This is incredible progress, considering just five years ago, coal generation was more than twice that of wind, solar and biomass.

  2. 2

    But renewables growth has become even more uneven.

    Germany and the UK alone contributed to 56% of the growth in renewables in the past three years. There is also a bias in favor of wind: a massive 19% increase in wind generation took place in 2017, due to good wind conditions and huge investment into wind plants. This is good news since the biomass boom is now over, but bad news in that solar was responsible for just 14% of the renewables growth in 2014 to 2017.

  3. 3

    Electricity consumption rose by 0.7% in 2017, marking a third consecutive year of increases.

    With Europe‘s economy being on a growth path again, power demand is rising as well. This suggests Europe‘s efficiency efforts are not sufficient and hence the EU‘s efficiency policy needs further strengthening.

  4. 4

    CO2 emissions in the power sector were unchanged in 2017, and rose economy-wide.

    Low hydro and nuclear generation coupled with increasing demand led to increasing fossil generation. So despite the large rise in wind generation, we estimate power sector CO2 emissions remained unchanged at 1019 million tonnes. However, overall stationary emissions in the EU emissions trading sectors rose slightly from 1750 to 1755 million tonnes because of stronger industrial production especially in rising steel production. Together with additional increases in non-ETS gas and oil demand, we estimate overall EU greenhouse gas emissions rose by around 1% in 2017.

  5. 5

    Western Europe is phasing out coal, but Eastern Europe is sticking to it.

    Three more Member States announced coal phase-outs in 2017 - Netherlands, Italy and Portugal. They join France and the UK in committing to phase-out coal, while Eastern European countries are sticking to coal. The debate in Germany, Europe’s largest coal and lignite consumer, is ongoing and will only be decided in 2019.

  1. 1

    Total electricity generation increased by five per cent in 2016, or by about 300 TWh.

    At 65 per cent, coal provides the largest share of total generated electricity. Renewables account for 25 per cent. Consumption increased by 283 TWh, comparable to the entire consumption of Spain.

  2. 2

    However, there is a clear trend towards renewable energy.

    Since 2010, the share of renewables in the power mix has increased by 8 percentage points, while coal has decreased by 11 percentage points.

  3. 3

    Curtailment of renewable energy is high, averaging 17 per cent.

    Some provinces, like Gansu and Xinjiang, plan to slow down wind capacity expansion in the coming years. Furthermore, the government is encouraging expansion of the transmission grid.

  4. 4

    Use of conventional power plants is decreasing.

    Full load hours for coal plants decreased from more than 5,000 hours in 2013 to 4,165 hours in 2016, and energy-related emissions have stagnated at 2013 levels. However, the government is reviewing its plans for new coal plants, and another 200 GW of coal-fired power plants are under construction and are expected to go online by 2020.

  1. 1

    Existing thermal power plants can provide much more flexibility than often assumed, as experience in Germany and Denmark shows.

    Coal-fired power plants are in most cases less flexible compared to gas-fired generation units. But as Germany and Denmark demonstrate, aging hard coal fired power plants (and even some lignite-fired power plants) are already today providing large operational flexibility. They are adjusting their output on a 15-minute basis (intraday market) and even on a 5-minute basis (balancing market) to variation in renewable generation and demand.

  2. 2

    Numerous technical possibilities exist to increase the flexibility of existing coal power plants. Improving the technical flexibility usually does not impair the efficiency of a plant, but it puts more strain on components, reducing their lifetime.

    Targeted retrofit measures have been implemented in practice on existing power plants, leading to higher ramp rates, lower minimum loads and shorter start-up times. Operating a plant flexibly increases operation and maintenance costs — however, these increases are small compared to the fuel savings associated with higher shares of renewable generation in the system.

  3. 3

    Flexible coal is not clean, but making existing coal plants more flexible enables the integration of more wind and solar power in the system. However, when gas is competing with coal, carbon pricing remains necessary to achieve a net reduction in CO2.

    In some power systems, especially when gas is competing against coal, the flexible operation of coal power plants can lead to increased CO2 emissions. In those systems, an effective climate policy (e.g. carbon pricing) remains a key precondition for achieving a net reduction in CO2 emissions.

  4. 4

    In order to fully tap the flexibility potential of coal and gas power plants, it is crucial to adapt power markets.

    Proper price signals give incentives for the flexible operation of thermal power plants. Thus, the introduction of short-term electricity markets and the adjustment of balancing power arrangements are important measures for remunerating flexibility.

  1. 1

    Wind power costs are coming down, as auction results around the world show:

     in Morocco, Peru and Mexico, average winning bids ranged between 2.7 and 3.4 EUR ct/kWh in 2015/2016. This fundamental cost reduction trend is projected to continue.

  2. 2

    The larger wind turbines are, the cheaper they produce electricity.

