Mr Birnbaum, Mr Krebber, Eon and RWE are joining forces to outline a plan to relaunch the energy transition in Germany. What changes do you plan to make?
Birnbaum: It is absolutely essential that we restructure our energy system to protect the climate. But to achieve this, we urgently need to strike a better balance between sustainability, security of supply and economic efficiency. If we get that right, we can save a great deal of money during the energy transition – in the three-figure billion range according to our conservative estimates. This will also be key to social acceptance, which is absolutely key.
Krebber: Our aim is to make the energy transition as cost-effective as possible. Eon is Germany’s largest operator of electricity distribution systems and largest retailer, and RWE is the largest electricity producer. The generation, transmission and sale of electricity ought to be thought of much more as one system than has been the case in the past. This is the only way we can bring costs down. And if we don’t achieve that, then the energy transition will fail. It must be made much cheaper – which is doable.
What are the main mistakes that have been made so far?
Birnbaum: Looking forward, we need to start by determining what customers need, instead of continuing to work through a political agenda that was established years ago. Rather than having more confidence in the market, we have staggering over-regulation in the details. We also need to take a more integrated approach to the energy transition. The expansion of renewables and electricity grids needs to be better coordinated. What’s more, we must re-examine our actual expansion requirements.
Do you think the current expansion targets for wind power, photovoltaics and grids are excessive?
Krebber: If we stick to existing plans, then we run the risk of building without regard for market demand and things becoming insanely expensive. If we move now to significantly expand grid infrastructure very quickly, despite electricity demand for it being non-existent, then a kilowatt hour will become unaffordable. This is because the costs of expanding the grid are allocated to a much smaller electricity volume than anticipated.
The traffic light coalition assumed that Germany’s electricity needs would rise by around 50 percent to 750 terawatt hours a year by 2030. Do you think this figure is inflated?
Birnbaum: It is too high according to the figures we are currently looking at. At the moment, Germany’s electricity needs are not rising at a rate where we would reach 750 terawatt hours by 2030. For the time being, this means that we need fewer new power lines running from north to south and fewer offshore wind turbines. This quickly adds up to the previously mentioned figures in the three-digit billion range. If we have to make these investments seven or eight years later than previously planned, it would be a huge benefit to our society as the financial burdens would be spread out over time.
Krebber: Cars, heating and industry will be electrified in the future and this is the right approach to protecting the climate. But the transition will need more time than is currently anticipated in the plans.
Industry is the biggest electricity consumer in Germany. How much will it need in the future if there is the potential for more and more factories to move away?
Krebber: This is one of the great unknowns. The problem is that we are currently trying to do everything at once with no real prioritisation. The result of this is misallocation and an expensive system. We need more focus. The most important things need to be done first, then we can manage it in a cost-effective way. This helps with energy prices. But this alone is not enough for energy-intensive industries that face competition.
Birnbaum: Investment in industry in Europe is clearly declining. When I speak to industry representatives, they tell me that Europe is definitely in the process of deindustrialising. We have to take countermeasures and our plan, which Markus Krebber and I are outlining here, is a key component.
You make the case that, for the time being, the only investments that should be made in the energy transition are those that are worthwhile from a macroeconomic standpoint. What can be postponed?
Birnbaum: We need to outline priorities instead of trying to do everything at once. For instance, take the planned national core hydrogen network that will supply industrial companies with climate-friendly hydrogen. It would not make sense to expand it throughout Germany from the very outset. Take the expansion of renewables as another example. We can tell you exactly where it would not be wise to build new wind farms and solar parks in the coming years because the generated electricity cannot be transported at the moment due to lack of grid capacity in these areas. In these cases, it would be great if we could allow people to get the grid connection for their wind farm in a bottleneck area at a later date, then we can set up other grid connections that are urgently needed and beneficial for the system as a whole. At the moment, we are not allowed to set such priorities. To make this transparent, we suggest creating a grid traffic light system that highlights the areas suitable for expansion in green.
Krebber: We still need to dramatically expand renewables, however we need to stop building more wind farms and solar plants in the wrong places just because we are chasing some general expansion targets. We need to move away from these rigid targets and this over-regulated approach with excessive state control. A slightly more relaxed approach and more confidence in market forces would be a great help to us.
By market forces you mean the CO2 price within the framework of European emissions trading. But is this really feasible from a policy-making and societal standpoint if it is bound to rise sharply and fluctuate substantially?
