Safe, inexpensive and environmentally friendly energy for Bavaria

_ Yuri Kofner, economist, MIWI Institute for Market Integration and Economic Policy. Munich, 28 July 2021.

 Goal setting

The aim of the Bavarian energy policy should be to restore the energy triangle. In concrete terms this means:

  1. To ensure the security of supply of the power supply.
  2. To noticeably lower electricity prices for households and industry and put them back on an economic basis.
  3. To ensure the environmental friendliness of the energy industry and to abolish all solo efforts in CO2 pricing.

The politically wanted and purely ideologically justified “energy transition” is endangering the energy policy triangle in Germany and Bavaria.

Starting position and problems

Supply-side security

The planned exit from constant and controllable output (nuclear power in 2022 with 2.7 GW base load and coal in 2038 with 0.8 GW) to environmentally-dependant and volatile generation (solar and wind energy) will result in a threatening electricity generation gap in Bavaria averaging 27 TWh (4.5 GW peak output) in 2025, of 31 TWh in 2030 and of 20 TWh in 2040.

The planned electrification of transport mobility alone will increase the demand for electricity in Bavaria by 5 to 10 percent or even more by 2040, depending on the future share of electric cars.

Sun and wind are volatile and unreliable energy sources. Even with a massive expansion of these systems, there will be a significant power shortage in Bavaria when the sun is not shining and / or the wind is not blowing: at night, in winter, during dark doldrums… This problem is already noticeable. Photovoltaics make up 43 percent of the installed capacity, but at the same time – due to its volatile generation and despite the priority feed-in – only 16 percent of electricity generation in Bavaria. In bright contrast to this, reliable nuclear energy only accounts for 10 percent of the installed capacity, but a third of the electricity generated.

The construction of gas-fired power plants is planned as a network reserve to bridge the electricity gap. However, due to a lack of profitability and complex approval procedures, of several gas-fired power plants with a planned total output of 2.4 GW, only one with an output of 0.6 GW will probably be built on time.

Energy storage systems are increasingly seen as a solution to the volatility problem. In reality, the possibilities for electricity storage are extremely limited in the medium term for technological reasons and can only be introduced through further massive state intervention. The physical potential of pumped storage, which is regarded as the most effective storage method, is a maximum of only 2.3 TWh for the whole of Western Europe – with a storage requirement in Bavaria of 27 TWh (4.5 GW) in 2025 the only new pumped storage facility with a capacity of 0.3 GW in planning.

In order to at least partially cover the upcoming electricity gap, two high-voltage lines (SuedLink and SuedOstLink) with a maximum output of 4 GW are planned to provide electricity from the north German wind farms. Unfortunately, these lines are not scheduled to go into operation before 2025-26, with more realistic forecasts for 2027-28.

Thus, the energy transition is a threatening burden for the network security and the guarantee of the network frequency of 50 Hertz. By 2025 there is an acute risk of a longer power failure (blackout), which can cause economic costs of 16.4 billion euros across Bavaria, quite apart from that of the humanitarian damage. In order to avoid a power failure, the government and pro-transition political circles are talking more and more about so-called “demand-side management” of the electricity market, which is nothing more than a planned forced shutdown (brownout) of households and industry branches.

Economic aspect

Because of the energy transition, electricity costs in Bavaria have doubled and tripled in the last 20 years: for households from 14 ct / KWh to 31.4 ct / KW, for industry from 6 to 18.6 ct / KW. Germany now has some of the highest electricity prices in the world. There are two main reasons for this huge increase in electricity prices.

First, taxes and duties make up over half of the electricity price for industrial customers; The EEG surcharge alone makes up 36.4 percent. The tax burden on electricity costs for households is as much as 53 percent, the EEG makes up 21.5 percent, and VAT a further 16 percent. The newly introduced CO2 tax increases the price of electricity from natural gas for industrial purposes by 1.5 percent and for households by 2.7 percent. This tax burden will increase to 3.5 and 6 percent respectively by 2025.

