July 15, 2011

The German government has risen to the challenge of securing the country's electricity supply on a sustainable basis beyond its declared exit from nuclear power in 2022. However, the growing significance of renewable sources of energy will lead to an increase in supply volatility. For this reason, there needs to be not only a large-scale expansion of the transmission grids (supergrid), but also a drive for “intelligent” distribution grids (smart grid & smart metering) in particular. As such, the new Network Expansion Acceleration Act for the power industry is a first step in the right direction; nonetheless, this must soon be followed by further steps so the energy and environmental policy objectives in Germany and Europe can be achieved.

Germany’s Energy Concept has already undergone several major modifications since its launch scarcely a year ago. No doubt the most obvious one is the 180-degree reversal of policy on nuclear power generation in Germany in the wake of the recent nuclear disaster in Japan. But also the zigzag policy on high domestic subsidies for solar energy has taken not only experts by surprise.

The prospects for a modern energy and environmental policy are most auspicious at present. Not least the renewed jump in energy prices, i.e. not just the price of oil but virtually across the board, is helping both in Germany and around the world to raise acceptance of new fuel sources and their increased integration into the supply concept.

With Germany’s exit from nuclear power generation, renewable sources of electricity will steadily gain in importance in Germany and Europe (see chart). Since renewable energy sources such as wind and hydro power vary quite considerably in their regional distribution, i.e. they are by no means always “more decentralised” than conventional power sources, their increased use hinges on large-scale expansion of the electricity grids.

In light of this challenge, Germany’s new Network Expansion Acceleration Act for the power industry consolidates key related competencies at the federal level. This should help reduce red tape and thus accelerate grid expansion across federal state borders. However, even though this Acceleration Act is a major first step in the right direction, other steps must soon follow in order to ensure that the targeted energy and environmental policy objectives can indeed be achieved. In this context, one particularly urgent issue appears to be the large-scale expansion of the European power grid on the one hand, and a concurrent increase in the “intelligence” of the local distribution networks (buzzwords: smart grid & smart metering) on the other.

Constructing and optimising an all-European supergrid – comprising the North Sea Ring, Desertec (i.e. transmission of electricity from Africa to Europe) and low-loss direct current lines which are still at the planning stage for all of continental Europe – would offer numerous advantages. Apart from balancing out volume fluctuations across borders, grid expansion would also lead in particular to more competition in the European electricity market. Germany, especially, would benefit in several ways. First, the country will enjoy the potentially greater international scope for power transmission. As a consequence of its energy policy rethink Germany will have to import more electricity in future. Second, the competitive stimuli come at just the right time. The many cases of market intervention in Germany (among others, the politically dictated priority for the feeding of electricity from renewable sources into the grid) reduce the degree of unrestrained competition (e.g. for gas-driven generating stations) and thus boost electricity prices. More competition from the international level is therefore to be welcomed.

But as supply volatility rises in relation to the increase in power generated from renewable energy sources, what is needed is not only a major expansion of the supergrid but also, particularly, a new range of smart grid technologies which will steady capacity utilisation levels in the distribution grids, too.

Apart from grid expansion, though, one of the main aims has to be to change long-established consumption patterns. For, ultimately, the ambitious energy and environmental policy objectives cannot be met if private households are not integrated into the overall concept. However, while the establishment of a European supergrid is likely to generate a certain amount of its own momentum, political incentives – whether via subsidies, legislation or other instruments – are a prerequisite for the market success of the smart distribution grid. The reason is that the savings volume to be tapped is actually often merely a low euro amount, and thus it fails to register with households when they look at their annual energy consumption statement. If worse comes to worst, the investment may in fact prove unprofitable for the individual; therefore, consumers will be required to possess a high level of intrinsic excitement about environmental protection.

On balance, energy and environmental policy factors argue for the further expansion not only of the European supergrid but also of the distribution grids. Only this combination can help to tap the potential necessary for the modernisation of electricity generation, distribution and consumption structures in the first place – not only in the EU, but also in its neighbouring countries (e.g. Ukraine). Given the differing interests of the numerous groups involved, however, this will no doubt become one of the most ambitious challenges facing us in the near future in terms of both social policy as well as budget policy.

See also:

Smart Grids: Energiewende erfordert intelligente Elektrizitätsnetze
(available in English soon)