Report

Megatrends in the global energy transition

For some time Germany has not been alone in pursuing the goals of the energy transition. Rather, our country is now part of a global movement which is trying to go beyond the fossil-nuclear age and establish a low-risk renewable energy system. Numerous other EU states and countries such as the USA and China have followed the „German energy transition“ example.

This report provides wide-ranging evidence that the global conversion of the energy system has started and is currently accelerating rapidly. It shows that renewable energies – and solar energy in particular – have undergone an unparalleled development: from a niche technology rejected as being too expensive to a global competitor for fossil and nuclear power plants.

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Studie – Megatrends der Energiewende

The beginning of the end of the fossil fuel era

Climate change is a reality. In order to keep to the internationally agreed two degree limit for global warming, 80 per cent of the known fossil reserves of coal, oil and natural gas have to stay in the ground. There are the first signs of a departure from the fossil fuel era which has characterised global power supply since industrialisation.

Coal-based power generation is still one of the main drivers of CO2 emissions, but only one of every three planned coal-fired power stations is actually being built.

There are two developments which will hugely speed up the departure from fossil energies.

One is the discussion on an effective world climate agreement sparked by new climate protection pledges in the USA and China. The second is the success of renewable energies which are developing into an attractive alternative, not least economically. Further exploitation of fossil fuel reserves is already risky in economic terms. For example, based on the economic costs, extraction of three quarters of the Canadian oil and almost 90 per cent of European coal should not go ahead.

The reserves of fossil raw materials determine the value of global coal, oil and gas companies. If 80 per cent of the raw materials do in fact remain in the ground, then these companies will suffer a massive drop in value.

»In 2014, for the first time in 40 years, the global production of greenhouse gases from the energy sector did not rise, although the global economy grew by 3 per cent. «

In many industrialised nations, the „divestment“ movement is campaigning for the removal of capital from 200 large gas and oil companies – in part because it is too risky to invest in these kind of enterprises. The response is overwhelming. In Oslo, the largest government fund in the world recently announced that it was stopping investment in coal companies. Even the heirs of the Rockefeller oil dynasty are selling their shares in oil and gas companies and investing in climate-friendly ones instead.

Power plant construction developments are also sending out a clear message: since 2010, two out of three planned coal power plants have been put on the back burner or completely abandoned. From 2014, combustion of coal in China fell for the first time. In India since 2012, six times more coal power plant projects have been mothballed than have been completed. Since the beginning of the century, the USA and EU member states have switched off far more coal-fired power plants than the number of new ones connected to the grid. This has tangible consequences for the climate.

Increasing numbers of financial analysts interpret the spectacular fall in the price of oil in the second half of 2014 as the beginning of the end of the oil era. There appears to be no solution to the oil industry’s dilemma: if the oil price remains low, the rising cost of extraction from difficult deposits will become unaffordable. If prices rise, this accelerates the replacement of oil by increasingly competitive green electricity, particularly in the mobility sector.

»Increasing numbers of financial analysts interpret the spectacular fall in the price of oil in the second half of 2014 as the beginning of the end of the oil era.«

The energy future has already begun

The energy transition is not just happening in Germany. It is now a global reality. Photovoltaics and wind energy in particular are developing into key energies of the 21st century. Their expansion is progressing rapidly. In 2013 more renewable energy power plants were set up worldwide than coal, gas and nuclear power plants put together. This trend is set to continue.

Between 2004 and 2014 the global installed photovoltaic capacity increased almost fiftyfold from 3.7 to over 180 gigawatts. The increasing growth rate is impressive: half of the expansion in solar power plants took place in just two years in 2012 and 2013. In the same period the global installed wind energy capacity increased almost eightfold from 47 to around 370 gigawatts. In the first half of 2015 it exceeded that of all nuclear power plants for the first time: in 2014 China alone added over 23 gigawatts of wind energy capacity. This corresponds to the capacity of 20 nuclear power plants. Germany added almost 5 gigawatts, this also being an all-time national record, while expansion in the USA was over 4.8 gigawatts. Wind energy also had a boom in newly industrialised countries such as Brazil, India and South Africa.

»The power mix has changed markedly since 2000 – and not only in Germany.«

Despite some countermovements, the EU is also on the right path. Since the turn of the millennium almost 117 gigawatts of new wind power and close to 88 gigawatts of photovoltaic have been installed.

