The great German energy experiment 

Along a rural road in the western German state of North Rhine–Westphalia lives a farmer named Norbert Leurs. An affable 36-year-old with callused hands, he has two young children and until recently pursued an unremarkable line of work: raising potatoes and pigs. But his newest businesses point to an extraordinary shift in the energy policies of Europe’s largest economy. In 2003, a small wind company erected a 70-meter turbine, one of some 22,000 in hundreds of wind farms dotting the German countryside, on a piece of Leurs’s potato patch. Leurs gets a 6 percent cut of the electricity sales, which comes to about $9,500 a year. He’s considering adding two or three more turbines, each twice as tall as the first.

The profits from those turbines are modest next to what he stands to make on solar panels. In 2005 Leurs learned that the government was requiring the local utility to pay high prices for rooftop solar power. He took out loans, and in stages over the next seven years, he covered his piggery, barn, and house with solar panels—never mind that the skies are often gray and his roofs aren’t all optimally oriented. From the resulting 690-kilowatt installation he now collects $280,000 a year, and he expects over $2 million in profits after he pays off his loans.

Stories like Leurs’s help explain how Germany was able to produce 20 percent of its electricity from renewable sources in 2011, up from 6 percent in 2000. Germany has guaranteed high prices for wind, solar, biomass, and hydroelectric power, tacking the costs onto electric bills. And players like Leurs and the small power company that built his turbine have installed off-the-shelf technology and locked in profits. For them, it has been remarkably easy being green.

What’s coming next won’t be so easy. In 2010, the German government declared that it would undertake what has popularly come to be called an Energiewende – an energy turn, or energy revolution. This switch from fossil fuels to renewable energy is the most ambitious ever attempted by a heavily industrialized country: it aims to cut greenhouse-gas emissions 40 percent from 1990 levels by 2020, and 80 percent by midcentury. The goal was challenging, but it was made somewhat easier by the fact that Germany already generated more than 20 percent of its electricity from nuclear power, which produces almost no greenhouse gases. Then last year, responding to public concern over the post-tsunami nuclear disaster in Fukushima, Japan, Chancellor Angela Merkel ordered the eight oldest German nuclear plants shut down right away. A few months later, the government finalized a plan to shut the remaining nine by 2022. Now the Energiewende includes a turn away from Germany’s biggest source of low-­carbon electricity.

Germany has set itself up for a grand experiment that could have repercussions for all of Europe, which depends heavily on German economic strength. The country must build and use renewable energy technologies at unprecedented scales, at enormous but uncertain cost, while reducing energy use. And it must pull it all off without undercutting industry, which relies on reasonably priced, reliable power. “In a sense, the Energiewende is a political statement without a technical solution,” says Stephan Reimelt, CEO of GE Energy Germany. “Germany is forcing itself toward innovation. What this generates is a large industrial laboratory at a size which has never been done before. We will have to try a lot of different technologies to get there.”

The major players in the German energy industry are pursuing several strategies at once. To help replace nuclear power, they are racing to install huge wind farms far off the German coast in the North Sea; new transmission infrastructure is being planned to get the power to Germany’s industrial regions. At the same time, companies such as Siemens, GE, and RWE, Germany’s biggest power producer, are looking for ways to keep factories humming during lulls in wind and solar power. They are searching for cheap, large-scale forms of power storage and hoping that computers can intelligently coördinate what could be millions of distributed power sources.

Estimates of what the transition will cost vary widely, depending in part on how fast new technology can be introduced and its price lowered. Various economic think tanks predict that the country will spend somewhere between $125 billion and $250 billion on infrastructure expansion and subsidies in the next eight years—between 3.5 and 7 percent of Germany’s 2011 GDP. The long-term costs, including the expense of decommissioning nuclear power plants, will be far higher.

