Ensuring supply-side security of the German energy transition: introducing the combined power plant concept (KKV)

_ Yuri Kofner, junior economist, MIWI Institute for Market Integration and Economic Research. Munich, 21 May 2021.

The German energy transition (Energiewende) promoted by the federal and state governments is putting a dangerous strain on the profitability and security of supply of the energy industry triangle.

As early as 2019, Germany had some of the highest electricity prices worldwide for private households (almost 30 cents per kWh) and for industry (almost 20 cents per KWh).[1]

The planned exit from constant or controllable output (nuclear power in 2022 and coal in 2038) to volatile and environmentally-dependant generation (solar and wind energy) will lead to a threatening electricity generation gap for the German and Bavarian economies.

For Germany as a whole, the Federal Solar Industry Association (BSW) is assuming a power generation gap as early as 2022. A peak import demand of 46 TWh is forecast for 2023.[2] In particular, the Öko-Institut predicts that Bavaria will have to import almost 40 percent (39 TWh) of its electricity in 2035. In the winter season it can even reach 80 percent.[3] Model estimations by the ifo Institute determine an import requirement for Bavaria of 25 to 33 percent of the electricity consumption in 2040.[4]

An expert hearing, which was recently held in the Bavarian State Parliament on the subject of “Electricity storage of the future” showed that, according to the current state of technology and investment, energy storage can only solve the volatility problem of renewable energies to a limited extent and with the help of massive government interventions.[5] On the other hand, experts such as Hennig F. (2021) complain that tax and bureaucratic obstacles of the German Renewable Energies Act (EEG) disadvantage market-based investments in energy storage and in system-friendly (renewable) electricity production sources.[6]

In order for the politically desired energy transition to succeed, the two neglected dimensions of the energy market triangle must be given more consideration again (profitability and supply security; the third dimension is environmental friendliness).

In 2019 renewable energies already accounted for 40 percent of gross electricity generation in Germany[7] and over half (51.6 percent) of gross electricity generation in Bavaria, of which 16.1 percent were made up of photovoltaics and 6.7 percent of wind power.[8] The federal government has decided that before the year 2050 this figure must reach 100 percent.[9] Therefore, it is long overdue to give producers of renewable energies system responsibility.

As a solution to this problem, Fell H.J. et Traber T. (2020) propose the system integration of renewable energies via a guaranteed remuneration for combined power plants (Kombikraftwerkvergütung, KKV).[10]

The core of this proposal is that investors do not receive a feed-in tariff for investments in individual renewable energy generation sources, as is regulated by the EEG, but for legally and / or contractually combined energy producers or storage, which thanks to the interaction of different generation and storage technologies can guarantee a certain local base load.

An example of such a combined system, e.g. at the local community level, could be a mix of battery storage, photovoltaics, wind turbines and hydrogen electrolysis. The various energy sources and storage systems are not funded individually, but as a whole and depending on whether this combined system can feed in electricity at any hour of the year as required and, in a system-friendly manner.

A model test for Bad Kissingen in Bavaria has shown that a remuneration of 8 cents / KWh is sufficient.[11]

The KKV model has the following advantages:

– It is technology-open, as investors and operators are completely free to choose which mix of (renewable) energies and storage technologies they choose. This makes sector coupling projects more attractive.

– Apart from the fact that it is a form of state funding, this approach is one of the more market-economy oriented, since on the one hand, with the same KKV remuneration, the profit margin increases with an efficiency-increasing and cost-saving design of the combined power plants. On the other hand, larger combined plants (over 500 KW or over 3 MW in the case of wind power) must orientate themselves on the existing market in accordance with the EU requirements using a sliding market premium and thus participate in the electricity competition through direct marketing.

– It promotes security: as in the sense of planning security for private investors, so also in terms of the supply stability for the increasing German and Bavarian electricity demand, especially not only in the balance sheet, but also as physically independent local and regional supply cores. This minimizes brown and blackout risks.

– It is completely compatible with the current legal framework of the federal government and the EU.[12]

– It supports the resource-, energy- and CO2-saving, i.e. environmentally friendly, dimension of the transition process in the German and Bavarian energy industry while observing the above-mentioned principles of (market) economy, technology openness and supply-side security.

Notes

[1] Faltlhauser M. (2020). Zahlen und Fakten zur Stromversorgung in Deutschland. Wirtschaftsbeirat Bayern. URL: https://www.wbu.de/media/news/positionen/publikationen/2020_ZahlenundFaktenzurStromversorgunginD2020.pdf

[2] EuPD Research (2020). Energy Transition in the context of nuclear and fossil-fuel phase-out. Electricity market perspectives until 2040. URL: https://www.thesmartere.de/media/doc/5fd2419b4eb76a1610040472

[3] Koch M. et al. (2020). Betrachtungen zum Klimaschutz und zur Versorgungssicherheit der Bayerischen Stromversorgung im Jahr 2035. Öko-Institut. URL: https://www.oeko.de/fileadmin/oekodoc/Klimaschutz-und-Versorgungssicherheit-der-Bayerischen-Stromversorgung-2035.pdf

[4] Gawlick J. et al. (2020). Szenarien für die Bayerische Stromversorgung bis 2040. ifo Institut, TUM, IHK Oberbayern und München. URL: https://www.ifo.de/en/publikationen/2020/monograph-authorship/szenarien-fur-die-bayerische-stromversorgung-bis-2040

[5] Bayerischer Landtag (2021). Stromspeicher der Zukunft. Sachverständigenanhörung im Ausschuss für Wirtschaft, Landesentwicklung, Energie, Medien und Digitalisierung. URL: https://www.bayern.landtag.de/aktuelles/aus-den-ausschuessen/wirtschaftsuasschuss-anhoerung-stromspeicher-der-zukunft/

[6] Hennig F. (2021). German energy transition: tackling the energy storage problem. MIWI Institute. URL: https://miwi-institut.de/archives/1046

[7] BDEW (2020). Anteil der Energieträger an der Bruttostromerzeugung in Deutschland in den Jahren 2000 bis 2020. URL: https://de.statista.com/statistik/daten/studie/170853/umfrage/struktur-der-bruttostromerzeugung-in-deutschland/

[8] StMWi (2021). Energiebilanz. Daten und Fakten. URL: https://www.stmwi.bayern.de/energie-rohstoffe/daten-fakten/

[9] IHK (2020). IHK-EnergiewendeBarometer 2020. Auswertung für Bayern. URL: https://www.ihk-muenchen.de/ihk/documents/International/Energiewende-Barometer_2020_WEB_L3.pdf

[10] Fell H.J., Traber T. (2020). Eckpunkte für eine Gesetzesinitiative zur Systemintegration Erneuerbarer Energien.  Sektorenkopplungs- und Innovationsgesetz für Erneuerbare Energien (SIG-EE). EWG. URL: http://energywatchgroup.org/wp-content/uploads/EWG_Eckpunkte-fuer-eine-Gesetzesinitiative-zur-Systemintegration-Erneuerbarer-Energien.pdf

[11] Traber T. et al. (2020). 100% Erneuerbare Energien für alle Energiesektoren: Eine Optimierung für den Landkreis Bad Kissingen. EWG. URL: http://energywatchgroup.org/wp-content/uploads/EWG_Regionalstudie_Bad-Kissingen.pdf

[12] von Bredow V.H. (2020). Rechtliche Stellungnahme zur Vereinbarkeit einer Kombikraftwerksvergütung oder -prämie mit dem EU-Recht. EWG.

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