The financial flows also give a clear message. Around the world more money is being invested in renewables than in traditional technologies. In the EU between 2000 and 2013, around 80 per cent of investment went into new eco-power plants, only 19 per cent into fossil power plants and a mere 1 per cent into nuclear power.

The Renewable Energy Act (EEG) conceived in Germany is a global success. 77 countries have similar regulations.

The EEG has made wind and solar power competitive all over the world. Developing countries also benefit, because many of them have a supply of the raw material – sunshine – not only for free but in excess. This means that low-cost solar technologies can open up a way out of energy poverty. Thanks to falling costs, the energy transition is being economically driven to an ever increasing degree. In view of this global megatrend, Germany and the EU must actually be careful not to forfeit their role as pioneers and be left trailing.

The energy future is renewable

The costs of renewable energy are falling rapidly. This is the main reason for their global success. The development of solar power is particularly striking. When this development began, one kilowatt hour of solar power still cost about a euro. In Germany between 2005 and 2014 alone, the cost of electricity from large solar plants dropped by around 80 per cent, from 43 cents per kilowatt hour to 8.7 cents per kilowatt hour.

This development is continuing. By 2025, one kilowatt hour of solar power from large plants in Europe will cost only 4 to 6 cents. Dubai with its very sunny climate is already planning solar power plants which will supply power at only 5 cents. By the middle of the century the price will fall by another 2 to 4 cents.

Major international banks and consulting firms estimate that photovoltaic is on the way to being the most cost-effective power technology in the world. Wind power development is showing a similar trend. In Germany and other countries of the world, land-based wind power generation is currently the cheapest source of green electricity. The reason for this is primarily the huge technological progress since the turn of the millennium. The increase in size and effectiveness of the rotors with higher towers has enabled a wind power tariff in 2015 of as little as 5 to 9 cents per kilowatt hour.

Wind and solar power are already the most cost-effective power technologies with a low CO2 output.

In contrast to the decreasing costs of solar and wind power, expenditure for new nuclear power plants is rising constantly, partly due to increasing safety requirements. And electricity generation based on fossil fuels is coming under ever greater pressure due to its effects on the climate and its consequences for health and society.

Germany’s electricity customers have invested a lot of money in the development of renewable energies via the green energy surcharges. But this investment is worthwhile. Because in future renewables will make energy supplies cheaper rather than more expensive.

Although the required conversion of the power grids and the whole power system means high initial costs, these are not higher than the modernisation of the electricity system which is needed, even without the energy transition.

Due to their cost advantages compared to oil and gas, wind and solar energies will in future probably also supply large parts of the mobility and heat sectors with environmentally friendly power.

»By 2025, one kilowatt hour of solar power from large plants in Europe will cost only 4 to 6 cents.«

The energy future is decentralised

Up until the turn of the millennium, Germany’s power supply came from a few hundred large nuclear and fossil fuel power plants. Things were similar in other industrialised countries. For a long time the newly industrialised countries such as China, India and Brazil also single-mindedly followed this course of development. These times are past.

The energy transition: today in Germany alone, 1.5 million solar plants and wind turbines are generating power on site. And this is just the beginning. Houses and companies are turning into small power plants. They supply part of their electricity needs themselves and feed excess power into the grid.

In future the energy system will be based on transforming sun and wind into power. It will produce almost no environmentally harmful greenhouse gases and in other ways will obey a fundamentally different logic. The logic of decentralisation.  

The fossil fuels coal, oil and gas are forms of energy which have been concentrated over millions of years. In comparison, solar and wind energy occur on the earth in an extremely diluted form. The direct consequence of this is that, to be able to make use of the sun and wind, we have to collect this „diluted energy“ in millions of decentralised plants.

Besides millions of small local power plants, this new decentralised energy system includes plants such as offshore wind farms and solar parks which cover large areas. The regional composition of the green power plant fleets will be key in determining profitability.

In Germany, with a 30 per cent share of green electricity, there are over 1.4 million solar plants and over 18,000 wind turbines in operation. In the USA the number of small and large solar plants installed by energy providers quadrupled to 675,000 between 2010 and 2014.

The clearly defined boundary between producers and consumers which prevailed for over a hundred years will become blurred. The „prosumers“ i.e. people who alternate between their traditional role as energy consumers and a new one as an energy producer, will in future form one of several pillars of the new energy system or even be its main feature.

