Expensive and unsafe

Kay Scheller, President of the Federal Audit Office, gave this lecture at the Energy Law Conference of the Society for Legal Policy and the Association of Family Entrepreneurs on October 20, 2021 in Berlin. The issues raised in the speech are critical is assessing the rush to build more wind and renewables. Below is an English translation of the speech from the original German. The Federal Audit Office, or Bundesrechnungshof is the primary federal authority for federal audit matters in Germany. 

The President of the Federal Audit Office, Kay Scheller, warns that Germany will be overwhelmed by the energy transition. At a symposium in Berlin, he named their weak points. We document his lecture in full.

In my lecture I would like to address three questions and present our assessment: Will the federal government succeed in aligning its energy policy with the target triangle of an environmentally friendly, secure and affordable energy supply? Where does Germany stand in terms of security of supply and affordability of electricity in autumn 2021? Is a full supply with renewable energies possible and safe?

The first question. The German Bundestag passed a new climate protection law in June 2021. For the period after 2031, the following applies: Germany must achieve greenhouse gas neutrality by 2045. Negative greenhouse gas emissions are to be achieved after 2050. At the same time, the legislature has tightened the reduction target for 2030: Instead of the previous reduction target of minus 55 percent, a minus of 65 percent compared to 1990 is to be achieved.

With this change at the latest, environmental compatibility will in fact become the main objective in the energy policy triangle. The other two goals, security of supply and affordability, take a back seat. If, however, environmental compatibility is no longer a variable, it now seems impossible to resolve the conflicting goals between an environmentally friendly, secure and affordable electricity supply. The future energy supply will therefore either be secure and expensive or less expensive and insecure. In the worst case, it would be expensive and unsafe.

Do not implement the energy transition “at any price”

In a climate-neutral energy system, electricity should play a central role in all areas of life. An unsafe power supply can therefore not be a serious alternative. This leaves only affordability as an independent variable. But even then, it cannot be ruled out that the goals of “environmental compatibility” and “security of supply” will not be achieved.

The Federal Audit Office sees the danger that the energy turnaround in the form that is now foreseeable will overwhelm the financial strength of the economy and society and ultimately endanger Germany as a location and jeopardize social acceptance.

In future, the federal government will no longer be able to align its energy policy with the goals of environmental compatibility, security of supply and affordability at the same time. The conflicting goals are resolved at the expense of affordability. However, we are of the opinion that the primary goal cannot be to implement the energy transition “at any price”.

"Worst-case" scenario is missing

With that I turn to the second question: Where will Germany stand in terms of security of supply and affordability of electricity in autumn 2021? First of all, about security of supply with electricity.

The security of supply with electricity comprises a total of three dimensions, which the Federal Ministry of Economics has to measure and evaluate: security of supply on the electricity market, reliability of supply and system security. The monitoring report of the Ministry of Economic Affairs says little or nothing about the dimensions of supply reliability and system security, i.e. whether the electricity arrives at the consumers without interruption at any time.

The ministry used an external report to assess the security of supply on the electricity market. However, the experts' assumptions were in part unrealistic or outdated by current political developments. For example, the calculations of the report were carried out before the decision to phase out coal. The coal exit path was therefore not fully taken into account. What was missing, however, was that the experts did not examine a worst-case scenario in which several foreseeable risks coincide.

The federal government does not keep an eye on risks completely

We came to the conclusion that the supply of electricity is subject to risks that the federal government does not fully understand. Monitoring by the Federal Ministry of Economics is incomplete. We therefore recommended that the Ministry complete its monitoring and urgently investigate scenarios that fully and realistically capture current developments and existing risks.

In mid-August 2021, the ministry published an updated report from its experts. This now also takes into account the legally determined coal exit path. However, other assumptions criticized as unrealistic by the Federal Audit Office are retained. The study still does not contain a “worst case” scenario.

In their scenarios, the experts assume electricity consumption between 500 and 630 terawatt hours in 2030. A recalculation commissioned by the Federal Ministry of Economics - on the basis of the new Climate Protection Act - puts the electricity consumption in 2030 in an initial estimate at 645 to 665 terawatt hours. The calculations of the experts are thus again outdated by current political developments.