Second, due to the increase in the share of solar and wind energy in the electricity mix, and the associated volatility of the feed-in, the Germany-wide costs for grid stabilization measures have risen by a factor of 40 in the last 10 years – from 23 million euros per year to almost one billion euros. Ultimately, this increase in costs will be borne by the economy. And without commissioning the Sued- and SuedOstLink lines, electricity prices in southern Germany will rise by a further 6 percent.

In the course of the energy transition, the marginal costs for electricity generation in Bavaria will increase by more than a quarter by 2040. Without massive subsidies, marginal and investment costs will be higher than returns at all times. The planned expansion of the PV systems, which would be necessary to achieve steep climate targets, will cost at least 25 billion euros in capital expenditures by 2040.

The planned expansion of PV and wind energy in the electricity mix will increase the electricity price for Bavarian industrial customers by 14 to 23 percent by 2040.

Environmental friendliness

Since the German energy transition is justified by the climate protection argument, it is important to examine the value of this argument particularly carefully.

First of all, a distinction must be made between climate protection and environmental protection. While the effects of environmental pollution such as oil spills, radiation leaks and acid rain can (and should) be measured directly and thus specifically prevented, the connection between higher CO2 emissions and the potential negative effects of climate change is not so clear-cut.

And even if one wanted to reduce CO2 emissions for the sake of the climate, the government’s approach in the context of the German energy transition is rather counterproductive. This is the so-called “Green Paradox”.

Because the less Germany and the EU consume fossil fuels such as coal, oil and gas, the cheaper they become on the world market for other countries, which only leads to even larger quantities being burned there.

In addition, the rise in electricity costs due to CO2 pricing is forcing Bavarian industry to relocate its production facilities to cheaper countries without CO2 pricing, which will de-industrialize Bavaria, but will not reduce or even increase global CO2 emissions.

While the government is sticking to the phase-out of safe nuclear power (which has the fewest deaths of all energy sources in the world), the environmental and climate problems of solar and wind energy are being swept under the carpet, e.g. deforestation and deforestation of wind farms, or that PV parks increase the ambient temperature by an average of 3-4 degrees.

Measures and solutions

In order to bring the Bavarian energy triangle back into balance, it needs a positive alternative energy policy approach that is scientifically sound, realistic and future-oriented.

The proposed measures are part of an overall agenda that is to be implemented in the short, medium and long term. Even if the various measures will take effect at different times, their implementation must of course be initiated as quickly as possible.

Short term (until 2023)

In view of the advanced energy transition, ensuring the security of electricity supply is of immediate and utmost importance. Because at least until 2025 there is a risk of prolonged blackouts. The government must avoid this at all costs, but it must also prepare for such a case.

Therefore, as a first step, a detailed and flexible blackout crisis plan must be drawn up and appropriate precautionary measures must be taken, including the stocking of sufficient emergency power generators and diesel fuel (Bavaria would need at least 3 million liters for just 1 day), preparatory exercises in each municipality, as well as the Check suitability for isolated operation of hydropower and geothermal power plants (which currently provide a base load of 2.5 or 0.3 GW).

Although the primary aim is to prevent the German nuclear phase-out, it has to be regretted that it is currently practically impossible to stop the shutdown of the power plants for contractual, technical and safety reasons.

Currently, there is currently only the option to check whether the Isar 2 nuclear power plant can continue to be operated as a grid reserve after 2022. Technically enough fuel elements would be available for this. This would guarantee an output of 1.4 GW in the short term.

In addition, the state government must accelerate the construction and commissioning of the necessary gas-fired power plants by facilitating the approval process and offering better financing conditions – be it through state funding or through a reform of the EEG. Another instrument could be the use of parliamentary legal planning.

As an accompanying measure, the federal government should ensure the commissioning of Nord Stream II, which would supply Europe with natural gas worth around 590 TWh annually.

