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What was the reaction abroad?

Fluctuating renewables at the heart of the European power system

Brussels alerted by feed-in tariffs and industry reliefs

Germany鈥檚 future power market design 鈥� more pro-market than the neighbours?

Grid extension and 鈥渆lectrical neighbours鈥�

Could there be even more support coming?

In a recent speech to an international audience in Berlin, the influential state secretary of the German energy ministry Rainer Baake explicitly addressed critics of Germany鈥檚 energy transition (Energiewende), saying, 鈥淧eople in this country and also outside of Germany who believe this must be some kind of act of renationalisation of energy policy [鈥�] could not be more wrong.鈥� Germany, Baake insisted, wanted to develop the transformation of the energy system 鈥� replacing fossil and nuclear power with renewables 鈥� in close cooperation with its neighbours. A Green Party member and one of the architects of the Energiewende, Baake pointed to Germany鈥檚 history of largely ignoring its neighbours on energy policy, and its current, more cooperative intentions.

鈥淯ntil two to three years ago, the Energiewende was mostly a solo project of Germany,鈥� says Markus Steigenberger, head of European Energy Cooperation at the German energy think-tank Agora Energiewende*. 鈥淣ow, the European dimension is very present at the top political level, not only among experts.鈥�

The energy transition began in earnest in 2000, when the Renewable Energy Act (EEG 鈥� co-authored by Baake), introduced feed-in tariffs to support investment in green energy, while the government reached a consensus with utilities on quitting nuclear power. At first, it went largely unnoticed. But the share of Germany鈥檚 electricity consumption covered by renewable energy trebled from below 10 percent in 2004 to nearly 28 percent in 2014. And in 2011, following the Fukushima accident, the German government decided to switch off the older half of its nuclear power station fleet immediately, and to shut down the rest by 2022. This was done without thoroughly consulting its neighbours. Very few European countries 鈥� most notably Denmark and Italy 鈥� have kept pace with this radical transformation. The United Kingdom, in comparison, increased renewable energy from 3.5 percent to 13.9 percent between 2004 and 2013, in France the share went up by just over two percentage points during the same period to 16.9, while in Poland it rose from 2.1 to 10.7 percent, according to the .

What was the reaction abroad?

As green power expanded rapidly in Germany, and newspaper front pages began to regularly feature climate change 鈥� a particularly hot topic a decade ago 鈥� curiosity grew. Experts from the US were quick to call it an 鈥溾�� and even a 鈥渇ailure of public policy鈥�. Others, including the International Energy Agency (IEA), .

But initially, because renewable sources still had a relatively low share in electricity generation, the transition had little direct impact on Germany鈥檚 neighbours. The Energiewende was seen as a German issue. On the European level, all was quiet following a that the EEG was, after all, not illegal state help.

Over recent years, however, this has changed dramatically. The huge rise in Germany鈥檚 production of fluctuating green energy has led to a surge in exports. When electricity is generated from wind and solar power plants, German power prices fall and imports from Germany become an attractive alternative to local production. by Dutch grid operator TenneT clearly shows that high renewable energy production leads to high exports. With over 20 gigawatts (GW) of interconnector capacity (a quarter of the country鈥檚 peak consumption), the German electricity market is now relatively well connected to its neighbours. And for the most part, electricity flows in one direction 鈥� out of Germany. According to analyses by the 威力彩玩法 of the of the Federal Statistical Office鈥檚 (Destatis), the surplus in the electricity trade reached with 74 terawatt-hours (TWh) exported and only 36 TWh imported.

Some of Germany鈥檚 neighbours have had to cope with an enormous influx of German electricity over recent years. Polish imports of German electricity rose from 5.3 TWh in 2010 to 9.2 TWh in 2014, while the trickle of exports was reduced to just 0.051 TWh (down from 0.167 TWh in 2010). Dutch imports of German power quadrupled to 24.3 TWh over the same period 鈥� an astonishing fifth of overall consumption in the Netherlands.

