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Renewable Energy in the UK and Germany Speech by Parliamentary State Secretary Katherina Reiche

Date: 28.10.2011
Location: London, Royal Over-Seas Club

- Check against delivery. -

I. Introduction

Honorable Minister of State Hendry,
Excellency Ambassador Boomgaarden,
Mr. Atenstaedt,
Ladies and Gentlemen,

It is always a pleasure to come to Great Britain, especially to London to talk about common goals, share views and experiences, especially in difficult times like these days we are going through now.

I would like to thank German Industry UK and the German Embassy for organising today's event.

Energy and climate policies in the UK and Germany have many common features, above all the fact that we are both pursuing a major common goal: We have to reduce our greenhouse gas emissions dramatically by 2050.

This is ambitious. It is a great feat that will require major efforts, but it will also create many opportunities.

As far as reducing greenhouse gas emissions is concerned, both our countries have reached their Kyoto targets ahead of schedule. The UK has cut its greenhouse gas emissions by around 20 percent, thus considerably exceeding its Kyoto target of minus 12.5 percent. Germany also exceeded its minus 21 percent target last year with a reduction of over 23 percent.

This is doubtless a success. And it is an important signal for the Climate Change Conference at the beginning of December in Durban. Industrialised countries must show that they take their own climate commitments seriously before they can expect emerging economies and developing countries to make contributions.

II. The transformation of Germany's energy system

Even though our common goal is to achieve a virtually carbon free energy supply by 2050, it is no secret that the UK and Germany are taking somewhat different paths in their choice of technologies and instruments.

In this respect, the UK has always been more open to all technologies. This can be seen, for example, in the Electricity Market Reform White Paper presented in July, which sets the framework for promoting all low carbon technologies.

In contrast, Germany, as you all know, has decided to phase-out nuclear power and focus on greater efficiency and renewable energies, as set out in our Energy Concept of September 2010 and our package of measures for accelerating the transformation process.

This marks a paradigm shift in our energy supply. However, it is not only a consequence of the Fukushima nuclear disaster. In fact, it comes from our conviction that this path can secure our energy supply for the future in the face of climate change, overuse of fossil resources and a growing world population.

Which fundamental global trends will shape energy policy structures in Europe and Germany up to 2050? This is the point of reference for our Energy Concept.

  • The global population will continue to grow considerably, probably to around 9 billion people by 2050.
  • At the same time, in the medium term one third of the global population without regular electricity supply will gain improved access to energy, electricity and water. As a consequence, it is estimated that global energy demand will double by 2050.
  • During this process, new actors will appear on global energy markets, generating additional demand that is also felt on international markets. In less than 20 years China has grown from being only a minor player in global terms on the energy market to the biggest consumer worldwide - far exceeding the previously biggest consumer, the US.
  • This is significant for Germany because we still import a large share of our energy resources. Around 98 percent of our oil is imported. Our import share of natural gas and coal is also constantly rising.

This has consequences regarding

  • how we want to secure our energy supply for the long term
  • how we want to ensure that energy remains affordable and competitive in future
  • and how we want to make our energy supply more environmentally sound.

The guiding principle for energy policy in Germany are the three objectives of economic efficiency, supply security and environmental protection.

This also raises the question of whether our current energy supply will still be able to satisfy these three objectives in 20, 30 or 40 years, particularly in view of the global developments I have already outlined.

This is a question we have to ask today, as the long-term investment cycles in the energy industry mean that a long-term framework needs to be in place as early as possible, providing all actors with the planning certainty they need.

This gives us enough time and enables us to lower the costs of this transformation for electricity consumers.

With our energy policy decisions we have given a clear response: We want to achieve a significant increase in energy efficiency and to advance the expansion of renewable energies.

For example, we believe that we can reduce our energy imports by around 20 billion euros per year by 2020 through the use of renewables and increased efficiency. Energy security is valuable in itself, especially for major industrialised countries.

For the first time we have set out a clear roadmap up to 2050. Our goal is to increase the share of renewable electricity in gross electricity consumption from around 20 percent today to at least 35 percent by 2020, 50 percent by 2030 and 80 percent by 2050.

This makes it clear that the transformation of our energy system cannot be achieved from one day to the next. In fact, it is the project for the coming century. And it will be a huge technological challenge for us as we will have to make significant changes to our energy supply and energy infrastructure.

