Germany can create an energy opportunity from the current challenge

Germany can create an energy opportunity from the current challenge

The move away from dependence on Russian gas could accelerate the move towards decarbonisation.

Germany is having to rapidly re-think its energy policy. After announcing bold new plans to decarbonise its electricity supply by 2035, the Russian invasion of Ukraine began.

With sanctions mounting, Germany announced plans to decrease the share of gas it imports from Russia from 55% to 30% by the end of this year.

At the same time, we have seen the emergence of a cost-of-living crisis, which is raising prices for consumers in Germany and around the world.

With the federal government boldly standing by its commitments to phase out nuclear and coal this decade, it must find ways to maintain a secure energy supply without undermining its net zero targets. It needs also to avoid adding to the cost-of-living for consumers.

In January, Wärtsilä modelled Germany’s power sector, demonstrating that it could reduce both emissions and costs, while at the same time achieving Its net zero target sooner. This would mean phasing out coal by 2030 and gas by 2040, and substituting them with massive expansion in renewable energy. 

While many things have changed since the start of the year, one thing hasn’t: Germany’s commitment to renewable energy.

 The German government should be congratulated for its vision and ambition in setting these targets, and for its commitment in sticking by them. The climate crisis needs to be tackled with real urgency if the global temperature rise is to be kept to 1.5 degrees. The federal government appears to have taken this need very seriously.

However, the country stands at the crossroads of its decarbonisation journey. Sticking with its renewables ambition could enable Germany to realise an optimal path towards a net zero future. This would make the country a clean energy leader, allowing it to decarbonise both power and heating, and to achieve net zero even sooner.

Conversely, unless action is taken now, Germany risks prolonging its dependence on coal and preventing renewables from reaching their full potential. 

So, Germany currently finds itself in an unenviable position. How can it massively increase renewable generation and eradicate coal and nuclear, while simultaneously decreasing reliance on its main source of gas, without dramatically increasing energy prices?

Wärtsilä has many years of experience in power system modelling and has worked alongside governments and businesses around the world in shaping optimal power systems. This experience has enabled us to formulate an answer to the questions now facing Germany.

Plotting a path to net zero

Through the utilisation of our advanced modelling capabilities, we have carefully analysed ways by which Germany can achieve its renewable ambitions, despite the current challenging situation.

Included in this analysis is the Easter Package, which aims to deliver ‘almost all’ of Germany’s electricity from renewable energy by 2035, while eliminating power production from coal and nuclear by 2030.

Our modelling assumes that gas and coal prices will remain high over the short term. It also factors in higher technology costs for renewables, fuel cells and thermal options, which are all becoming more expensive.

We have also considered what has become a key talking point in Germany of late – the addition of LNG as a fuel source to help calm the storm over the coming years.

Reaching net zero requires urgent action

Germany’s ambition to generate almost all of its electricity from renewable energy sources by 2035 can be considered realistic. Nevertheless, it will require radical and urgent policy decisions in the short term to make it happen.

By 2035, Germany will require 780 TWh of renewable energy to operate a net zero electricity system. This Is up from 195 TWh today, and it will need to be supported by grid balancing power generating technologies operating with sustainable, carbon neutral fuels. This means adding at least 45 TWh of new renewable energy each year, which amounts to a 10% year-on-year increase.

This is a significant shift and it won't be easy given the urgency of the situation. The crucial enabler will be combining the addition of intermittent solar and wind energy with power system flexibility from grid-balancing engines, which can themselves be converted to run on sustainable fuels in the future.

The impact of adding LNG to the energy mix is significant. Germany could import gas to bridge the short-term gap in supply created by moving away from Russian hydrocarbons. Floating storage regasification units can be installed quickly without the risk of stranded assets. They can support the essential flexibility needed to balance renewables without embedding fossil fuels for decades to come.

The major short-term benefit of importing LNG is that Germany could reduce its coal use much quicker – with the potential to reduce overall use by 20%. Given that coal is the dirtiest form of generation, this will of course help to decrease emissions. LNG will also enable greater energy flexibility and, therefore, promote the increase in renewable capacity.

The move to LNG will also enable Germany to become an exporter of clean energy to the rest of Europe, securing greater energy independence, and highlighting the country’s international leadership on the environmental stage. Without LNG, Germany will be reliant on electricity imports for the next decade, prolonging its reliance on other states for its energy. 

With LNG in the mix, Germany would be able to export a net 457 TWh of electricity between now and 2035, compared to the alternative scenario without LNG, whereby Germany would import a net 150 TWh during the same period.

The alternative – continuing to rely on coal - will mean that emissions rise across multiple sectors. As well as increasing emissions in the power sector, the extended use of coal in the system will lead to far higher levels of CO2 emissions from district heating.

For both the LNG and non-LNG scenarios, the system costs are balanced, ranging from 600 bn EUR in the non-LNG scenario and 619 bn EUR in the LNG scenario between now and 2045. For this relatively small cost difference, the carbon savings over that period are significant, with Germany saving some 30 million tons of CO2 emissions.

While scaling up LNG capacity may not appear to bring much short-term gain, the long-term benefits are considerable. Inaction is the worst option. 

Achieving short-term progress

Our modelling presents a clear roadmap for a more sustainable, flexible, and decarbonised power system. However, with time and resources being as tight as they are, it is imperative that if Germany is to achieve its aims at the lowest cost, and deliver the greenest, most efficient system without stranded assets, It must set out by making the right decisions.

With decarbonisation of its energy sector as the ultimate goal, there are several short- term steps that need to be taken. Germany needs first to implement market mechanisms that enable a rapid ramp-up of renewable capacity during this decade. Secondly, the country should make LNG available now, to allow for the rapid phase out of coal, to diversify energy imports, and to increase supply security. It should ensure effective grid balancing with fast-starting flexible power generation to compensate for the intermittency of wind and solar, and finally, it should prepare for starting implementing the availability of new hydrogen capacity by 2028.

Germany has taken a bold approach in redoubling its commitment to renewable energy, despite the recent upheaval. By acting now, Germany can secure its place as a climate leader in Europe, and set a positive example to the rest of the world.

Written by
Jan Andersson
Jan Andersson
General Manager, Market Development