Germany has taken some fundamental energy decisions in recent months, ones that are interesting for other countries to study and learn from. The most "famous" decision recently has been to phase out nuclear power in the next ten years. This move builds on years of debate and a societal decision after Japan's Fukushima Daiichi nuclear accident to move away from nuclear energy.

There has been much less focus, however, on the phasing in of other sources of energy. Nor has there been much focus on how Germany can remain the economic powerhouse of Europe, and the world's second largest exporting country, while removing a significant source of energy from its grid.

This phase-in story is vital to understand, especially taking into account that Germany plans to meet ambitious greenhouse gas reduction targets while it phases out nuclear power. So, how will this work?

A bit of history

The coalition that governed Germany from 1998 to 2005, led by the Social Democrats and the Greens, put in place a series of policies to scale up renewables and phase out nuclear energy. Just last year the new and current government coalition (a more conservative mix) decided on a new energy concept that consisted of two main elements.

1. Agreement to phase out nuclear energy, but on a slower timeframe. To do so they decided to extend the lifetimes of the 17 German nuclear power plants by eight to twelve years.

2. Agreement to an ambitious set of short and long-term energy and climate policy goals including:

* a 40% reduction of greenhouse gas emissions by 2020 coupled with a longer term 80 to 95% target by 2050 (compared to 1990 levels),

* a massive expansion of renewable energy in all sectors, e.g. an increase of renewable power in power generation from 17% in 2010 to 35% in 2020 and 80% in 2050

* a target to reduce energy consumption from buildings by 20% by 2020 and 80% by 2050.

* A target to reduce energy consumption from transportation by 10% in 2020 and 25% in 2050.

After the Fukushima nuclear accident in Japan, however, there was a decision to go back to the original phase-out schedule of 2000, while keeping in place the climate and energy targets the government had set the year before. This approach was backed by a large majority, with eighty-five percent of parliamentarians voting for both a more rapid phase-out and a number of measures (see below) on the phase-in of clean energy.

Three strategic approaches

Germany's energy transition is based on three strategic approaches.

First, energy efficiency

Although efforts will focus on improving energy efficiency in all sectors, there is a strong focus on the building sector. This is important due to its long-living capital stocks and long renovation cycles in Germany. In other words, windows of opportunity to change buildings that stay around for decades don't come along very regularly, so you have to grasp them when they do. If you miss that window energy efficiency measures at buildings will be much more costly or even infeasible.

The approach is two-pronged. First of all, there is the European Union directive on Energy Performance of Buildings, which states that all new buildings must consume nearly zero energy from 2020 onwards. Germany of course must follow this regulation as well. In addition, Germany has put in place new incentive programs to support the renovation of buildings. In addition to using the auction revenue from the European Emissions Trading Scheme (Europe's "cap-and-trade" system) for renovation programs, Germany has also put in place special tax reductions for the renovation of buildings. Together 3.4 billion euros will go towards a lower energy consuming, modernized building sector in Germany.

Second, carbon free energy in all sectors

In order to achieve the long-term decarbonisation target, all sectors must transform their fuel basis to carbon-free energies. In the power sector, the focus is on renewable energies, linked with the ambitious targets noted above. For some sectors, electricity and district heating will play a significant role if produced by renewable or low-carbon energy sources.

In the interim period new highly efficient and flexible gas power plants will likely be built as back-up power. New coal fired power plants are highly unlikely. With the significant increase of renewable energies and fact that there will be full auctioning of emission allowances under the European Union Emissions trading Scheme, the economics just don't add up.

Given the significant role of electricity for the decarbonization for many sectors, the fast and early transition of the power sector to renewable energies is a key pillar of the transition of the energy system. As noted above, the new renewables targets are being implemented with regular revisions.

In the transport sector, Germany must implement the EU auto efficiency standards. In addition, Germany has put in place a strong innovation program for electric mobility with the goal to have one million electric cars on the market by 2020 and six million by 2030. There are currently 42 million traditional cars on the road.



Third, strategic focus on the long-term goals

As noted above, policy is focused on reducing emissions in the sectors with long-living capital stocks, e.g. buildings and power plants. These sectors structure energy demand and greenhouse gas emissions for long periods of time.

However, one must ensure that the infrastructure for such a transition is in place. Therefore, Germany has started a new legal process to develop the "target grid 2050" which includes all infrastructure roll out and adjustments needed for a renewable-energy dominated electricity system.

This planning process creates the basis for regulators to license related investments and thus provides certainty around the future of the grid. Special efforts will be made to adjust and roll-out the necessary infrastructure, including the transmission networks which will transport wind power from the northern parts of the country to the South, smart distribution networks which can manage large shares of electric cars and power production from decentralized sources as well as sufficient storage options to deal with large shares of variable power sources.

A lesson for other countries?

This package of proposals forms the basis for Germany's confidence that it can phase out one source of energy and phase in renewable energy and energy efficiency. The combination of a mix of policies (emissions trading, standards, regulations, incentives) with planning and investments in the longer-term infrastructure is the pathway Germany has chosen.

While this mix will not necessarily be the same in every country, other countries can learn from the different pieces of the German package to transition to an economically strong, low carbon economy.