SIEMENS

Electricity prices are rising, and people seem to be losing interest in the energy transition. Is the energy transition proceeding as it should? What adjustments do we need to make in order to get back on track?

There’s still broad acceptance of the energy transition among the German public. Nevertheless, we do need to make substantial adjustments and define structures if we want to maintain this acceptance. For example, the Renewable Energy Sources Act (EEG) urgently needs to be broadly amended. I was still the Environmental Minister under Chancellor Helmut Kohl when the law regulating the feeding in of electricity was passed. This law, and its successor, the EEG, have led to Germany becoming the international leader in the use of renewable energy sources. Above all, the cost of renewable sources of energy such as wind and solar power have declined remarkably. As a result, the price of a kilowatt-hour of photovoltaic electricity from large-scale facilities has decreased from 50 euro cents when I was Environmental Minister to around ten euro cents today. This cost threshold was reached by making it economically attractive for people to generate solar energy for their own use.

Because renewable sources of energy now account for more than 20% of energy generation in Germany, they have attained such a high level of importance that the legal framework and the energy markets have to be adapted to the new conditions. For example, in some cases Germany now produces more electricity from renewable sources than there is demand for. This has far-reaching consequences that can even lead to negative prices. This challenge must be met with an appropriate market structure as well as through the development and use of new energy storage systems and improvements in the grid structure. As you can see, a lot still needs to be done in many different areas. This confirms my own belief that what we urgently require here is professional project management.

The energy surcharge enacted by this legislation as part of the energy transition has been the subject of particular criticism. What do you believe needs to be done to prevent further increases in electricity prices?

First, let me add that industries which use a lot of electricity are exempt from the surcharge, the grid costs, and the associated taxes, and these industries therefore now benefit from electricity prices that are lower than they’ve been in very many years. They pay about 4.5 euro cents per kilowatt-hour; before the energy transition began they were paying more than six euro cents. The surcharge exemption is being mainly paid for by private households, which means the surcharge rises to the extent that others are exempt from it. This naturally raises the question as to how this situation can be changed and made socially acceptable. Please don’t get me wrong here. The exemption for extremely energy-intensive industries is not a controversial issue, in part because the industries’ uninterrupted demand helps ensure grid stability. Nevertheless, we should critically examine the list of companies designated as energy-intensive and as competing on an international level. If for no other reason, we have to do this in order to avoid the European Commission coming to the conclusion that our policies in this area do not conform to European competition law.

What role will technical innovation play in the future development of energy and electricity costs?

Innovation is very important for the energy transition, and I’m pleased to see that companies like Siemens are conducting such extensive energy system research and development activities. One example is energy storage methods such as electrolysis, which uses surplus electricity to produce hydrogen as an energy carrier. If this technology enables us to link the gas and electricity grids successfully, we will be able to make tremendous progress toward achieving the energy transition. After all, Germany has a huge capacity for gas storage. The smart grid also offers opportunities, because if we want to have a more intelligent, decentralized system for the non-continuous generation of electricity, we also need an intelligent network for coordinating electricity production and demand. That’s why I expect to see a lot of new technologies emerge, and this is already clearly happening. The two examples I’ve mentioned will result in major advances in the energy transition. There are dozens more I could talk about as well.

Can we, and should we, try to learn from best practices in other countries and energy markets?

That’s definitely the right thing to do, and it’s important. Demand management is a striking example of that, because it involves a consumption control system that shuts down specific consumers in a targeted manner. This eases pressure on the grid and leads to extensive electricity savings whenever renewable energy isn’t available or is not supplied in sufficient amounts. Load management is a major issue in the U.S., but here in Germany we’ve done relatively little with it for the simple reason that it hasn’t yet been necessary. This is changing, however, because we’re now suddenly seeing the market shaped by distributed systems and renewable energy sources, which are taking the place of large conventional power plants. Such a situation requires greater flexibility. For example, couldn’t we too use demand management to better adjust demand to match the output fluctuations of renewable energy sources in the grid? We must also ask ourselves how we can effectively introduce and technologically optimize such demand management. I’m a member of a group of experts that is closely examining such demand/load management concepts in the U.S. It’s crucial that we find out how fluctuating demand can be systematically enhanced. The example of demand management shows that we would be stupid not to examine the approaches being taken in other energy markets.