    The size of windmills is expected to be the major driver of future cost reductions, as costs for increasing turbine size grow at lower rates than the benefits. The limits to onshore turbine growth are most likely not of a technological nature but rather a question of local political consent.

  3. 3

    In Germany, projects at excellent wind sites can be built with only slightly higher generation costs than the most cost efficient auction-winning projects throughout the world.

    The levelized cost of electricity at those sites ranges between 3 and 4.5 ct/kWh for turbines of the latest generation. Major potentials to further improve cost efficiency are reducing land and maintenance costs, which are far higher than the international average.

From study : Future Cost of Onshore Wind
  1. 1

    Gas replaced coal, and hence European power sector emissions fell drastically by 4.5 %.

    European coal generation fell by 94 TWh and gas generation increased by 101 TWh, resulting in 48 Mt less CO2 emitted. Half of this happened in the UK, but also Italy, Netherlands, Germany and Greece saw switching from coal to gas. However, gas generation was far from reaching a record – it is still 168 TWh below the 2010 level, showing that more coal-gas switching is possible without new infrastructure.

  2. 2

    Renewables increased only slightly from 29.2 % to 29.6 % of the electricity mix, mainly due to bad solar and wind conditions. Radical price falls give hope for future growth.

    Solar and wind conditions were generally below average in 2016, compared to well above average in 2015. However, with new capacity installed, overall generation still saw small increases. As to prices, 2016 saw record low renewables auction results with only 49,9 Euros/MWh for wind offshore and 53,8 Euros/MWh for solar, both in Denmark.

  3. 3

    Electricity consumption rises slightly by 0.5 %, with European GDP rising by 1.7 %.

    Only two countries saw falls in electricity consumption in 2016, most had modest increases. Investment going into energy efficiency is apparently sufficient to prevent electricity consumption from rising but not enough for electricity consumption to begin structurally falling.

  4. 4

    The structural oversupply of the EU-ETS has passed the landmark of 3 billion tonnes of CO2, as 2016 added another 255 million tonnes CO2.

    The reason is that ETS emissions are structurally below the cap – mocking the concept of a “cap-and-trade” system. To play a meaningful role in EU climate policy, the EU ETS needs to be fundamentally repaired.

  5. 5

    The outlook for 2017 is for further big falls in fossil generation – but whether this is coal or gas is uncertain.

    2016 gave a glimpse of the rapid falls in emissions that are possible with decreased coal production. But a coherent European policy approach to continually increasing renewables and to a just transition in the context of a coal phase-out is needed to ensure that the CO2 reductions of 2016 are continued into the future.

  1. 1

    The European power system will be based on wind power, solar PV and flexibility.

    The existing climate targets for 2030 imply a renewables share of some 50 percent in the electricity mix, with wind and PV contributing some 30 percent. The reason is simple: they are by far the cheapest zero-carbon power technologies. Thus, continuous investments in these technologies are required for a cost-efficient transition; so are continuous efforts to make the power system more flexible at the supply and demand side.

  2. 2

    Making the Energy-Only Market more flexible and repairing the EU Emissions Trading Scheme are prerequisites for a successful power market design.

    A more flexible energy-only market and a stable carbon price will however not be enough to manage the required transition to a power system with high shares of wind and solar PV. Additional instruments are needed.

  3. 3

    A pragmatic market design approach consists of five elements: Energy-only market, emissions trading, smart retirement measures, stable revenues for renewables, and measures to safeguard system adequacy.

    Together, they form the Power Market Pentagon; all of them are required for a functioning market design. Their interplay ensures that despite legacy investments in high-carbon an inflexible technologies, fundamental uncertainties about market dynamics, and CO2 prices well below the social cost of carbon, the transition to a reliable, decarbonised power system occurs cost-efficiently.

  4. 4

    The Power Market Pentagon is a holistic approach to the power system transformation. When designing the different elements, policy makers need to consider repercussions with the other dimensions of the power system.

    For example, introducing capacity remunerations without actively retiring high-carbon, inflexible power plants will restrain meeting CO2 reduction targets. Or, reforming the ETS could trigger a fuel switch from coal to gas, but cannot replace the need for revenue stabilisation for renewables.

From study : The Power Market Pentagon
  1. 1

    As of 2015, renewable energies are Europe’s dominant power source, with a 29 percent share of the power mix.

    Nuclear power comes in second with 27 percent, coal (hard coal and lignite) amount to 26 percent. Among RES, wind power increased significantly by more than 50 terawatt hours to 307 terawatt hours in total. Hydropower produced much less due to less precipitation.

  2. 2

    Three key trends in European power production have emerged in 2010-2015: gas and nuclear power are losing ground, renewables are on the rise while coal is in 2015 back on 2010 levels.