The decentralised energy system is also developing into a promise for the future for the countries of the south. 1.5 billion people live without access to electricity. But all the signs now point to a new era: the switch in the energy basis will make the world’s solar belt a privileged zone. Solar radiation as a resource is available in overabundance in the poor countries. Local solar systems have started to spread. They supply electricity for light, mobile phones, radios, fridges, businesses and hospitals.

At the start of the energy transition it was primarily industrialised countries which invested in renewable energies. Since solar and wind energy have been getting cheaper by the year, the countries in the south are following suit. In 2014 the industrialised countries invested 139 billion US dollars, developing and newly industrialised countries 131 billion US dollars. The gap is closing. It is a good start.

»The clearly defined boundary between producers and consumers which prevailed for over a hundred years will become blurred.«

The energy future is digital

The greater the success of renewable energies, the more urgent is the question: what happens when the sun is not shining and the wind is not blowing?

This is how the grid looks at present. In Germany almost 30 per cent of the electricity is generated on site by wind turbines and solar panels. This percentage is increasing every year – up to 100 per cent in future. This means that our power supply will be more dependent on natural conditions such as the weather. In very sunny and windy weather a lot of power will be generated, but only a little in calm or cloudy weather. How can we future-proof our power supply?

The solution is digitisation: in future electricity will be „smart“. An information network will be created alongside the power grid. This will monitor exactly where power is being generated and where it is being consumed, in real-time. Supply and demand will therefore be balanced at all times.

Local green electricity plants, houses and businesses will be linked to IT platforms via the Internet or mobile telephone. All the important information on energy supply and demand will be collected on the IT platforms. These platforms make the electricity „smart“. They control the power flows in line with demand. This results in a „virtual power plant“.

IT platforms such as the Schwarmdirigent coordinate consumption with the volatile supply and ensure that the demand is adjusted to the supply and that electricity is demanded and consumed where it is produced in large amounts. In this new world, supply will determine demand and not the other way round as before.

Battery banks on site, electric cars and other storage options will ensure that the renewable energy supply is reliable. These kind of facilities can be used to store excess green electricity when there is plenty wind or sunshine. The batteries then supply stored solar power, for example at night when the sun has set.

In the new energy world, renewable energy will be generated in local power plants and consumed locally when required, fed into the grid or stored. The power grid provides the necessary exchange of power, for example between neighbours or regions. IT platforms ensure that the power is generated and consumed or stored and distributed at all times in line with demand. This is the digital energy world.

The reassuring answer is that a secure supply from 100 per cent green electricity is possible. All the necessary technologies are available. A decentralised energy system built on wind and sun can be just as reliable as one based on coal, oil, natural gas and uranium. The key lies in digitising the energy system. The IT and energy sectors are growing together with the aim of reliably matching the energy supply and demand at all times. The German Federal Ministry for Economic Affairs and Energy states:

New energy businesses handle both IT and energy. They coordinate solar modules and wind turbines with heat pumps, thermal storage units and batteries for their private and business clients who, for their part, alternate between their roles as energy consumers and energy suppliers.

Even the corporate groups which dominated the fossil-nuclear energy era and defended it for a long time now realise where things are heading. The large French energy concern Engie (which until recently traded under the name of GDF Suez) now talks of the „miniaturisation of the energy industry“ and states: „The new era is decentralised, carbon-free and digitised.“

Many experts now doubt, however, whether there will continue to be a place for traditional energy suppliers in a system of this kind. The problem of storing electricity was long considered the Achilles’ heel of the energy transition. But now solutions have come from two directions. First, improved market control and the modification and expansion of the power grid have brought relief. Second, the costs of battery storage are falling as rapidly as did those of solar energy previously.

Batteries and electric cars could shake up both the energy market and the automotive one faster than anticipated. The combination of solar panels on the roof, the battery in the cellar and the electric car outside the door could pay off for many consumers in only a few years – even without public subsidies. This would also solve the problem of the fluctuation in solar energy generation to a large extent.

If battery prices fall quickly, the energy transition will develop even faster towards decentralisation and digitisation. The announcement by the US company Elon Musk on halving battery costs with their new Tesla battery points in this direction.

»The electricity market will be the first fully digitised sector of our economy.«