Krebber: We need to make the energy transition as cost-effective as possible and the market price is the best tool to achieve this. The proceeds from CO2 pricing have not disappeared. The German government takes in around €20 billion a year – and that is just with our current moderate CO2 prices. This money can be used to assist private households and industrial companies that are unable to manage CO2 prices alone.
A great deal of money continues to be invested in the expansion of renewables. Where do you see potential savings in this regard?
Birnbaum: These days, it is impossible to build a wind farm without some sort of hedging. However, solar panels on the roofs of privately owned homes no longer require subsidisation. They pay for themselves as the owner does not have to buy as much electricity from the grid. Ultimately, whether the house owner gets €150 in grid feed payments for the amount that they do not consume is not important. We can drop this guaranteed purchase price right away. This could reduce the burden on the federal budget, considering the many hundreds of thousands of solar panels on privately owned German homes.
Krebber: On top of that, the operators of at-home solar energy systems create costs for the expansion of grids that have to be paid for by the general public. This is because their solar energy needs to be transported. And they only draw electricity from the grid when the system is under the most strain anyway.
Birnbaum: Absolutely. In Bavaria, Eon has converted and strengthened the entire low- and medium-voltage grid due to the boom in solar energy.
You recommend more restraint when it comes to the construction of new offshore wind turbines. Why is that?
Krebber: Because offshore wind farms need to be more cost-effective. There is space for offshore wind farms in the German part of the North Sea that is so far out to sea that grid connection would be very expensive. That is why we would postpone determining whether it is actually worth building offshore wind turbines in such locations for the time being. In many cases, we could also generate an almost equivalent volume of electricity with fewer wind turbines; this would save us further costs for the grid connections that we would no longer need.
Could you explain that?
Krebber: At present, offshore wind farms are tightly packed with so many wind turbines that they draw the wind away from each other. This reduces the electricity yield and leads to a decrease in efficiency.
Why do you make them like that?
Krebber: Because site planning is organised by the government and is based on a fixed expansion target. So, you get the desired expansion but you pay for it in the form of much higher grid connection costs. Consideration could also be given to having offshore wind operators contribute to the grid connection costs, which are currently paid by the general public. This would also create important incentives.
But this would affect your company as RWE is one of the largest offshore wind farm operators.
Birnbaum: This shows that we are interested in the system as a whole and not in things that only benefit our companies.
Germany will also need to build a lot of new gas-fired power plants that step in when the sun is not shining and the wind is not blowing. Will we achieve this by 2030 as the CDU/CSU and SPD promise in their consultation paper?
Krebber: It is possible, but only if we keep things simple and pragmatic. The currently planned mandatory conversion of power plants from natural gas to hydrogen by a fixed deadline in the future would need to be dropped. This is not necessary anyway as CO2 emissions trading will ensure that plants will ultimately be decarbonised. If such legislation pertaining to power plants can be passed within three months and calls for tenders for the plants can be issued this year, then it may be possible.
The consultation paper by the CDU/CSU and SPD states that customers’ electricity grid fees will be halved and capped and that electricity taxes will be slashed. What do you make of this?
Birnbaum: It is, of course, a good thing that policy-makers are concerned about affordable electricity. But we make the case that systematically and significantly reducing the costs of the energy transition is a good place to start. The CDU/CSU and SPD’s consultation paper makes little mention of this. Capping transmission grid fees for customers is not enough, as the necessary route expansion needs to be financed and we think that it would be a mistake to do this with long-term state subsidies.
Krebber: Eon and RWE suggest minimising the costs of the energy transition as a first step. If we find that this is not enough in individual customer segments, then targeted assistance must be offered. But we should not indiscriminately cap grid fees for all electricity customers.
And you don’t need any money for the energy transition from the debt-financed special fund of €500 billion for infrastructure that the CDU/CSU and SPD now intend to set up?
Krebber: The only area in which the government could take action here is security of supply, which is particularly important in view of geopolitical tensions. The government could consider building up a national reserve of natural gas, similar to the one for crude oil, so that it is prepared for supply bottlenecks. This will render unnecessary the regulations surrounding minimum levels in storage facilities, which result in very costly market disruption.
Birnbaum: Beyond that, it is important that we do not use this fund of €500 billion – if it is indeed set up – to finance anything in the energy sector that cannot also be financed by the private sector. And if we take a much closer look at the costs of the energy transition in the future, we can achieve a great deal.
© All rights reserved. Frankfurter Allgemeine Zeitung GmbH. The interview was conducted by Gerald Braunberger and Marcus Theurer.