    From 2010 to 2015, gas demand fell by more than a third, while renewables increased by 35.9 percent. Nuclear power production decreased slightly (-6.3 percent) and, following a slight decrease in 2014, coal (hard coal and lignite) returned to the 2010 level in 2015.

  3. 3

    CO2 emissions in the European power sector increased in 2015 by 2 percent. They could be lower by some 100 million tonnes if the decline in fossil power production since 2010 had been coal instead of gas.

    The average price of a tonne of CO2 in 2015 was 7.60 euros, which leads to coal-fired power plants having lower marginal costs than gas-fired power plants. Coal therefore outcompetes gas throughout Europe, which has resulted, for example, in the high coal power exports in 2015 from Germany to its neighbours.

  4. 4

    Outlook: Four major developments will probably characterise 2016: more RES, less coal, less consumption and lower CO2 prices.

    Additional capacity in mainly the onshore and offshore wind energy sector will increase RES production by another 50 terawatt hours. The carbon floor price in the UK, yielding a CO2 price signal of some 30 euros per tonne, will push out coal in the UK in favour of gas. Further efficiency developments and the relatively mild winter will lower power consumption. The demand for CO2 allowances will therefore decrease, leading to lower CO2 ETS prices in 2016 than in 2015.

  1. 1

    Three components are typically discussed under the term “integration costs” of wind and solar energy: grid costs, balancing costs and the cost effects on conventional power plants (so-called “utilization effect”).

    The calculation of these costs varies tremendously depending on the specific power system and methodologies applied. Moreover, opinions diverge concerning how to attribute certain costs and benefits, not only to wind and solar energy but to the system as a whole.

  2. 2

    Integration costs for grids and balancing are well defined and rather low.

    Certain costs for building electricity grids and balancing can be clearly classified without much discussion as costs that arise from the addition of new renewable energy. In the literature, these costs are often estimated at +5 to +13 EUR/MWh, even with high shares of renewables.

  3. 3

    Experts disagree on whether the “utilization effect” can (and should) be considered as integration costs, as it is difficult to quantify and new plants always modify the utilization rate of existing plants.

    When new solar and wind plants are added to a power system, they reduce the utilization of the existing power plants, and thus their revenues. Thus, in most cases, the cost for “backup” power increases. Calculations of these effects range between -6 and +13 EUR/MWh in the case of Germany at a penetration of 50 percent wind and PV, depending especially on the CO? cost.

  4. 4

    Comparing the total system costs of different scenarios would be a more appropriate approach.

    A total system cost approach can assess the cost of different wind and solar scenarios while avoiding the controversial attribution of system effects to specific technologies.

  1. 1

    Wind and solar PV drive power system development.

    As part of Europe’s renewable energy expansion plans, the PLEF countries will strive to draw 32 to 34 percent of their electricity from wind and solar by 2030. The weather dependency of these technologies impacts power systems, making increased system flexibility crucial.

  2. 2

    Regional European power system integration mitigates flexibility needs from increasing shares of wind and solar.

    Different weather patterns across Europe will decorrelate single power generation peaks, yielding geographical smoothing effects. Wind and solar output is generally much less volatile at an aggregated level and extremely high and low values disappear. For example, in France the maximum hourly ramp resulting from wind fluctuation in 2030 is 21 percent of installed wind capacity, while the Europe-wide maximum is only at 10 percent of installed capacity.

  3. 3

    Cross-border exchange minimises surplus renewables generation.

    When no trading options exist, hours with high domestic wind and solar generation require that generation from renewables be stored or curtailed in part. With market integration, decorrelated production peaks across countries enable exports to regions where the load is not covered. By contrast, a hypothetical national autarchy case has storage or curtailment requirements that are ten times as high.

  4. 4

    Conventional power plants need to be flexible partners of wind and solar output.

    A more flexible power system is required for the transition to a low-carbon system. Challenging situations are manifold, comprising the ability to react over shorter and longer periods. To handle these challenges, the structure of the conventional power plant park and the way power plants operate will need to change. Renewables, conventional generation, grids, the demand side and storage technologies must all become more responsive to provide flexibility.

  1. 1

    Solar photovoltaics is already today a low-cost renewable energy technology.

    Cost of power from large scale photovoltaic installations in Germany fell from over 40 ct/kWh in 2005 to 9ct/kWh in 2014. Even lower prices have been reported in sunnier regions of the world, since a major share of cost components is traded on global markets.

  2. 2

    Solar power will soon be the cheapest form of electricity in many regions of the world.

    Even in conservative scenarios and assuming no major technological breakthroughs, an end to cost reduction is not in sight. Depending on annual sunshine, power cost of 4-6 ct/kWh are expected by 2025, reaching 2-4 ct/kWh by 2050 (conservative estimate).

  3. 3

    Financial and regulatory environments will be key to reducing cost in the future.