To what extent can companies such as Siemens use their expertise regarding international energy markets to help implement the energy transition successfully?

Companies such as Siemens are an extremely important factor in accomplishing the energy transition. Such a major shift to a sustainable energy system can only be attempted by economies that address the associated challenges with a high degree of technological quality and research intensity, and which also possess a robust economic structure that is supported by scientific and research institutions. Siemens is a leader in this field, not just in Germany but also around the world. For example, it is a pioneer in high-voltage direct current transmission systems, which can transport huge amounts of electricity over long distances with virtually no losses. Additional research is needed in this area, including the investigation of superconductivity, for example. Other examples include demand management, which I talked about before, as well as gas-fired power plants, which are ecologically and economically very important worldwide due to their rapid availability and record-setting efficiency ratings. It’s very unfortunate that we in Germany still haven’t been able to shape policy in a way that would bring such highly efficient, cutting-edge gas plants back into the power generation system. The simple truth is that coal is so cheap on the global markets at the moment and the cost of CO₂ certificates is so pathetically low that even the oldest coal-fired plants are still operating. As a result, CO₂ emissions are, in fact, rising in Germany! What we need in Germany and around the world are creative companies with the courage to adopt a bold long-term view that goes beyond the current situation.

Natural gas prices are falling rapidly in the U.S., and other countries are also attempting to harness unconventional sources of energy. Does this pose a threat to efforts to create sustainable energy systems because it results in the construction of fewer facilities that utilize renewables? Or does it possibly represent a benefit because electricity generated with natural gas produces a much lower level of greenhouse gases than power from coal?

It’s a benefit in the short term. If my figures are correct, the U.S. could now sign the Kyoto Protocol without any problems because it could shut down old coal-fired power plants and replace them with new and modern gas-fired facilities, and this would of course make a tremendous contribution toward reducing CO₂ emissions. It’s therefore not surprising that the U.S. has imposed a legal limit on how much CO₂ coal-fired power plants are allowed to emit. What’s more, it’s really fascinating to see how seldom people around the world talk about nuclear power any more; it’s all about unconventional gas plants. That’s because nuclear power is simply too expensive, as even the Economist found out. The costs of unconventional gas facilities are much lower than those of nuclear power. Moreover, this is true even of existing gas plants, not to mention the new ones. This shows how quickly technology can change market conditions. However, what really worries me personally is how everyone is so focused on achieving the lowest possible energy prices. Although unconventional sources obviously offer a price benefit, what are the medium and long-term consequences for the environment, and how will this affect costs? We therefore need to keep in mind that we also have to take a long-term global view when it comes to energy supplies. In the middle of this century, we will need to provide nine billion people on this planet with energy so that we can conceivably reconcile economic stability and development with environmental protection. Africa isn’t the only place in the world where poverty is mainly a problem of a lack of energy. That’s why increasing the energy supply, including that provided by solar power in sunbelt countries, will play a crucial role in the fight against poverty and thus ensure peaceful development. In other words, we shouldn’t allow the hype regarding unconventional sources of energy to tempt us into questioning the need for the new structural perspective opened up by the energy transition and its professional implementation. I am still convinced that this approach offers a huge long-term opportunity, for Germany as an industrial location as well. If this approach is consistently pursued, it will evolve into an outstanding business case, if it hasn’t already done so. The fact that we are currently focusing only on costs and not on the prospects and economic advantages created by investments in a new energy infrastructure is understandable in an open, democratic society, but it’s not very helpful..

If the challenges you spoke of can be overcome, would you then say that the energy transition and the knowledge it produces could serve as a model for sustainable energy systems in other countries as well?

People who repeatedly state that Germany’s energy transition is or should be a model for others are more likely to receive a negative reaction than a positive one, and in my opinion that’s understandable. The results of our energy transition should not be regarded or used as a direct blueprint for other countries, since energy markets also differ sharply from region to region. It’s just not that simple. The knowledge we gain from the energy transition will therefore provide us with an option for establishing a dedicated and globally oriented climate policy in line with the needs of urgently needed economic development. This policy will require a broad range of technologies and solutions, which the energy transition will enable us to offer. It will also have economic, environmental, and social advantages in that challenges such as climate change and the imminent scarcity of resources can be better addressed in each region.