Germany is making giant leaps towards reinventing the way of funding renewables; it is in the process of undergoing a revolutionary change that signals the beginning of a new era in its energy sector. Thus, the Berlin government has revealed new measures in subsidizing renewable energy sources for the country’s exit from coal concerns as well as the plans for a backup power plant to support the shift. This encompassing concept objective lies in providing safe, inexpensive, and climate-balanced electric power, at least 80% of which will be obtained from renewable sources of power by 2025.
In the late 1990s, Germany passed a renewable energy law that promised wind turbine and solar panel owners a good price for power delivered to the grid for 20 years. This path-breaking law is one of Germany’s known Energiewende or energy transition; now this groundbreaking law is about to be overhauled. The government will have to make these changes mainly due to fiscal constraints and requirements for adequate backup power generation by 2025.
The degression of remunerated power for 0-MCP or the removal of remuneration for the power produced during periods where the price is negative, which is when there is already a surplus of power being fed into the grid is one of the changes. This adjustment aheads an EU exigence by two years which should enable market signalling to be closer to demand and supplies.
Still, there is a change in the kind of subsidy that currently is mainly production-based and now transforms into investment cost subsidies. At present, their incentives are gained through policy support mechanisms, associated with the amount of electricity produced that entails a guaranteed minimum revenue per unit of energy for renewable energy developers. The new approach will cover investment subsidies in lump sums, in this case. This shift in paradigm’s intention is to make price signals more effective to directly trigger investments in renewable energies without interfering with the market.
But this transition is not without some risks and negative effects including the following;- The interest group fighting for renewable energy, BEE has already pointed out that such changes create market unpredictability as a result of the adoption of investment cost subsidies. To avert such a change, the group said this could bring in uncertainties which may act as a pull factor away from the sector.
Liberal FDP, which entered the parliament as the Renew party and was the smallest party in the government coalition, has been pushing for this change for a while. According to FDP Finance Minister Christian Lindner cost of the current subsidy scheme is high with subsidy expenses likely to show €17 billion next year. The FDP’s energy spokesman MP Michael Kruse said that on balance this was a good thing as there was a need to do away with the existing subsidy regime.
Some officials in the government are not in support of the new changes. A new proposal for legislation concerning Denmark’s energy system was presented by MP Nina Scheer, an SPD member, and the left-of-center party’s energy spokeswoman. She focused on the potential risks for the investment and the doubts about the feasibility of the proposed strategy.
The substitution of the new subsidy scheme must happen in the coming years to coincide with the government’s UNDR plan to eliminate renewable energy support once coal is no longer used for electricity generation, not later than 2038.
Besides, the strategies of the reform of the approach to the subsidy of renewables, Germany intends to build new efficient gas power plants for providing the coal phase-out. Certain of these plants will be designed to operate on hydrogen, which offers a path to cleaner power generation. The government plans to 5 GW of new gas power plants for consultation and construction immediately with another 5 GW plants that will have to utilize hydrogen from the eighth point of use. Also, 2GW capacity of already existing gas plants will be upgraded for the generation of hydrogen, and 1 GW of new hydrogen power plants and long-term storage capacity will be developed.
These plants will connect into a “rather extensive, non-partisan capacity plan”, which is expected to function by 2028. Andreas Jahn, the senior adviser at RAP, a clean-energy think tank situated at Kassel, Germany refers to this strategy as an ‘important compromise’ that seeks to guarantee the changes taking place in Germany’s electricity system.
The initiatives to transform the financing of renewable energy in Germany and the construction of new power plants will mean market subsidies which have been approved by the EC “in principle”. The government has announced the vision towards the competitive bidding of these subsidies with the first competitive bidding set to be out by December 2024 or early 2025.
Germany has taken such a daring step in revolutionizing the way people pay for renewable energy sources; this strategic move will go a long in determining Germany’s future. Germany is keen on providing new subsidy schemes and building new power structures so that the country becomes the world’s leader in the shift towards renewable sources of energy, thus making an example for others.