Germany: Auctions to be introduced for CHP and renewables in 2017
Germany’s ‘Energiewende’ (Energy Transition) is well publicised, and frequently referenced, as an example of how to (or not, depending on your point of view!) transform a country’s energy system away from low efficiency, high-carbon energy and towards an environmentally friendly, reliable energy system.
One of the fundamental pillars of the Energiewende is a support framework for renewable electricity generation. In the early 1990s, renewables accounted for less than 5% of yearly electricity generated in Germany. Today, the figure stands at around 35% - and the future direction of travel is clear.
Taken in isolation, this appears to be an unmitigated success story. A third of electricity coming from renewables would have been almost unimaginable at the turn of the century.
Yet, this move has impacted on energy prices in a big way.
With prioritised renewable elecricity flooding the grid, wholesale prices have gone through the floor, knocking out some high-efficiency gas CCGT plants along the way in favour of cheaper, carbon-intensive lignite power stations.
And retail electricity prices have gone through the roof. In 2017, electricity customers will pay an EEG surcharge of €c 6.88 per kWh on their electricity bill - purely to fund renewables. Residential consumers are typically paying €c 30 / kWh for electricity – some of the highest prices in Europe.
None of this is particularly new, but it does provide the context for what’s happening now: In 2017, the German government is introducing auctions for new renewables, with pre-determined upper limits for the amount of new capacity which will be funded every year.
Why the move to auctions? These reforms are being driven by 3 guiding principles:
- To keep within agreed ‘deployment corridors’ for the development of renewable energy
- To keep to a minimum the overall cost arising from the Renewable Energy Act (EEG)
- To use auctions to create a level playing field for all of the players involved.
And where renewables lead – so it seems Combined Heat & Power (CHP) follows…
It was announced recently that new CHP plants in the 1 to 50 MWe size range will also have to compete for support from late 2017. At the time of writing, the details of these auctions remain unclear. Some industry contacts are suggesting a limit of 100 MWe of new CHP capacity will be permitted each year, a significant reduction on current levels, but this has not been confirmed. We will keep you updated throughout 2017 as we learn more details…
However, CHP plants larger than 50 MWe are exempt from these auctions, and attractive support levels remain for these plants which export all electricity to the grid.
So we can be clear about this: we will see more larger-scale, flexible gas CHP plants (> 50 MWe) built in Germany in the next few years. And gas engines (typically 5 - 10 MWe units) are well placed to offer flexible, high-efficiency gas-fired solutions to these CHP plants.
Back in 2014, Delta-ee’s Distributed Power Service (DPS) predicted this trend:
"Larger (> 5 MWe) gas engines will increase uptake towards end of the decade… flexible gas generation will be required to meet the demands caused by intermittent renewables."
– Quote taken directly from Delta-ee’s DPS - Germany Country Report published in 2014.
And so it happens: earlier this week, Wärtsilä announced plans for a new, flexible 100 MWe CHP plant in the Mainz-Wiesbaden area of Germany. Using 10x 10 MWe gas engines, the plant is due to be operational by the end of 2018. This follows a similar 190 MWe CHP plant announced in 2015 using 20x 9.5 MWe GE Jenbacher gas engines, to be installed in Kiel, Germany.
At Delta-ee, we are continually monitoring German energy policies and the impact these are having – and will likely have in future – for distributed power. To find out more about Delta-ee’s Distributed Power Service, please contact John Murray for more details.