New report should come at the end of October

In an accompanying document to the study, the ministry points out that the next monitoring report on security of supply will be published by the Federal Network Agency by the end of October. This will then also investigate the question of whether the electricity can be safely transported to consumers within Germany at any time.

To what extent the announced report by the Federal Network Agency actually includes a full assessment of all three dimensions of security of supply remains to be seen. We are therefore sticking to our assessment that the federal government does not currently have a complete overview of all risks and that there are gaps in the monitoring of security of supply.

The demand for electricity continues to rise

Now to the second part of the question: Where does Germany stand today in terms of affordability of electricity? The current energy price system with its fees, taxes, levies and surcharges is foreseeable leading to ever higher electricity prices. The state-regulated electricity price components already account for 75 percent of the electricity price for private households. The federal government was unable to stop this development. Rather, the trend will continue. About factors such as the further expansion of renewable energies, network expansion and CO2 pricing.

And the demand for electricity continues to rise. For example, by promoting electromobility and heat pumps. Or as a result of the hydrogen strategy, which generates a considerable additional demand for electricity. These developments are likely to lead to a significant increase in electricity prices.

Replace the EEG surcharge with a CO2 price

Germany is facing major challenges with regard to the future affordability of electricity. We therefore recommend a fundamental reform of the system of state-regulated price components. As an essential part of such a reform, fees, taxes, levies and surcharges should be abolished as far as possible and replaced by comprehensive CO2 pricing.

From our point of view, it is not expedient to cap the rising electricity prices with funds from the federal budget. A difficult undertaking, also in view of the worrying financial situation of the federal finances due to the corona pandemic.

Who reliably supplies electricity on calm nights?

Let me now come to the third and last question: Is a full supply with renewable energies possible and safe? “Full supply with renewable energies is possible and safe,” is the thesis of Professor Claudia Kemfert from the German Institute for Economic Research (DIW), expressed in an interview in July this year. Ms. Kemfert went on to say that it is technically possible, economically efficient and feasible in the shortest possible time to cover Germany's entire energy needs from 100 percent renewable energies. In doing so, she cites a study by her house.

For real? With the further expansion of renewable energies, wind power and photovoltaics should become the backbone of the energy supply. However, these only provide electricity when the wind is blowing and the sun is shining. But who supplies electricity reliably in an energy system with 100 percent renewables when there are millions of electric vehicles hanging on the charging stations on windless nights and companies need electricity?

Power plant investors hesitate

The DIW study is based on estimates of potential and the expectation that total energy demand will decline by more than 50 percent. To ensure sufficient flexibility, it is assumed that battery storage systems, electrolysers and hydrogen turbines will be built. Actual obstacles to the expansion of renewables and grids are not taken into account. A modeling of the real framework conditions is replaced by the requirement that the framework conditions on which the study is based should be created as quickly as possible.

Stefan Kapferer, CEO of the transmission system operator 50Hertz, said in an interview in June 2021: "We also need long-term controllable power plants to ensure security of supply in Germany." There must be a refinancing perspective for this backup capacity. At the moment, investors were hesitant because they feared they would not make any money from these investments. In another interview from July of this year, Marie-Luise Wolff, President of the Federal Association of Energy and Water Management, commented on the same topic: “If the provision of power plant capacity is not rewarded, the necessary power plants will not exist. As simple as that."

Security of supply decreases

Even the Federal Audit Office cannot answer the question of a secure, renewable full supply. However, we see the risk that the level of security of supply will decrease if increasingly secured, controllable power is replaced by unsecured, weather-dependent power. Without sufficient backup capacities, supply gaps could threaten.

It is clear that the challenges of the energy transition are huge, the goals are very ambitious, the financial burdens are enormous, and the financial resources are limited. But it is also clear: In view of the climate protection goals to which Germany has committed, the energy transition must succeed without endangering Germany as a business location.

This text is the slightly abbreviated version of a lecture that Kay Scheller, President of the Federal Audit Office, gave at the Energy Law Conference of the Society for Legal Policy and the Association of Family Entrepreneurs on October 20, 2021 in Berlin.


OCT 22 2021
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