Fluctuating renewables at the heart of the European power system

In short, Germany鈥檚 Energiewende has led to a surge of fluctuating production in the heart of the European power grid. Some aspects sound like a win-win situation. For Germany, the Energiewende is much easier, because when renewable production peaks, interconnections to its neighbours provide a buffer so that the domestic grid is not overloaded.

Nikolas W枚lfing of the Centre for European Economic Research (ZEW) in Mannheim, says that without its neighbours, the Energiewende would 鈥減robably have collapsed already or at least be in much more trouble.鈥� Not only can Germany export excess electricity, it can also import power in times of need. 鈥淏asically, being at the heart of Europe means that Germany has a gigantic battery at its disposal, in the form of foreign electricity networks.鈥� Tellingly, the current emergency reserve for electricity shortages in Southern Germany is based largely on Austrian power plants.

In some aspects, the effects of the Energiewende on markets are a welcome development outside Germany, too. All across central Europe, power prices have fallen. 鈥淭hat鈥檚 a boon to all consumers, be they private households or industry,鈥� says W枚lfing. Even Hungary, which does not share a border with Germany, enjoys lower power prices as a result of German exports, say government officials.

Some countries see the Energiewende in Germany as nothing less than a business opportunity. Embracing the German transition, Norway鈥檚 Foreign Minister B酶rge Brende has said his country would be happy to become a "green battery for Europe and the world." (See factsheet)

Others are less thrilled. Recently, the Czech Minister of Industry and Trade, Jan Ml谩dek, complained publicly that his country would have to 鈥渓ive with the Energiewende,鈥� but voiced fears that so-called 鈥溾�� could lead to blackouts in the Czech Republic. In times of overproduction in Germany鈥檚 windy north, uncontrolled currents from the German network first flow abroad and then re-enter Germany further south. As a result, exports to the Czech Republic rose from 0.56 TWh in 2010 to 3.83 TWh last year. Worried about grid stability and the economics of their power plant fleets, Poland and the Czech Republic pressed hard for the installation of at their borders. Once construction is completed in 2016 and 2017, they will in effect be able to block electricity flows. The project 鈥� which runs against the goal of market integration 鈥� will cost 300 million euros, shared equally between the German, Polish and Czech grid operators.

The German electricity grid agency Bundesnetzagentur is even considering splitting the Austrian-German common power market for electricity. The only 鈥渂idding zone鈥� shared between two larger EU countries currently makes it possible to trade electricity at uniform prices and without having to buy grid capacity. But the integration of these two markets, which began in 2002, could be reversed as early as 2018, says Bundesnetzagentur. The reason: Worries about security of supply not only in the above mentioned central eastern European countries, but also in Germany. The need for an emergency reserve of power stations for the southern German electricity market could be substantially reduced if Austria was split from the German market. At the moment, trade volumes to Austria often exceed the physical connection capacity, resulting in additional power shortages in the south of Germany.

鈥淚t is a worrying development that Germany鈥檚 Energiewende can have a disintegrative effect on the European energy market,鈥� says W枚lfing from ZEW.

Brussels alerted by feed-in tariffs and industry reliefs

It is not only the expansion of green energy that has caused irritation abroad. France, W枚lfing says, depends on Germany to provide reliable electricity exports to cover its peak winter consumption, caused by electric heating. Germany鈥檚 decision to switch off its nuclear power stations had the French deeply worried, he says. 鈥淕ermany has basically acted for years with very little or no regard for its neighbours.鈥�

The Energiewende has not only alerted neighbours, but Brussels, too. European Union treaties state that member states can make independent decisions on their energy mix. But energy policies have to be in accordance with competition laws. After more than a decade of little interference with the Energiewende, the European Commission in 2013 into exemptions from the EEG surcharge for Germany鈥檚 energy-intensive industry. After months of haggling, the German government was able to keep the rebates at a similar level, but changed the awarding procedure for the exemptions. More importantly, it was forced to commit to largely replacing feed-in-tariffs with an by 2017. A by the German government that is still underway will eventually clarify if the EEG constitutes state aid or not.

