Energy Revolution

Germany has targeted a complete phase-out of nuclear power by the end of 2022 and in ­recent years has ramped up renewable energy production. Three new laws concerning renewable energy were passed last summer, generating significant business opportunities.

February, 2017

Christina Würthner, chief executive of the Swiss software company Enersis, expects nothing short of a revolution as Germany transforms its energy policy, radically changing the way power is generated, distributed and consumed. To take advantage of these reforms, the firm set up a German subsidiary, based in Berlin, last year. “The approaching phase of the changeover offers huge potential for us as a company,” says Würthner.

She has spent the past year traveling around Germany and meeting energy providers to promote her company, which designs software that allows businesses to measure and control their electricity consumption. “We are helping these companies to develop new digital business areas related to the changeover,” she says. Demand for the Swiss firm’s expertise is clear. After one year, ¬Enersis¬ already employs 13 people in Berlin – as many as in its head office in Bern.

A bicycle path near Eindhoven at night, built by the parent company of a German construction firm: pebbles marking the 600-meter track are coated with active pigments that gather energy in daylight, which then makes them sparkle at night.

© Bram Saeys/Hollandse Hoogte/laif

Auspiciously, Enersis’s German expansion coincides with the passing of three ¬important energy laws by the federal government last summer: the digitization of the ¬Energy Transition Act, the Renewable Energy Act 2017, and the Electricity Market Act. Germany has already set the target of phasing out nuclear power by 2022. It has also significantly expanded its renewable energy sector in recent years, particularly wind farms and solar energy plants. But the new legislation finally provides a common framework for these reforms. These elements include a range of renewable energy sources, the electricity market, energy efficiency measures, the electricity grids and digitization.

A new industry is born

“In taking this step, we have achieved the greatest reform of the electricity market since the liberalization of the nineties,” says Federal Minister for Economic Affairs and Energy Sigmar Gabriel. This means that not only will renewable energy generators be further integrated into the electricity market but also major consumers and producers will be digitally networked with one another. “The next phase of the changeover can now begin,” says Gabriel.

»We achieved the greatest reform since the liberalization of the nineties«

Sigmar Gabriel, Federal Minister for Economic Affairs and Energy

This transformation also offers new business opportunities for entrepreneurs and foreign companies. In the next few years 1.5 million energy producers of all sizes and major consumers will need to be intelligently networked together, creating a multi-billion-euro market opportunity. The federal government has allocated €4bn in 2017 alone to support the changeover.

“Above all, the digitization of the changeover process and the transformation of our electricity supply grid into an intelligent control system are going to require considerable investment,” says Ludwig Einhellig, energy expert at business consultancy firm Deloitte. “A completely new industry is emerging with a mix of IT firms, component manufacturers and energy providers.” Moreover, the 884 small and medium-sized grid operators in Germany cannot achieve change of this scale on their own. Most of these companies would prefer to enter into partnerships or outsource the measurement and transmission of data on electricity generation and consumer data, as shown by a recent Deloitte study. Meanwhile, the remaining grid operators, among them the major energy providers, will also be investing heavily in information technology.

Facts & Figures

32.6 %

Share of renewable energy in total electricity production

355,000

Number of people employed in the renewable energy sector in Germany

9.7 bn

Investment in wind energy in 2015

156 m tons

Reduction in greenhouse gas emissions through the use of renewables.

Source: BMWi (Federal Ministry for Economic Affairs and Energy)

The digitization of the Energy Transition Act

The first of three new laws will enable the creation of a smart grid in Germany – an intelligent electricity grid that can be controlled in a decentralized way. As a first step, in 2017 all major energy consumers, including companies with an electricity consumption of more than 10,000 kilowatt hours per year, are to install smart meters. Private households, which use significantly less electricity, will follow suit in a few years’ time.

Smart meters continuously measure current electricity consumption and transmit this data to the grid operators and electricity supply companies – a prerequisite of a decentralized electricity network. It will only be possible to operate a grid in a stable way and moderate fluctuating levels of electricity production if electricity suppliers, grid operators and consumers are networked and can exchange data. The idea is that electricity should be consumed at those times when the quantity generated is greatest.

Incentives will be offered to companies and members of the public to consume the bulk of the electricity they need during these peak generation times. The federal government is also supporting the restructuring of the electricity grid with funding programs such as SINTEG and Kopernikus.

Power consumption: rapid expansion of renewable energy

Source: BMWi (Federal Ministry for Economic Affairs and Energy)

The introduction of smart meters will provide a surge in demand for industry. Experts estimate that several million devices will be required in Germany in the next few years. Furthermore, the data from the meters needs to be collated and processed and it is likely that the data itself will give rise to new business models. “The market is still in the early stages of development,” says Heiko Staubitz, Energy Markets expert at Germany Trade & Invest (GTAI), which offers support to foreign companies that want to invest in Germany. “The opportunities for foreign companies to position themselves here are correspondingly large.”