Germany has already incurred significant costs. Each monthly electric bill carries a renewable-energy surcharge of about 15 percent (heavy industry is exempt). Wholesale electricity prices have jumped approximately 10 percent since the eight nuclear plants were shut. The German grid is strained as never before. And—ironically, given the Energiewende‘s goal of reducing greenhouse-gas emissions—the decision to close the nuclear plants has increased reliance on coal-fired power plants.

Despite the costs, Germany could greatly benefit from its grand experiment. In the past decade, the country has nurtured not only wind and solar power but less-­heralded energy technologies such as management software and efficient industrial processes. Taken together, these “green” technologies have created an export industry that’s worth $12 billion—and is poised for still more growth, according to Miranda Schreurs, director of the Environmental Policy Research Center at the Berlin Free University. Government policies could provide further incentives to develop and deploy new technologies. “That is know-how that you can sell,” Schreurs says. “The way for Germany to compete in the long run is to become the most energy-efficient and resource-efficient market, and to expand on an export market in the process.”

If Germany succeeds in making the transition, it could provide a workable blueprint for other industrial nations, many of which are also likely to face pressures to transform their energy consumption. “This Energiewende is being watched very closely. If it works in Germany, it will be a template for other countries,” says Graham Weale, chief economist at RWE, which is grappling with how to shut its nuclear power plants while keeping the lights on. “If it doesn’t, it will be very damaging to the German economy and that of Europe.”

Choke Points

In the city of Erlangen, 20 kilometers north of Nuremberg, tight security greets visitors to the complex of industrial buildings that house the labs and factories of the energy giant Siemens, one of several contractors contributing to the Energiewende. One of these buildings literally hums with power—30 megawatts’ worth. Inside is a giant steel and copper machine that converts AC power to DC at a massive scale; it’s destined for installation on offshore platforms that must withstand harsh North Sea storms for decades.

Germany needs this technology because it’s looking for the steadiest source of wind it can find, and that’s found far offshore—so far that the standard AC lines for transmitting power won’t work. To date, Germany has installed only about 500 megawatts of offshore wind power, all within 90 kilometers of land, in water less than 40 meters deep. Now energy companies are planning to install 10,000 megawatts of wind power as far offshore as 160 kilometers, at depths of up to 70 meters. Several 10,000- to 20,000-ton offshore substations will convert gigawatts of AC output to DC, which can span such distances without large energy losses. “There is nowhere in the world where this has been done—building offshore grids and offshore connections in this way and in this amount,” says Lex Hartman, director of corporate development at Tennet, the Dutch grid company in charge of parts of Germany’s megascale North Sea effort.

Of course, all this just gets the power to the beach. The electricity needs to traverse Germany to reach the major industrial centers in the country’s south. Some 3,800 kilometers of new power lines are needed, but only around 200 have been built, with reluctant landowners and regional politicians stalling progress and creating choke points. The delays and the novel technologies make the German offshore wind program a huge gamble all by itself. “Nobody really knows what the Energiewende will cost,” says Karen Pittel, an energy economist at the University of Munich. “But especially those wind farms—they are more or less pilot projects.”

The uncertainties don’t stop there. Even with current levels of wind power, on windy days grid operators must shut turbines down because there’s nowhere to put the power. When a cloud bank rolls over southern Germany on an otherwise sunny day, the output of the region’s many photovoltaic panels can drop by hundreds of megawatts; the effect is like hitting the off switch on a moderate-size coal-fired power plant, increasing the threat of blackouts.

Without enough cheap, reliable power to support the high-technology industry and the transportation system, Germany’s economy—and that of Europe as a whole—could be in trouble. Already some German firms are building new manufacturing facilities elsewhere; for example, last year the chemical producer Wacker ­Chemie decided to build a polysilicon plant in Tennessee, partly because energy costs in Germany were so high. Weale says, “The quality of the supply would only have to deteriorate a little bit and it would be quite serious for this high-­technology industry. We’ve already seen, even without the lights going out, that industry is getting nervous.”

