Why Germany Is Facing a Challenging Decade in Energy

As Germany drafts a climate law targeting an ambitious 65% cut in GHG emissions by 2030, we look at the challenges the country needs to overcome to reach this target.

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As reported in the media, in its new climate law, Germany is targeting a further ten percent cut in GHG emissions by 2030 relative to 1990 levels compared to the previous target.

The revised target – to limit GHG emissions to 437 Mt CO2eq instead of the previous target of 562 Mt CO2eq – amounts to a 125 Mt change in effort.

Looking at Germany’s 2019 GHG emissions, we see that they were 810 Mt CO2eq. For the 2021-2023 period, they are expected to reach 785-800 Mt CO2eq.

In essence, this means that Germany is aiming to almost halve its GHG emissions.

GHG emissions Germany final

Steep growth of solar and wind power

Getting rid of almost 400 Mt CO2 of annual emissions in a matter of seven years would be very challenging.

“This will require an extremely steep growth of solar and wind power,” says Espen Andreassen, Senior Analyst at Insight by Volue.

“In our latest long-term power price simulations for Germany, we expect 400 TWh of renewable electricity by 2030, this being almost double from 2018 level, by and large reflecting targets in Germany’s latest long term climate and energy plan submitted to the EU.”

The support from the government would be essential to speed up the development of solar and wind, which is expected to carry the bulk of the renewables growth efforts.

Germany will require an extremely steep growth of solar and wind power.

Espen Andreassen Senior Analyst at Insight by Volue

Accelerated decommissioning of coal and lignite, adding gas to the mix

Reaching this target, would also inevitably require an accelerated decommissioning of hard coal and lignite-fired power stations.

But something needs to compensate for the loss of reliable capacity.

“Our long-term price simulations, where weather scenarios are considered, demonstrate that unless Germany undertakes the construction of gas-fired power plants on a massive scale, the country will face severe security of supply problems.”

This is happening already in the prevailing coal decommissioning scenario, where Germany will need 18 GW of new gas-fired plants, while also depending on imports.

“If coal is removed by 2030, this could require 17 GW of coal capacity to be replaced by gas.”

However, new gas-fired plants are still large emitters.

“This is the reason we find the 65% target very challenging to reach. It’s our understanding that energy activities need to be reduced from 250 Mt CO2eq in 2019 to 108 Mt CO2eq by 2030,” says Espen Andreassen, Senior Analyst at Insight by Volue.

Unless Germany undertakes the construction of gas-fired power plants on a massive scale, the country will face severe security of supply problems.

Espen Andreassen Senior Analyst at Insight by Volue

Strong electric vehicle growth

The revised target also affects the transport sector where the 2019 emissions of 166 Mt are to be halved to 85 Mt CO2eq by 2030.

“Our latest power balance forecasts show strong electric vehicle growth, which would reduce Germany’s non-traded sector’s emissions, but bring in a slight emission increase into EU ETS through higher power consumption.”

With more than 45 million passenger cars, a significant share of these needs to be electric by 2030 if emissions are to be halved.

If the power consumption increase arising from the stronger deployment of EVs and other electrification measures matches the additional renewables that emerge with the new target, a result could be that Germany’s price formation by 2030 becomes even more gas priced than currently assumed.

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