GTAI helped Enersis to get established in Germany. The company is optimistic that the country’s energy reforms will provide scope to expand its operations. “Many energy suppliers in Germany are open for new concepts and engaging in new business areas,” says Würthner. With their software tools for saving energy, combined with the potential to develop completely new value-added services, the company sees the benefits of increased competition in the energy sector. “We are currently experiencing a kind of disruption in the market which can act like a springboard for companies that are strong in innovation.”

Digitization and the advancing progress of the changeover in Germany also provide new incentives for companies to invest in energy efficiency measures. Thanks to innovations in technology, saving electricity and heat has become significantly easier over the past few years and market observers predict this trend will increase further. There is also potential for foreign firms that provide energy efficient technology to profit from this growing market. “Energy efficiency used to be considered the poor cousin of renewable energy,” says Andreas Kuhlmann, chief executive of the German Energy Agency (Dena). “Today we realize that energy efficiency is in fact a driving force for innovation.”

»Energy efficiency used to be the ‘poor cousin’ of renewable energy; today it is a driving force for innovation.«

Andreas Kuhlmann, chief executive of the German Energy Agency (Dena)

The changeover in energy policy has been high on the agenda of the traditional energy supply companies for some time. Seeing the potential for growth in the German market, the Dutch electricity grid operator Tennet took over the high voltage grid of the German energy provider Eon in 2010, expanding its distribution grid. Over the next decade, Tennet plans to invest around €22bn in further expanding its grid, a large part of which will be in Germany.

“Here in Germany, our focus is on the implementation of the changeover in energy policy through the required expansion of the grid and the integration of renewables,” says Urban Keussen, chairman of the executive board of its German subsidiary Tennet Iso. It is in the process of laying up to around 3,000 km of new power lines on land and connecting the grid to large offshore wind farms in the German North Sea. For example, Tennet put five new DC (direct current) grid connection systems into operation in 2015. This has increased the capacity for wind energy from the North Sea up to 4,300 megawatts, enough to power millions of households.

The Renewable Energy Act 2017

The second important act concerning renew¬able energy brings about fundamental changes in the market for electricity produced from solar and wind. It will put an end to the current system whereby the federal government sets a new fixed price each year at which renewable energy can be remunerated on the market. In future, electricity will be remunerated through a tender procedure. “This should attract more competition into the market,” says Christoph Podewils from the think-tank Agora Energiewende.

For companies producing electricity at competitive prices, it presents a significant advantage. Moreover, investors will now have greater incentives to build more new wind farms, photovoltaic plants and power plants in economically viable areas. “The changeover process in our energy policy is making huge strides forward,” says Podewils. “It will be much more feasible in the future to control the further expansion of renewable energy sources.”

The energy mix: where Germany’s power comes from today (in per cent)

Source: BMWi (Federal Ministry for Economic Affairs and Energy)

The Electricity Market Act

The third law which was passed last summer is intended to maintain a stable balance between supply and demand on the electricity market. This will become increasingly important as the proportion of electricity obtained from weather-dependent sources becomes greater. The act makes it compulsory for electricity traders only to sell electricity that they are feeding into the grid at the same time. This new regulation will lead to investment in new infrastructure over the next few years – electricity generating plants that have a high level of customer demand will be the main winners. In this way, market forces will drive further expansion of renewable power plants in Germany.

The background to the current comprehensive changes in the law is the success encountered in the changeover in energy policy so far. In 2015, 29 per cent of the electricity produced in Germany came from renewable energy sources, making the country a global pioneer in this field. Wind energy, including both onshore and offshore, supplies the greatest share of the market (12.3 per cent).

Germany’s first offshore wind farm Alpha Ventus started running six years ago and represents a significant milestone. Wind energy will continue to play a decisive role in the Energiewende (energy transition). By 2050, the aim is to have 80 per cent of electricity consumption coming from renewables. “Of course, this further expansion brings continued opportunities for manufacturers, suppliers and for the companies who service and maintain the growing number of plants,” says Deloitte consultant Einheilig. State funding programs will also provide an important incentive for future development.

Until then, producers and network operators will still need to make some fine adjustments in order to be able to guarantee supply at any time with the growing proportion of renewable energies. Experts consider that, in the long term, it will be the seasonal rather than the daily fluctuations in renewable energy production that will bring the biggest challenge. “In autumn and winter, it is dark for a longer period and, if there is also no wind, electricity production will drop noticeably,” says think-tank expert Podewils.

At such times, conventional electricity suppliers would have to step in as they are in a position to generate flexibly and efficiently. “That is often not achievable with traditional large power plants,” says Podewils, who suggests an alternative might be “modular-driven gas power plants which work with many small engines rather than one large turbine.” This represents another emerging niche in the market and an attractive investment opportunity.

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