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City Utilities Push Germany's Switch to Renewables

In 2009 the city of Munich set itself two ambitious targets for electricity from renewable sources. The first was to produce enough green electricity through its municipal utility company Stadtwerke Munchen (SWM or Munich City Utilities) to meet 100% of household demand by 2015. The second was to generate enough electricity from renewables to meet all the electricity requirements of the entire municipality of Munich by 2025.

Three years later SWM is on course to meet both targets and is looking to achieve the first a year early.

This would make the capitol of Bavaria the first city in the world with more than one million inhabitants (the population is around 1.4 million) to free itself from reliance on fossil fuels – no small feat for an economic powerhouse that is home to a host of major companies from Siemens to BMW and where energy requirements currently stand at around 7.5 TWh per year.

While Munich’s plans are exceptional even by German standards, SWM is a flag-bearer for the wider movement towards ‘recommunalised’ and decentralised energy, which places local utilities at the centre of Germany’s plans to consign electricity generated from nuclear and fossil fuel sources to history.

Nuclear power accounted for 22% of electricity in Germany in 2010 but following the March 2011 Fukushima disaster in Japan, Germany’s troubled relationship with the technology finally reached an impasse. Under renewed opposition, Chancellor Angela Merkel decided to close her country’s eight oldest reactors immediately.

The remaining nine nuclear plants will be phased out by 2022, meaning the need to install new renewable capacity is urgent.

In 2011 one fifth of Germany’s electricity supply came from renewables, largely due to solar panels, wind turbines on agricultural land and biogas plants fed by local farms.

The government’s policy of Energiewende – energy transformation – aims to cut overall energy consumption by 50% and electricity consumption by 25% by 2050.

By the same year Germany wants to meet 80% of its electricity demand and 60% of its total energy demand from renewables. An earlier target is for 35% of electricity to come from renewables by 2020.

According to Germany’s Ministry for the Environment the country is on track to achieve this, with production of solar and wind power 40% greater in the first three months of this year than in the same period of 2011.

There was further welcome news with the announcement that solar power produced around 10% of Germany’s electricity in May due to a boom in installations and good weather. At one point during the month, Germany’s solar plants were producing a world record 22 GW of electricity and meeting nearly 50% of national needs, according to the Institute of the Renewable Energy Industry think-tank.

Municipal Utilities’ Renewable Plans

The German Association of Local Utilities (VKU) represents more than 1400 stadtwerke, including around 800 involved in energy supply and generation, which are increasingly turning to renewables.

They include more than 60 new municipal utilities involved in energy which have been established since 2007, including those in major cities such as Hamburg and Stuttgart. Furthermore, the sale of at least 19 existing municipal utilities has been averted following public opposition.

Municipal and regional utilities already control more than 50% of the electricity and natural gas consumer markets by sales, according to VKU. The proportion of Germany’s total electricity generated by local utilities is only around 10% – a figure the VKU wants to double to 20% by 2020.

Already, the municipal utilities represented by VKU have more than 3 GW of capacity under construction or in the process of approval. More than a quarter of the projects being built (27%) and more than half of those awaiting approval (54%) involve renewables compared to just 8% of those already run by utilities.

Many Germans feel a close attachment to their local stadtwerke, which provide jobs for young people and can finance loss-making services such as swimming pools and public transport.

The popularity of the model recently led to a citizens’ co-operative in Berlin expressing an official interest in buying the city’s electricity network, currently under concession to Vattenfall Europe until 2014.

But the success of stadtwerke cannot be put down solely to public preference. A Datamonitor study also found that they were well run and post above-average profit margins and energy volume returns.

SWM is applying hard-nosed business principles to a major renewable energies expansion programme, encompassing onshore and offshore wind, water, solar, biomass and geothermal projects, designed to lift it towards its targets.

According to Dr Florian Bieberbach, CFO and designated CEO of SWM, the most important of the utility’s criteria is simply that the projects must be profitable to generate revenue which can be used to fund further investments in renewables.

But SWM has also actively sought a diverse portfolio of interests and works only with proven companies.

Projects already implemented or currently under development will take SWM’s production capacity for green electricity up to approximately 2.4 TWh – enough to supply all 800,000 households in Munich plus the electric underground and tram systems.