III. Learning from each other

Even though the UK and Germany have different approaches concerning the choice of technologies, we can still learn from each other.

I believe that in this fundamental modernisation process, competition to find the best concept is of enormous value for us member states, something which is often underestimated in public discussion. There is no sure formula for success, no 'right' solution. Instead, we should make the most of the opportunity to learn from each other's experience.

For example, with its Renewable Heat Incentive the UK has taken an important step in the heat sector. In Germany we are currently in the process of revising the progress report concerning our support instruments for renewables in the heat sector. We hope that we will be able to profit from the UK's initial experience.

And of course we will be taking a very close look at the Electricity Market Reform as it addresses an elementary question: how does the electricity market of the future look like?

On the other hand, Germany has gained considerable, valuable experience in the field of promoting renewables in the electricity sector with our Renewable Energy Sources Act, the EEG. I would like to outline some of the key points of this.

Since the introduction of the EEG 11 years ago, the share of renewables in electricity generation has risen from 6.4 percent to over 20 percent. In other words, it tripled within a decade. An increase few would have believed possible only a few years ago.

Clear investment signals and stable framework conditions are the key to this success. In other words

  • binding, long-term targets
  • stable, technology-specific financing and
  • guaranteed grid connection and priority feed-in for renewable energies.

We are adhering to these guiding principles with our Energy Concept and its accelerated implementation.

In addition to amending the Renewable Energy Sources Act we have adopted further specific measures to advance the development of re-newable energies. For example, we have established legislation to accelerate grid expansion and improve the conditions for offshore wind energy deployment. We are feeding all revenues from the auctioning of emission allowances into our Energy and Climate Fund, creating a sound financing instrument independent of the federal budget.

In respect of the expansion of renewable energies, onshore and offshore wind energy play a key role both in the United Kingdom and in Germany.

There are currently nearly 22,000 wind turbines in Germany with a total capacity of about 28,000 megawatts. With the further expansion of onshore wind power the total onshore capacity is expected to reach about 40,000 megawatts by 2020. The German federal states have their own energy concepts and are striving to not only achieve, but even exceed Germany’s national expansion targets. According to these concepts, the installed onshore wind capacity will reach a total of about 70,000 megawatts by 2022.

While the United Kingdom has long experience in the offshore wind en-ergy sector, only around 210 megawatts of offshore capacity have been installed in Germany so far. The UK has already installed about 1500 megawatts. It is thus important for Germany to draw on the UK’s experience in this area for its own development. Our goal is to reach 25,000 megawatts by 2030. We will keep to this goal despite the difficulties of the start-up phase. This is very ambitious, but feasible if we take resolute action now.

Wind energy offers enormous economic opportunities, especially for the coastal regions. The sector expects the German government’s offshore targets to generate an overall turnover in the offshore and maritime industries of 100 billion euros.

A recently established 5 billion euro credit programme will provide sup-port for up to ten wind farms, which can apply for a maximum of 500 million euros each. This opens up opportunities for the construction of offshore wind farms, especially for smaller enterprises like municipal utilities and project finance associations. Two projects have already been granted funding approval.

IV. Cost efficiency, market and system integration in renew-able energy expansion

Renewables have evolved from niche phenomenon to future mainstay of Germany’s energy supply. Cost efficiency and market and system integration are playing a more and more important role in this process. Our amendment to the EEG has sent clear signals that this is the path to pursue.

In the photovoltaics sector in particular we have had to learn what happens if a young and expensive technology experiences an un-expected and very dynamic price drop.

If this happens it is vital to be able to react quickly in order to avoid market overheating and excessive support.

We believe that our “flexible cap” can be a good solution to counter such situations.

In this way feed-in tariffs for photovoltaics in Germany have been almost halved in the past one and a half years to the current level of 20 to 28 cents per kWh. Another major degression step will be implemented in January. We are expecting a further decrease in prices to 10 cents per kWh for large photovoltaic plants and about 15 cents per kWh for small installations by 2015.

Cost efficiency is an elementary factor in raising acceptance of renew-able energies. We will only be able to maintain the high level of public approval if the costs of expansion remain reasonable. With a view to the interests of electricity consumers and the competitiveness of German industry it is particularly important to avoid exaggerated costs and windfall profits.

In order to improve market integration we have introduced an optional market premium.

