Last year was undoubtedly historic for the German power sector – for the first time in Germany´s modern history renewables accounted for a third of the country´s electricity consumption and secured their position as the number one power source defeating lignite (but not lignite and coal together). If nothing untoward happens and the Germans stick to their plans, bituminous coal and lignite will never be restored to their former glory, writes Jakub Kucera, economic analyst at RSJ, a Prague-based investment company. The year 2015 showed, however, that getting rid of coal completely will be unexpectedly hard.



Renewable energy sources, taken together, covered 32.5% of German electricity consumption in 2015, while lignite provided only 26%. Since 1990 the electricity output from renewables has risen tenfold to last year´s level of 194 TWh. The year-on-year increase was also the highest on record – a staggering 31.6 TWh which is an increase of 20 TWh. At this pace, the 2025 goal for the share of renewables in consumption would be reached in 2017-2018.

Certain threshold

The increase was almost completely due to higher wind production (90% of the increase, 28.7 TWh). There were two reasons for this. Firstly, last year was windy above average, particularly compared to the previous rather wind poor years. Secondly, substantial new capacities were connected to the grid (in 2014 and 2015 more than 10 GW). Since the new installations are often located offshore, where capacity factors are higher, the growth rate is bound to be maintained for some time.

Germany is now on a trajectory to miss its climate targets by a wide margin

It may prove hard to add new renewable power sources once a certain threshold has been reached. The renewables share is set to grow in the near future, though, and Germany will without any doubt achieve its 2025 goal of 40-45% some years ahead of schedule (see chart 1). Incidentally, renewables, taken together, have become the largest source of electricity in modern German history – when lignite was at its height in 1990, it supplied only 171 TWh. The same amount was generated by nuclear power plants in 2001, their peak year.

Chart 1 – The renewables share in German consumption (goals for 2025 and 2035)

source: Agora Energiewende (2016): Die Energiewende im Stromsektor: Stand der Dinge 2015. Rückblick auf die wesentlichen Entwicklungen sowie Ausblick auf 2016.

This undisputed success was, however, muted by the fact that production from lignite and bituminous coal hardly declined (a decrease of a mere half-percent or 1.4 TWh). This is a problem since the German plan to battle climate change includes renewables replacing dirty coal-fuelled sources, thus lowering greenhouse gas emissions.

With coal-fuelled power plants still resisting retirement, greenhouse gas emissions in Germany actually grew last year; when the cooler weather is taken into account they stagnated at best (see chart 2). Germany is now on a trajectory to miss its climate targets by a wide margin. In view of the financial and political capital which has gone into the energy transition, the so-called Energiewende, this is bad news for German politicians.

Chart 2 – Greenhouse gas emissions in Germany (goals for 2020 and 2030)

source: Agora Energiewende (2016): Die Energiewende im Stromsektor: Stand der Dinge 2015. Rückblick auf die wesentlichen Entwicklungen sowie Ausblick auf 2016.

Why is coal’s share not shrinking? A partial answer lies in the decommissioning of yet another nuclear power plant (the 1345-megawatt Grafenrheinfeild power plant, run by E.ON, went offline in June). Coal power plants thereby lost another low-cost competitor.

Eating away at profits

The opportunity to sell more power in the domestic market is, however, not enough to explain Germany´s situation. The key is to be found in two other records the country set in 2015. Last year, Germany produced the most electricity in its history, beating even the pre-crisis record of 2007. As domestic consumption more or less stagnated, this means the country exported the largest amount of electricity on record.

German coal power plants are hindering reduction in CO 2 emissions not only at home, but also abroad

Focusing on trade flows (actual physical flows in the grid were somewhat smaller), net export amounted to 60 TWh or 9% of production. The year-on-year increase was 31 TWh, as much as two thirds of the rise in renewables production. The surplus was exported mostly to Austria, the Netherlands, France and Switzerland. Nevertheless, cheap German electricity lowers prices in all neighbouring countries, eating away at profits of their power plants, particularly of the more environmentally friendly gas-fuelled ones. This way, German coal power plants are hindering reduction in CO 2 emissions not only at home, but also abroad.

Here, we have finally arrived at the root of the German conundrum – the relatively cheap coal-fuelled power plants in Germany have found a replacement for the domestic market. If they cannot sell their output in Germany, often because of high production from renewables, they simply turn to export. As a result, however large a share of the market renewables will achieve in Germany over the next few years, coal’s share will not shrink much. Neither will Germany’s energy-related CO 2 emissions. The current market is not able to solve this issue. Only political action will. But it will come at a price, again.

Editor’s Note

Jakub Kucera (jakub.kucera@rsj.com) is economic analyst at RSJ, a trading and investment company based in Prague.