Steigenberger of Agora Energiewende concludes that over recent years, the Energiewende has begun to feature prominently on the agenda of Germany鈥檚 neighbours due to a 鈥減erfect storm鈥� of interlinked factors. 鈥淭he exit from nuclear energy, rising production of variable renewable energy, increasing German electricity exports, stagnant demand due to the financial crisis and efficiency measures, and depressed power prices across Europe, have alarmed European policy makers.鈥� In 2014, large European utilities like E.ON (Germany) and GDF Suez (France) prompted further concern when they announced that low energy prices had hit their profits hard, pushing them deep into the red. Germany has been repeatedly lambasted for its state interference to promote green energy and shape the Energiewende on its own terms, without taking into account the impact on European markets.

Germany鈥檚 future power market design 鈥� more pro-market than the neighbours?

However, on a key aspect of energy market design, Germany is likely to opt for a more a pro-market approach than its neighbours. France and the UK recently adopted capacity mechanisms to support investment in power stations and ensure that even with a rising share of renewable energy in the power system, there will always be enough conventional capacity to provide backup. A final decision has yet to be taken, but the German government has made it clear that it is not likely to introduce such a capacity market in Germany. Instead, only an emergency reserve will flank the market.

Felix Matthes, an energy expert at the 脰办辞-滨苍蝉迟颈迟耻迟, an ecological think-tank in Berlin that produced its own 鈥�, says this is 鈥渁n extremely inconsistent position鈥�. On the one hand, Germany provides green energy with a support scheme that creates robust, low-risk revenue streams, to enable return on investment. But when it comes to fossil power stations, Germany is in a state of denial that similar measures are necessary, Matthes says.

However, the future of the European energy framework will be decided quite soon. The European Commission has looking at capacity mechanisms in 11 member states (Germany is among them because of its emergency reserve). This summer it will publish preliminary findings and begin a public consultation. RWE, Germany鈥檚 second largest utility, fears that a patchwork will emerge: 鈥淎 wild variety of different market systems does not make any sense, because power plant operators will not be able to operate in comparable environments and cannot sell across boarders,鈥� says RWE鈥檚 Chief Operating Officer (COO) Rolf Martin Schmitz. He argues that there is an urgent need for the EU to provide strict European guidelines.

There are many signs that the European energy system is partially disintegrating 鈥� and Germany is one of the main actors in this development. But Germany has also been at the helm of European moves to better link up its energy markets. The European Agency for the Cooperation of Energy Regulators (), which plays a key role in synchronising power grid regulations so that energy can flow more easily across borders, has had wholehearted support from Germany and its national regulator, the Bundesnetzagentur. On the EU level, the technical and economic integration of energy markets is progressing.

Grid extension and 鈥渆lectrical neighbours鈥�

Severin Fischer of the German institute for International and Security Affairs (SWP) says 鈥渕arket coupling is well under way. European grids are being extended and will be better connected in a few years,鈥� thanks to a and financial .

Grid extension in Germany, as in many other countries, is politically controversial and notoriously delayed. But some progress is being made. Earlier this year the final investment decision for was taken. If everything goes according to plan, the 1.4-gigawatt (GW) sea cable will connect north Germany to Norway by 2020. The latest includes a total of six interconnections.

Regional initiatives are helping to coordinate and implement grid extensions across Europe. The most prominent is probably the North Seas Countries鈥� Offshore Grid Initiative (), which, among other things, helps allocate the cost of new connections to individual countries.

Most recently, 12 countries around Germany signed a for regional cooperation. The document epitomises the current state of affairs, leaving individual countries full control of their energy mix and instead focusing on 鈥渘o regrets鈥� measures regarding market flexibility. Signatories, led by Germany, have vowed to 鈥渁llow flexible prices; we will particularly not introduce legal price caps and we will avoid that national measures have the effect of indirect price caps". Under the agreement, cross-border trade should not be inhibited.