As the share of renewables is increasing, it is becoming more and more important to integrate as many players as possible into the market. We need innovative solutions in order to align fluctuating energy generation and the demand curve. To this end the price signal sent out by the market must also reach the operators of installations. We are very pleased that the United Kingdom is introducing a similar instrument in its EMR White Paper, Contract for Difference.

The interplay of the various actors in the energy market and in energy generation is gaining in importance too. Conventional power plants must become considerably more flexible to be able to balance renewables. We need storage capacities and smart grids.

On the other hand, grid expansion and upscaling of renewables must be harmonised more closely. A strong modern grid is a key prerequisite for an electricity supply that is primarily based on renewables.

Today’s electricity grid has not been designed for these new conditions. This is why in some regions wind turbines must be switched off although the wind is blowing.

The German Energy Agency (dena) estimates that Germany will have to add 1,600 to 3,600 kilometres of extra high voltage lines to its grid.

As we accelerate the expansion of renewable energies, we must also speed up grid development.

Our goal is to use innovative technologies to transport electricity over long distances with very little loss.

Expanding the grid and strengthening cross-border interconnectors to our neighbours is also vital for potential electricity imports. This will fur-ther increase security of supply in our own country and in Europe as a whole. It will also serve to create an infrastructure that allows for even greater competition on the European electricity market.

V. Linking renewable energies and energy efficiency

To achieve our renewables targets we will need to combine them with an increase in energy efficiency.

We need a strong European framework for energy efficiency. This ex-tends to questions of product marketing and to the necessity of provid-ing a level playing field for our industries. The United Kingdom and Germany should therefore jointly advocate a strong energy efficiency directive.

VI. Cooperation between the United Kingdom and Germany

We cannot achieve our climate targets and restructure the energy sector by ourselves. We see the United Kingdom as a key partner for cooperation in a whole range of areas.

I would briefly like to touch upon two of these areas:

The first is market integration and grid expansion throughout Europe. I already mentioned those earlier. We need a European approach to grid expansion.

We could also intensify our cooperation on the North Sea Supergrid. The grid should have a modular structure. In other words, the individual offshore farms should be planned and built as part of a gradually evolving network.

If possible, the rules for market integration should be similar throughout the EU. Our two countries should cooperate on this and exchange their experiences with the market premium and the Contract for Difference.

Second for instance: future electricity market design. Do we need a capacity market, and if so, what form should it take?

With its EMR White Paper the United Kingdom has taken a step towards a capacity market. We in Germany are currently having a heated debate on the issue.

The problem is there for all to see. About one quarter of Britain’s fossil and nuclear generation capacities will go off-grid in the next ten years because of their age, and they will have to be replaced by highly efficient new power plants and renewable energies.

In Germany, the Renewable Energy Sources Act, the EEG, taught us how difficult it is to control such a regulative system. And the EEG is a relatively simple instrument compared to the complex models that have been put forward for a capacity market.

We have not found a solution yet, but it is our impression that we must take our time in resolving this issue, as this is ultimately a question of the design of the whole European electricity market. This is an area where we would be particularly interested in an intensive exchange with the United Kingdom.

VII. Boosting dynamic growth

We believe that the innovation potential will be higher and growth will be more dynamic for the economy as a whole if energy supply becomes more sustainable.

About 370,000 people in Germany are already employed in the renew-able energy sector today. Last year, German investments in this area totalled 27 billion euros. This makes us the second biggest investor worldwide, even ahead of the United States.

Structurally weak regions benefit in particular from these forward-looking investments, for example our coastal areas. At the same time, renewable energies provide a value chain that involves many players, from agriculture to the mechanical engineering sector, the steel industry and the chemical industry. SMEs and the trades are also benefitting considerably. Often they are the ones driving development and innovation.

According to studies conducted by the Federal Environment Ministry the global market for environmental technologies will grow from the current volume of 1,400 billion euros to 3,100 billion euros in 2020. German businesses will profit significantly from this. They have succeeded in becoming market leaders in many areas, and they are defending this position against growing competition, especially from Asia.

As I pointed out before, there are some good opportunities for cooperation, especially in the offshore sector. German companies are already engaged in project development, for example E.ON UK Renewables, RWE Npower Renewables and Siemens.

VIII. Conclusion

Both the United Kingdom and Germany have set themselves ambitious targets for renewable energy expansion, especially in the wind sector.

German businesses have a high level of expertise and excellent products and solutions. Many business representatives are present here today.

I would be very pleased if our two countries could pool their experience and know-how even more in the future.

Thank you.

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