To avoid catastrophe, Germany will have to start deploying storage technologies and load-­balancing strategies at far larger scales. The country today has 31 pumped-storage power plants, which force water into uphill reservoirs at night and then use the downhill flow to spin turbines to generate power. Altogether, they can store 38 gigawatt-hours’ worth of electricity. That might sound like a lot, but it’s less than 90 minutes of peak output from Germany’s wind farms.

Batteries might help, but so far costs are too high for them to play more than a niche role. In another building in Erlangen, Siemens is building tractor-trailer-size batteries based on three different lithium-ion technologies. Each could power 40 German houses for a day, but the batteries are too expensive to use for backup power. Instead, high-tech manufacturers are likely to use them to ride out brownouts with, say, a 15-minute, eight-megawatt jolt so that specialized equipment won’t need costly restart procedures. Prices would need to fall by at least half before lithium-ion batteries could provide an economical way to store hours of excess power from wind turbines.

Other storage technologies are being developed but are still probably years from being practical, if they ever will be. One new technology at Siemens, for example, produces hydrogen by using surplus electricity to split water molecules. But it is experimental and, at this stage, expensive.

Inevitably, some hot July week will come when a high-pressure system stalls over Europe, stilling turbines just when sunburned Germans reach for their air conditioners. Until large-scale, cheap storage is available, gas power plants, which can start up quickly and efficiently, will be the most practical way to cope with these situations. But there’s little incentive to build such plants. Owners of gas plants meant to meet peak power needs can no longer count on running for a certain number of hours, since the need will no longer fall on predictable workday afternoons but come and go with the sun and wind. Says ­Ottmar ­Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research, “The design of the electricity market will change fundamentally. You have fluctuating demand, and at the same time a fluctuating supply. The linkage and the interplay in these two dimensions has become the subject of intense research. There could be new and emerging market failures.”

Virtual Power

Duisburg is a gritty town just west of Essen, a major World War II munitions manufacturing center that was reduced to rubble by Allied bombing. This is where RWE, one of Germany’s four major utilities, is working at the frontier of another crucial technology: virtual power plants, in which software intelligently controls vast numbers of small power sources (and, eventually, distributed storage sites) to coördinate their output for sale on energy markets. The goal is to transform thousands of renewable energy sources, each of which alone is unreliable, into a vast network that utilities can depend on. It’s a dazzling concept, but one in its infancy.

Inside a lab that sits in front of a Nazi-built bomb shelter shaped like a pointed witch’s hat, RWE researchers are testing a dozen gas-fired boilers and fuel cells designed to generate both heat and electricity. In theory, utilities could call on hundreds of thousands of home units—and larger ones powering apartment or office buildings—to generate extra electricity for the grid in a pinch. As much as 5 percent of Germany’s electricity could be produced this way—about the amount utilities expect to draw from the new offshore wind farms.

Reaching that point could take decades as homeowners and businesses gradually replace their existing boilers and the infrastructure is put in place to synchronize hundreds of thousands of power sources. But an hour east of Duisburg, in a 1960s-era office building on the edge of Dortmund, engineers are testing a more modest network as a starting point. A basement server room functions as a communications hub for 120 small generating stations that together produce 160 megawatts of electricity from renewable sources—mostly wind but also biomass and solar. Software takes weather predictions into account and assembles a block of renewable electricity from wind and solar, switching the biogas plants on and off as needed to balance the fluctuating output and create a block of stable power.

Early projects like this one are stepping-stones toward more sophisticated systems that include demand management: utilities would compensate customers for agreeing to have their power consumption automatically curtailed during times of peak demand. Someday the systems could also draw power from the batteries of parked electric cars, or store excess power in them, to compensate for shifts in the wind.

GE and other companies are pursuing such concepts, too. “Today what we know is that the energy market will be decentralized; it will be a fragmented market,” says Reimelt, of GE. “Before, we had four utility companies. Today we have 350 companies generating power, going up to a thousand, and going up to a million if you count everyone with a solar panel on the roof. So one of the trends that we see is that there must be less emphasis on power generation and more on power management.”