Germany鈥檚 energy transition is, in principle, supported by the top levels of the European Union. Prime ministers and presidents agreed last October to : greenhouse gas emissions should fall by 40 percent (compared to 1990), renewables should reach 27 percent of energy consumption (though through binding national targets) and energy savings are set to rise by the same token. Additionally, the EU鈥檚 Emissions Trading System (ETS) is being with the goal of reducing a surplus of emissions certificates. Even though energy companies are about the real impact, a revived ETS has the potential to boost the profitability of greener investments in Germany, and hence contribute to reaching the goals of the Energiewende.

Could there be even more support coming?

The new EU Commission, inaugurated last October, has put energy centre stage and is pursuing an 鈥溾��, aiming to become the global leader in renewable energy. The Commission鈥檚 vice president Maro拧 艩ef膷ovi膷 has even been put in charge of the issue. But its initial focus is largely on natural gas and security of supply. And the Commission itself is unclear on Germany鈥檚 role. In a recent interview with the magazine BIZZ energy today, 艩ef膷ovi膷 said that while Germany could be seen as a blueprint for Europe, the Energiewende has 鈥渇ar-reaching effects on the profitability of conventional power plants and fluctuating electricity is a challenge for grid stability鈥�.

Some experts expect very little from the Energy Union. The political aim of creating 鈥渃oherence鈥� in Europe鈥檚 energy markets is unrealistic, says Fischer of SWP, and the number of measurable targets very limited. At the same time, 鈥渢he member states are as keen as ever to keep control over their national energy mix, even when it clearly hurts common European interests,鈥� says Fischer, citing Hungary鈥檚 deal with Russia to install . The Energy Union would nevertheless be useful to support small but important steps, he added.

The relationship between France and Germany, who can still decisively shape the European Union if acting in accord, epitomises this development. Some 鈥渞approchement鈥� in energy policies is visible, argues a recent . France adopted a renewable energy target of 40 percent of electricity consumption by 2030, while reducing nuclear鈥檚 share from , initiating its own, smaller scale 鈥渢ransition 茅nerg茅tique鈥�. But there remain 鈥渋mmense differences,鈥� according to a by the Jacques Delors Institute, and introduction of a capacity market by France 鈥渉as the potential to drive a wedge between the two countries, especially considering their very different electricity market designs.鈥� Closer cooperation would pay off, the Delors Institute argues. Bringing the two markets into sync could save up to 4 billion euros per year. But both countries would still consider energy policy as a national prerogative.

W枚lfing from ZEW, too, believes this is a common theme in Europe. 鈥淕ermany did not consult its neighbours on the Energiewende. But the unilateral introduction of capacity markets across Europe shows that they are not the sole perpetrator of largely nationalistic energy policy.鈥� He expects the EU Commission鈥檚 role to be reigning in such excesses.

Matthes of the 脰办辞-滨苍蝉迟颈迟耻迟 sees the EU鈥檚 upcoming decision on capacity mechanisms as pivotal, because the Commission could start to develop a consistent framework for different kinds of revenue streams in the electricity sector. 鈥淚t is probably too late for harmonisation,鈥� he says, 鈥渂ut a push for convergence would be an important starting point.鈥�

Overall, says W枚lfing, Germany鈥檚 Energiewende will remain both an inspiration and a challenge for Europe. 鈥淎n ultimate solution to all problems is just not feasible,鈥� he says. But the unequivocal acknowledgement of top officials like Baake that the Energiewende cannot succeed in isolation is a step in the right direction.

* Agora Energiewende, like the 威力彩玩法, is funded by the European Climate Foundation and Stiftung Mercator.

Jakob Schlandt is a freelance contributor to the 威力彩玩法. He also writes for Europolitics and BIZZ energy today and his own blog .