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The "gears" of the energy transition have now been "set into motion", Federal Minister for Economic Affairs and Energy Sigmar Gabriel said about the political consensus achieved on critical questions concerning the energy transition. The government coalition joined together for the energy summit at the beginning of June to adopt a package of pioneering and coordinated measures that puts the energy transition on the road for success. It provides a clear structure and makes it possible for all stakeholders to plan ahead.

A number of key issues on the implementation of the energy transition had to be settled, as there are important tasks ahead: expanding the grid as soon as possible and in a citizen-oriented way, setting up a viable electricity market, providing clear prospects for climate-friendly combined heat and power generation (CHP) and implementing climate mitigation targets.

Now, the coalition has paved the way for a systematic implementation of the 10-Point Energy Agenda. Federal Minister for Economic Affairs and Energy Sigmar Gabriel said: "We can now make rapid progress".

Germany is meeting its climate mitigation targets

The agreement sends a strong message: Germany is committed to its pledge to reduce CO₂ emissions by 40% by 2020 relative to 1990 levels. To meet this goal, an additional 22 million tonnes of CO₂ have to be slashed from the electricity sector. Over the past months, there have been long debates about how this reduction can be achieved. Several options for action and their potential impact on companies and employment have been weighed carefully. The agreement marks a breakthrough as it addresses CO₂ emissions not as an isolated issue, but in the context of closely-related issues such as the electricity market, promotion of CHP and grid expansion. The CO₂ reduction will be achieved through a combination of several different measures, ensuring that environmentally-friendly and socially compatible solutions are used to meet national climate mitigation targets.

As laid out in the agreement, lignite power station units with a capacity of 2.7 gigawatts (that’s 13% of installed lignite capacity) will be gradually transformed into a capacity and climate reserve and then phased out after four years. On top of that, the lignite industry pledges to cut an additional 1.5 million tons of CO₂ per year as of 2018 if additional cuts become necessary.

The moderate increase in funding for combined heat and power generation also has to be seen within the overall context. The revision of the Combined Heat and Power Act will leverage additional efficiency potential and reduce CO₂ emissions in Germany in the long term. It also opens up new opportunities for CHP. Costs will be limited to 1.5 billion euros per year, ensuring that they will not get out of hand.

Electricity market 2.0: energy security at the lowest possible costs

The capacity and climate reserve, which will include the lignite power plants mentioned above, is directly connected to the fundamental decision in favour of an electricity market 2.0. "Energy security at the lowest possible costs" – this is the slogan that best describes the vision for the electricity market of the future. The new White Paper defines the individual aspects of the future electricity market in detail: strengthened market mechanisms ensure an efficient electricity supply; flexible generators and consumers of electricity can adapt to volatile amounts of renewable electricity being fed into the grid. Energy security is a valuable asset for an industrialised country such as Germany. This is why the capacity and climate reserve provides additional support to the electricity market 2.0. – a belt and braces approach.

The funding for combined heat and power generation, which was topped up to 1.5 billion euros, also has to be seen within the overall context. The funding for building new combined heat and power generation plants is increased moderately, making CHP viable for the future without costs spiralling out of control. CHP funding also promotes the replacement of coal-fired CHP installations with gas-fired CHP installations, but is mainly geared towards temporarily supporting gas-fired plants run by public utilities whose economic viability is at risk. Many CHP installations run by public utilities are hardly profitable due to the low price of electricity on the exchange. Apart from maintaining funding rates at their current level, the eligible volume of investment in heating networks and storage will be increased. This will give CHP power installations more flexibility to react to price signals. The future expansion target for CHP will be set at a share of 25% of thermal electricity generation.

Grid expansion is getting underway

Great strides have also been made on the especially controversial issue of grid expansion. It is widely known that most of Germany’s wind power is generated in the North of the country, most of its solar power in the South. Our electricity grid has to be ready to transport power over long distances from its point of generation to the consumers. Modern direct current (DC) technology is especially suitable to fulfilling this task with very low losses.

Citizens living in regions where the necessary transmission lines are to be built are often concerned. The new agreement takes these concerns into account: when setting up new DC routes, underground cables will be given priority over overhead powerlines. However, this does not change the need for grid expansion. The central SuedLink powerlines and the South-eastern DC route will be implemented. Their exact routing will be further specified during the future planning process.

The agreements concluded by the heads of the coalition parties are to be passed by the German Cabinet after the summer recess in autumn. "We have put together a historic package for the energy transition and our country’s economic future," Sigmar Gabriel said about the fundamental decisions, which will help to move the energy reforms a great step forward.