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Is Germany moving into the slow lane for low carbon heat?

Today Germany is ahead of the pack for delivering a low carbon domestic sector – but can it keep it up?

Each year, 650MW of solar PV and around 120,000 low carbon heating appliances (mainly ASHPs and gas boiler plus solar thermal) are installed in domestic properties – substantially more than most other European countries.  But for how much longer will Germany remain in the lead?  Our latest Roadmap Service research, which focuses on Germany, forecasts how the residential heating market will evolve to 2025 – it shows that the mix of low carbon heating appliances will dramatically change in next decade and that the UK could soon overtake Germany (see our previous blog 'Will the Renewable Heat Incentive revolutionise domestic heating in the UK?').

Annual appliance sales in Germany in 2012 – 20% of sales are low carbon appliances 
 Annual sales in DE
Source: Delta-ee, 2013


A changing energy landscape means some low carbon heat technologies will struggle to 2025…


Despite an already impressive penetration of low carbon heating technologies (accounting for 20% of annual sales), we expect to see only slow growth in annual sales to 2025 – with low carbon gas-based technologies winning out.  High electricity prices in Germany make the running costs of electric heating systems painfully expensive for consumers – we expect this to stunt the growth in the ASHP market, as other low carbon technologies become economically more attractive.

Germany’s ‘Energiewende’ is responsible, in part, for these high prices – over 20% of the retail electricity price is funding the EEG tariffs for renewable electricity.  This share has been steadily growing over the last few years, and with the annual market for PV still growing in Germany, this share could continue to grow.  A widening gap between electricity and gas prices will naturally favour gas-based heating appliances.

 

But, has the ‘boom’ in renewable electricity in Germany killed the opportunity to decarbonise heat?

I don’t think it has – for 3 key reasons:

1.       I see a strong opportunity for low carbon gas technologies as more products – offering lower running costs than boilers – enter the market in the next 2 – 3 years.  In particular, the future is bright for gas heat pumps, engine based micro CHP and fuel cell micro CHP.

2.       ASHPs are still attractive off gas – and more attractive heat pump tariffs could be a game-changer: High electricity prices, and rising EEG costs, will make it difficult to grow electric heating.  Using our Pathways Tool, I’ve modelled the impact of removing the EEG costs from retail electricity prices.  While this does little to improve the economics of ASHPs against gas appliances, it does make ASHPs more attractive in off gas properties. If more attractive heat pump tariffs are also introduced, electric heat pumps could compete in on-gas segments.

3.       Continued growth in renewable electricity generation could support decarbonisation of the gas grid: A growing interest in ‘power to gas’ projects could see excess renewable electricity ramping up the de-carbonisation of the gas grid in Germany. Although this is still a long way off.

 For further information on the above, please contact stephen.harkin@delta-ee.com

 

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Wednesday, 05 August 2020

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