But the greater challenge will be to fully meet the area’s industrial power needs, including large-scale engineering, manufacturing and computing bases.

SWM anticipates its total investments by 2025 will hit €9 billion.

The expansion campaign already includes 17 plants in Munich being acquired, developed or modernised (12 hydropower plants, a share in a hydropower plant, two biomass plants, a geothermal cogeneration plant and a wind plant).

At an early stage, an analysis by the Öko-Institut e.V. revealed that the required volume of 1.5 TWh per year could not be achieved solely through local renewable resources.

As a result SWM has also invested in projects elsewhere in Germany (two solar photovoltaic plants, two onshore wind parks and two offshore wind parks) and in other parts of Europe. The latter include the Andasol III parabolic trough solar thermal plant in Andalusia, southern Spain.

In terms of wind, Global Tech I, one of the largest offshore parks in the North Sea, is expected to produce 1.4 TWh of electricity per year from 2013. SWM has a 25% stake.

And the Gwynt y Môr wind farm being built off the coast of North Wales by SWM (which has a 30% stake) in partnership with RWE and Siemens is scheduled for completion in 2014, after which it will output 576 MW, generating 1.95 TWh of electricity per year.

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These projects epitomise the international vision Dr Bieberbach views as essential to creating a future in which renewables could meet all Europe’s energy needs with cross-border flows of power to relieve surpluses and facilitate imports as required.

‘Only in very few places, parts of Iceland or rural parts of Bavaria, would it be possible to reach 100% purely on local resources. In big cities that does not work,’ he said.

Wind energy will be a major focus of SWM’s campaign following a recent agreement with wpd europe, an affiliate of developer wpd, the market leader in Germany’s wind sector. The partnership, which gave SWM a 33% stake in the venture, has more than 4200 MW of capacity in the pipeline with plans to construct onshore wind farms in 12 European countries and Canada. On its own it will take SWM’s generation potential to 3.6 TWh by 2020.

While the coming years promise a remarkably rapid swing to renewables for the utility, it should be noted that SWM already produces around 70% of the city’s electricity in energy-efficient combined heat and power (CHP) plants.

This compares to an average share of electricity from CHP of around 12% in Germany. Nationally, Germany’s CHP Act aims to increase the share of CHP in the energy mix from 15% to 25% by 2020.

Munich is already looking beyond its own upcoming targets and the next step will be to attempt to run the district heating system solely on renewable energy by 2040 – 50% via geothermal energy and 50% via biogas.

SWM has identified around 15 sites where it can exploit geothermal energy by drilling 3 km into the earth’s crust, with the first due to come online in 2013.

Dr Bieberbach said 100% of Munich’s district heating demands from spring until autumn could be met through geothermal energy by 2030, with continued reliance on conventional power plants in colder months until they can be replaced by biogas.

The city gave an early demonstration of its geothermal potential in 2004 with the construction of a 9 MW facility that supplies more than 50% of heat demand at the Riem exhibition centre.

Consortia and Joint Funding

While SWM carries global clout, many smaller stadtwerke have historically had little or no chance of competing against Germany’s ‘big four’ energy companies – E.On, RWE, Vattenfall Europe and EnBW.

But in recent years many have formed consortia to fund projects jointly, reduce operating costs, share administrative services and achieve better purchasing prices in energy trading.

‘It is a very useful instrument for gaining access to the market,’ said Dr Jurgen Weigt of VKU. ‘Offshore wind energy, for example, has been pursued by consortia because the investment required is too high for a single utility.’

One such project is the Trianel wind farm to be constructed in the North Sea about 45 km to the north of the island of Borkum and due to begin commercial operations early in 2013.

Trianel Windkraftwerk Borkum was formed by a group of municipal utilities and the project will feature 80 Areva Wind M5000 5 MW turbines.

Stadtwerke Konsortium Rhein-Ruhr, a group of seven municipal utilities in North Rhine-Westphalia, is another of the consortia to have flexed its muscles with impressive effect.In December 2010 it saw off four other bidders to take a 51% stake in Steag, which operates 11 power stations and more than 200 distributed facilities with an installed capacity of 7700 MW in Germany, in a €650 million deal.

