Transitioning to a Sustainable Energy System: Weighing the Costs
Government appealed to by specialists: Increase molecular focus over electrical flow?
Engaging in conversations about the energy transition often overlooks a crucial aspect: the economic sustainability of a climate-neutral energy system. While costs may not always seem low, they're far from insignificant. Although the generation costs for green power, particularly solar, have decreased, the costs associated with expanding power grids and storage are on the rise. As per the Network Development Plan (NEP 2037/2045), the grid expansion alone could amount to over 500 billion euros by 2045. Additionally, the maintenance and new construction of essential reserve power plants contribute significantly to the overall costs.
The reason for these measures is straightforward: wind and sun do not always produce power when and where it's needed. In total, system costs for grids, storage, and reserve power plants could potentially reach one trillion euros in the future. These costs would also arise without an energy transition, for example, for the expansion of power grids, but system costs could be significantly lower if the expansion of renewable energy in Germany were not pushed to excess.
The High Cost of Ambition: Energy Transition Turns into a Trap
An overzealous ambition for green power generation poses a serious threat to the cost-effectiveness of the energy transition. The high target of nearly 100% green power generation by 2035 should be reconsidered, as the last percentage points needed to achieve this goal become increasingly expensive and complex.
While current electricity consumption is stagnating, it could increase in the long term due to electric cars, heat pumps, and industrial electrification. However, the complete electrification of society as assumed in the Network Development Plan may not be inevitable. Instead, a possible hydrogen economy should be explored, in which green energy in the form of hydrogen, derivatives, and synthetic fuels would mainly be imported from abroad, as their production there could be significantly cheaper.
The Hydrogen Dilemma
Wanting to produce large amounts of green hydrogen at home, however, has its downsides. Firstly, the operation of electrolyzers is less economical if they depend on unreliable green power produced by wind and sun. This could mean that in the future, not only the expansion of renewables and the operation of reserve power plants, but also that of electrolyzers, would need to be subsidized.
Secondly, green hydrogen could be produced more cheaply in sunny countries like Morocco, especially if solar parks are combined with wind farms, allowing for a high utilization rate of around 6000 of the 8760 hours in a year. However, additional costs for transport must be considered, while geopolitical risks could be mitigated through partnerships with a variety of supplier countries.
Compromise for a Successful Energy Transition
It is hoped that the new government will prioritize expanding energy partnerships with potential supplier countries for green molecules and import and transport infrastructure, rather than pushing for renewable energy expansion to a near 100% green power share in the power mix. This would also require less network and storage expansion than currently planned in the network development plan. According to several recent studies, this could result in cost savings in the hundreds of billions of euros.
For instance, a recent study by Aurora Energy Research concludes that the planned 50 gigawatt (GW) electrolyzer capacity by 2045 would lead to very high system costs. Limiting it to 10 GW could reduce both the investment costs for electrolyzers and the demand for green power, and would therefore require significantly less photovoltaic expansion than assumed in the network development plan. Limiting electrolyzer capacities to 10 GW could significantly reduce the need for renewable energy expansion and, according to the Aurora study, reduce system costs in the period 2025-2045 by around 111 billion euros. Given the lack of storage, slow network expansion, and currently stagnant power demand, it would be a matter of economic reason to approach renewable energy expansion more moderately at this point.
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Key Takeaways
- The high targets for renewable energy expansion may lead to significant system costs.
- Green hydrogen could be produced more cheaply abroad, offering potential cost savings.
- Prioritizing energy partnerships for green molecule imports may provide better value than domain renewable energy expansion in terms of cost-effectiveness.
Enrichment Data:
In trying to compare cost savings between prioritizing energy partnerships for green molecule imports and expanding renewable energy domestically, precise figures are not readily available in existing sources. However, various factors and trade-offs can be identified:
Key Considerations in Cost Analysis
Green Molecule Imports (Hydrogen, Synthetic Fuels, etc.)- Production Costs: Green hydrogen and synthetic fuels produced in regions with abundant renewable resources (e.g., solar, wind) can be significantly cheaper due to lower land, labor, and resource costs compared to Germany.- Import Infrastructure: Costs include development of international partnerships, shipping, storage, and domestic distribution infrastructure for molecules like hydrogen. These may entail high upfront capital expenditures and ongoing operational costs.- Security and Stability: Reliance on imports could impact energy security, but partnerships may offer competitive pricing if supply chains are robust.
Domestic Renewable Energy Expansion- Grid Integration Costs: Germany faces significant costs for integrating renewables into its existing grid.- Grid Reliability and Storage: High shares of variable renewables require investments in grid stability, flexibility, and storage solutions, which add to total system costs.- Land and Permitting: Domestic expansion can face constraints due to limited land availability, higher local costs, and bureaucratic permitting processes, potentially increasing costs compared to importing green molecules.
Potential Cost Savings
- Economies of Scale and Lower Resource Costs Abroad: If green molecules are imported from countries with better renewable conditions, the combined production and shipping costs could be lower than the total cost of expanding and integrating renewables domestically, especially given Germany’s land constraints and grid integration expenses.
- Reduced Domestic Grid and Integration Costs: Prioritizing green molecule imports for hard-to-electrify sectors (industry, heavy transport) could reduce pressure on the domestic power grid, potentially lowering integration and storage costs.
- Flexibility and Time-to-Market: Importing green molecules could provide a faster pathway to decarbonization in certain sectors, avoiding delays from domestic permitting and infrastructure challenges.
Policy and Market Factors
- Energy Strategy: The German government is balancing energy reliability, affordability, and emissions reduction by expanding both fossil gas (for transition security) and renewables, while also considering hydrogen-ready infrastructure and possible CCS for gas plants.
- Industrial Relief: Subsidies and relief for energy-intensive industries, including lower electricity prices and support for new technologies, are part of the current policy mix to ensure competitiveness and decarbonization.
Summary Table
| Approach | Potential Cost Savings/Limitations | Key Challenges ||---------------------------------|-----------------------------------------|--------------------------------|| Green Molecule Imports | Lower production costs abroad, reduced grid integration in Germany | High upfront infrastructure, supply chain risks || Domestic Renewable Expansion | Avoids import dependence, supports local industry | High grid integration, land, and permitting costs |
The use of technology, such as electrolyzers for hydrogen production, is a vital aspect in the energy transition, but it poses economic challenges. Owing to the unreliability of power from wind and solar, the operation of these electrolyzers may require subsidies, which could lead to increased costs.
In contrast, producing green hydrogen in countries like Morocco, which boast abundant sun and wind resources, could result in lower production costs. However, transportation costs and geopolitical risks should be considered, which could be mitigated through diverse partnerships with suppliers.
In light of these factors, prioritizing energy partnerships for green molecule imports may provide better value for cost-effectiveness than overzealous domestic renewable energy expansion. This approach could lead to significant cost savings in the hundreds of billions of euros, as suggested by recent studies.