One of the great inherent problems of the German energy transition policy is that it promotes the expansion of renewable energies regardless of their (non-) base load capacity. For this reason, a reform of the EEG is necessary, according to which the remuneration must be made dependent on the base load capacity of electricity generation. A plausible approach is the concept of combined power plant remuneration (KKV). It would be important here to include gas-fired power plants and nuclear energy in the remuneration mechanism.

Such an EEG reform would be a compromise that would continue to provide financial incentives for renewable energies, but at the same time increase the base load stability and reduce the EEG surcharge, as many purely volatile solar and wind-based electricity generation processes would lose their funding entitlement.

In addition, the electricity tax must be abolished, which would lower the electricity price for industry by 8 percent and for households by 18 percent. This tax cut would increase the Bavarian economy by a. Relieve 1 billion euros annually. Overall, the tax burden on electricity prices, which are the highest in the EU in Germany, should be reduced to at least the EU average of 45 percent for industrial customers and 40 percent for households.

An additional approach would be to grant a tax allowance on minimum electricity consumption for households and businesses, as is practiced in the Netherlands.

Since national and Europe-wide going it alone with CO2 pricing are counterproductive, the CO2 tax must also be abolished. Two other compromise approaches would be; Firstly, to reduce CO2 pricing in Germany to the EU minimum. For example, the current implicit CO2 price for natural gas could be reduced by a factor of 6. Second, Germany and the EU could promote the establishment of an international emissions trading system in the energy sector. Irrespective of this, domestic energy companies should be enabled to offset their potential CO2 savings in their own foreign gas and coal-fired power plants against the German CO2 pricing.

Medium term (until 2028)

Although the AfD initially spoke out against the high-voltage lines SuedLink and SuedOstLink, as they have a negative impact on the health and aesthetics of the surrounding area, and are a symbol of the dilemma of the energy transition, the state government must push for their commissioning by 2025 at the latest in order to guarantee the security of the electricity supply.

In the medium term, the aim is to increase the Bavarian electricity capacity with gas power plants or gas and steam power plants (CCGT) as well as combined heat and power plants (CHP) to 3.5 to 4 GW so that they can generate at least 25-30 TWh annually.

Instead of artificially and expensively enforcing the electrification of transport mobility and heating needs, the government should pursue a more market-oriented and technology-open approach, according to which fossil fuels for the transport sector and domestic heating could be partially replaced by synthetic fuels. The existing infrastructure would not have to be replaced, it would secure the high added value of combustion engine technology in Bavaria and it would reduce domestic CO2 emissions even faster than e-mobility. With the implementation of such an alternative agenda, the electricity demand in Bavaria could be 5 to 10 percent lower than is expected with e-mobility.

Overall, the increasing use of energy storage methods should not be prevented. As part of the base load safeguarding, this could even be promoted through the reform of the EEG proposed above, which includes the KKV mechanism and the exemption of storage electricity from the EEG levy. Due to the high costs as well as the physical and technological restrictions, however, the expansion of energy storage capacities should take place gradually and driven by the market, and not be forced by further state intervention. The main role of government should focus on promoting research and development for lower cost storage technologies.

Long term (until 2033)

In the next ten years Germany and Bavaria should return to the safe, inexpensive and environmentally friendly electricity generation method of nuclear power. In the US and many European countries, nuclear power is an integral part of their climate change agenda.

As part of this long-term goal, it is necessary to set the strategic course as early as possible, whereby primarily ensuring the training of the necessary specialists and providing sufficient funds for research and development of nuclear and fusion energy at Bavarian universities.

By 2033, the commissioning of generation 2+ and generation 3 nuclear power plants, as planned in neighboring European countries, is to be prepared by the government and communicated accordingly to the relevant stakeholders. At the same time, the construction of an experimental nuclear reactor of the fourth generation in Bavaria was to be funded for research purposes.

After the provision of a sufficiently secure base load in Bavaria has been guaranteed again, the EEG is to be phased out completely.

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