The consortium aims to increase the share of renewables in Steag’s energy base to 25% and diversify its generating facilities at subsidiaries in India, Brazil, Turkey, Switzerland and the US. This is in addition to a recent €200 million investment in a Romanian wind farm.

In 2009 a municipal consortium of 45 utilities paid E.On €2.9 billion for Thuga, a holding company with stakes in nearly 100 local energy utilities, partly in order to promote grid sharing as well as joint investments.

Unfortunately, while such consortia have succeeded in helping the generation of renewables to move ahead, the issue of transmission has not been prioritised in the same way.

Some blame Germany’s federal system for an absence of central leadership on the issue and it is certainly now causing headaches in Berlin.

According to Germany’s four grid operators, the country must spend €20 billion over 10 years upgrading its transmission network to cope with the nuclear phase-out and increased reliance on intermittent renewables. They have called for 3900 km of new power lines – 2100 km of long-distance direct current lines and 1800 km of standard alternating current lines. The figures are in addition to 1400 km of alternating current lines already planned or under construction.

Operators have asked for quick approval. But strong opposition from local groups and environmentalists to new power lines needed for transmission from offshore and onshore wind parks planned in the north to highly industrialised areas in the south indicates that progress could be slower than they hope for.

Then there is the even more perplexing challenge of electricity storage. Germany is investing around €200 million per year into research and development targeted at finding ways to store electricity generated by renewables.

One concept that could contribute to solving issues with intermittency is the ‘virtual power plant’.

In April 2012 SWM and Siemens jointly launched such a plant in which small-scale, distributed energy sources are pooled and operated as if they were all part of a single installation.

Cogeneration plants with 8 MW of installed capacity were integrated along with 12 MW of renewable energy plants (five hydropower plants and a wind farm) using a Distributed Energy Management System (DEMS) created by Siemens.

The DEMS software pools data such as weather forecasts, electricity price fluctuations and demand patterns to produce a deployment schedule for all the integrated plants, ensuring a smooth demand-matched supply of electricity and minimising generating and operating costs.

Siemens has also set up a second 20 MW virtual power plant for RWE with the capacity scheduled to expand to 200 MW by 2015.

Another innovative scheme called E-DeMa involves rolling out smart grid technology through the municipal utility company in the northwestern city of Krefeld.

The idea is to give consumers real-time information on their use of electricity, gas and water and fluctuations in price.

So-called ‘smart gateways’ were installed in 200 households in the Krefeld region in March for a pilot project that will continue until the end of 2012. Technology is being used to wirelessly collect usage data from residential meters, and then display real-time data on tablet computers or smart phones.

Stadtwerke Krefeld (SWK) partnered with companies including Siemens and RWE for the project, which will reveal the extent to which consumers are willing to change their habits to reflect real-time pricing. Experts believe one of the consequences of the Energiewende may be a need to incentivise some customers to alter their electricity consumption patterns so that demand can more precisely match supply.

Indeed, apart from transmission and storage, the price for the consumer is likely to pose the biggest challenge to Energiewende’s success.

According to the European Commission, the gross price of electricity in Germany for households is 24.4 cents per kWh. In no other European country does the figure top 20 cents.

Some 61% of Germans are willing to pay higher power bills if the extra cost helps to increase the share of renewable energy in the market, according to a recent VKU survey.

But with experts predicting prices could rise significantly next year, Germany is debating how high they can go before this level of tolerance is eroded.

‘There is natural sympathy for renewable energy in Germany and we have to be careful to make sure that this acceptance remains,’ said Weigt.

While substantial challenges remain for Germany to meet its ambitious renewable energy goals, it is clear that the stadtwerke provide a solid platform for pushing towards those targets.

‘The large utility companies have for a very long time not supported the change in energy policy and the move towards renewables,’ said Dr Bieberbach.

‘The municipalities in Germany have shown that they can do more than what is expected of small, decentralised bodies. The pressure on the municipalities to invest in renewables is also much greater than on a stockmarket-quoted international corporation.

‘When all these municipalities were formed around 100 years ago nobody thought about that. It’s just good luck that we have such a structure.’

Germany’s stroke of historic good fortune seems certain to play a crucial role in the country’s path towards justifying its burgeoning status as the world’s first renewable energy economy.

Robin Yapp is a freelance journalist focusing on the energy sector.

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