    Cost of hardware sourced from global markets will decrease irrespective of local conditions. However, inadequate regulatory regimes may increase cost of power by up to 50 percent through higher cost of finance. This may even overcompensate the effect of better local solar resources.

  4. 4

    Most scenarios fundamentally underestimate the role of solar power in future energy systems.

    Based on outdated cost estimates, most scenarios modeling future domestic, regional or global power systems foresee only a small contribution of solar power. The results of our analysis indicate that a fundamental review of cost-optimal power system pathways is necessary.

  1. 1

    Tendering procedures for renewable energy need to be carefully designed.

    The introduction of competitivebidding for a specific renewable-energy technology in a given country needs to be preceded by a thorough analysis of the conditions for successful tendering, including market structure and competition. Specific project characteristics of the various renewable-energy technologies must be considered appropriately in the auction design.

  2. 2

    Pilot tenders should be used to enable maximum learning.

    Prior to adoption of tendering schemes, multiple design options should be tested in which the prequalification criteria, auction methods, payment options, lotsizes, and locational aspects are varied. Learning and gaining experience is of utmost importance, as poor auction design can increase overall costs or endanger deployment targets.

  3. 3

    The most challenging technology for auctions is onshore wind.

    Experiences made with auctions for certain technologies (e.g. solar PV) cannot be readily applied to other types of renewable energy. Onshore wind is particularly difficult due to the complexity of project development, including extended project time frames (often over two years), the involvement of multiple permitting authorities and the need for local acceptance.

  4. 4

    Inclusion of a variety of actors is a precondition for competition and efficient auction outcomes.

    The auction should be designed to facilitate a sufficiently large number of participating actors, as this will minimise strategic behaviour and ensure a level playing field for all actors, thus enabling healthy competition. As renewable deployment often hinges critically on local acceptance, enabling the participation of smaller, decentralised actorsin auctions is important.

  1. 1

    New wind and solar can provide carbon-free power at up to 50 percent lower generation costs than new nuclear and Carbon Capture and Storage.

    This is the result of a conservative comparison of current feed-in tari­s in Germany with the agreed strike price for new nuclear in the UK (Hinkley Point C) and current cost estimates for CCS, neglecting future technology cost reductions in any of the four technologies.

  2. 2

    A reliable power system based on wind, solar and gas backup is 20 percent cheaper than a system of new nuclear power plants combined with gas.

    A meaningful comparison of the costs of di­erent energy technologies should take into account the need for backup capacities and peak load plants. Such a comparison shows that while additional costs arise for backup gas capacity in a system based on wind and solar PV, these costs are small compared to the higher power generation cost of nuclear.

  1. 1

    Germany is currently facing an Energiewende paradox: Despite an increasing share of renewable energy sources, its greenhouse gas emissions are rising.

    The reason for this paradox is not to be found in thedecision to phase out nuclear power – the decrease of nuclear generation is fully offset by an increasedgeneration from renewables. Rather, the paradox is caused by a fuel switch from gas to coal.

  2. 2

    Due to current market conditions, German coal-fired power plants are pushing gas plants out of the market – both within Germany and in neighbouring countries.

    Since 2010, coal and CO2 prices have decreased, whilegas prices have increased. Accordingly, Germany’s coal-fired power plants (both new and old) are able to produceat lower costs than gas-fired power plants in Germany and in the neighbouring electricity markets thatare coupled with the German market. This has yielded record export levels and rising emissions in Germany.

  3. 3

    If Germany is to reach its Energiewende targets, the share of coal in the German power sector has to decrease drastically – from 45 percent today to 19 percent in 2030.

    Sharp decreases in generation fromlignite and hard coal of 62 and 80 percent, respectively, are expected in the next 15 years while theshare of gas in electricity generation will have to increase from 11 to 22 percent. This goes in line with thegovernments’ renewables and climate targets for 2030.

  4. 4

    Germany needs a coherent strategy to transform its coal sector.

    Such a strategy – call it a coal consensus –would bring power producers, labour unions, the government and environmental groups together in findingways to manage the transformation.

  1. 1

    Policy makers have a large scope of action in designing policies for the regional distribution of onshore wind and photovoltaics.

    Regional distribution of this renewable energy has little impact on the total cost of power supply.

  2. 2

    Finding the right balance is important in expanding offshore wind power.

    To promote technology development and reduce the cost of electricity for consumers, expansion should be continued, but on a lower level than current plans foresee.

  3. 3

    Grid expansion is an important prerequisite for the Energiewende.

    Solely in terms of cost, a few years of delays for the additional transmission lines foreseen in the German Grid Development Planning act would not be critical. Further expansion of renewables does not have to wait for these new transmission lines.

  4. 4

    A strong focus on battery storage systems combined with photovoltaic is currently not desirable.

    Only if cost of such systems drop by 80 % in the next 20 years would a renewable expansion path focusing on photovoltaics + storage be an economically viable option.

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