Baffled in Bavaria

The floor-to-ceiling windows behind the desk of Wolfgang Mayer, the burgermeister of the small Bavarian town of Gundremmingen, provide a commanding view. A mile away stand the twin cooling towers of the Gundremmingen Nuclear Power Station Units B and C, which together are the largest source of nuclear power in Germany. Nicely situated halfway between the industrial centers of Stuttgart and Munich, the plant has the capacity to produce 2.6 gigawatts of power. Mayer is confounded by the Energiewende, which threatens hundreds of jobs in town and could hurt tax revenues. “They say 2017 to shut down Unit B, and 2021 for Unit C,” he says, motioning toward the plant. “But they were the same time starting up in 1989! A normal person cannot understand. What is the logic?”

Mayer is not alone in his bafflement. There is much about the current policy that arguably isn’t logical. In the short term at least, the decision to close the nuclear plants means that the Energiewende will actually push utilities to rely more heavily on coal. Last year, for example, RWE fired up two long-planned new boilers at an existing facility near the Belgian border that burns the dirtiest fossil fuel of them all: brown lignite coal. Though these boilers are cleaner than the ones they’re replacing, the coal plant is the largest of its kind in the world, and it’s going full blast these days to keep up with power demand.

“If you close eight nuclear plants, which were carbon-free, overnight, you will increase carbon emissions,” Weale says. “One will have to be more reliant on coal than was previously expected. It may be hard to reduce CO2 emissions as quickly as one would like.” Decisions made now about what kinds of power plants to install will have repercussions for decades, he says: “You can’t make sudden changes from one asset to another.”

A second problem is that even when it comes to alternative energy sources, Germany doesn’t reward carbon dioxide reduction. Rather, its policy establishes well-defined subsidies for specific technologies: a kilowatt-hour of solar power is rewarded more than power from offshore wind, which in turn earns more than power from onshore wind. Even though solar subsidies have been reduced to rates far lower than the ones Leurs locked in, solar power still pays the highest rates. If reducing emissions were the focus, however, more money would be directed toward reducing energy use. “If you could choose the optimal instruments, focusing on those areas first where you can achieve your goals most inexpensively, you would focus not so much on renewables but much more on efficiency,” says Pittel, the energy economist from Munich.

The current subsidies also don’t encourage innovation as much as they make existing technologies profitable. There’s little incentive to, say, develop radically new photovoltaic technologies, even though these might ultimately be the only way to make unsubsidized solar power cheap enough to compete with fossil fuels.

To some German economists, the country’s energy policy is simply wrong-headed. Hans-Werner Sinn, president of the Ifo Institute for Economic Research at the University of Munich, is especially scathing. “The Energiewende is a turn into nowhere-land, because the green technologies are just not sufficient to provide a replacement for modern society’s energy needs,” he says. “It is wrong to shut down the atomic power plants, because this is a cheap source of energy, and wind and solar power are by no means able to provide a replacement. They are much more expensive, and the energy that comes out is of inferior quality. Energy-intensive industries will move out, and the competitiveness of the German manufacturing sector will be reduced or wages will be depressed.”

German politicians, of course, are betting that Sinn is wrong. And plenty of encouraging signs argue against his pessimism. The cost of solar panels has dropped sharply, which means that solar power may become more competitive. Battery costs may follow suit. If fossil fuels continue to become more expensive, renewable power sources will look more attractive. “Forty years is a long time, and one is continuously being surprised by favorable technological developments—for example, the way in which the price of solar cells is coming down,” Weale says. “From my point of view, I want to emphasize how challenging the Energiewende is. At the moment, it’s looking difficult. But with the right incentives, one can have good reason to believe that technological progress will be a lot faster than we currently expect.”