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Exiting Coal?

On March 11, 2011 I was sitting in a coffee shop in Berlin, dressed appropriately in a black turtleneck and leather jacket, reading about the terrible Fukushima Daiichi Nuclear disaster. The next day I read that the German government was pushing for “Atomausstieg,” which is German for “let’s retire all nuclear generating capacity.” 80% of Germans surveyed were in favor of this move. The nine remaining German nukes are being phased out and the last one will shut its doors by 2022.

The Energiewende Law, which was proposed only months before the Fukushima disaster, was enthusiastically approved in 2011 and has led to rapid growth in the penetration of solar PV and wind power across Germany, as the advertising below indicates.

germanyenergy

While there is no way to establish causality here, no one can argue with the fact that the installed cost of PV has come down by 66% in a decade. And the creation of the German market could have had something to do with this. In 2012 Germany (1.1% of the world’s population) had 32% of installed solar capacity globally, according to government figures. And capacity continues to grow – 2014 installed capacity was 113% above that in 2010 suggesting a 21% growth rate p.a. This has come at a cost. While owners of PV installation have to pay for some of the cost of the solar panels privately, the average German household now pays about 260 Euro per year to subsidize renewables, which is nothing to sneeze at. But it’s also not the end of the world as some have suggested (about the equivalent of a Starbucks latte twice a week, which unlike the renewable subsidy, does not come with a green halo). The Energiewende enjoys less, but still strong, public support. So now the government is starting to contemplate what to do next to achieve its ambitious emissions reduction goal of 80% by 2050.

germany energy long

Sigmar Gabriel, who is Angela Merkel’s Energy minister, has started talking about something called “Kohleausstieg” (German for Coal Exit). When visitors from Germany to the Energy Institute lunch table mentioned this, I thought I misheard. But I did not. There is a slowly emerging vision of the German energy system, which will no longer have domestic baseload generation. Just say Nein to coal and nukes. This is fascinating. Let’s take a look at what estimated power supply looks like in May 2012 versus 2020:

german energy power demand

What we are seeing here is the huge variability in generation of renewables, which of course does not line up quite as beautifully with demand as has been pointed out elsewhere. This picture also shows nicely that by 2020 renewables are generating more power than is demanded (at least on the weekends). And if the installation trend continues, this will be true for most weekdays, too.

This means that we may not need the always-on baseload (coal and nuclear in most places). In one version of the world you use fossils that ramp up quickly to meet residual demand (e.g., gas from Russia). In a second version of the world you use clean hydro power from Northern Europe instead. In a third version, which is the one Elon Musk would like you to consider, you use a giant battery in your house, which stores renewable power at times when there is plenty of it to be had for cheap (requiring a pricing revolution).

I am a confessed hip-/techie. I like the last version of the future. But I have some questions.

  • Is Germany this bold since it can always buy cheap nuclear baseload from France if things go terribly wrong? What if you are a country like the US, where you do not have this type of backup at scale?
  • What about the political economy of a coal exit? Coal mining unions are very powerful and this would put a lot of people in poor areas out of jobs. And miners will not go into installing PV panels on people’s roofs, since the sunny rich areas are not usually where the coal mines are.
  • How much storage do we need to make this work? I can see a residential model, where Elon Musk sells me a battery or my car serves as storage. But what about BMW, Porsche, and Intel? Will we come full circle where firms will have their own fossil backup generation (which is the case for most manufacturers in China currently)?
  • What if the major players exit coal? That shift in demand, drives down price and leads to consumption elsewhere. In order to make this work you would have to exit coal and find a way to leave what you don’t consume in the ground.

While writing this blog post I was surprised by how similar California’s and Germany’s energy policies and challenges are. Both places are pushing hard for an almost fossil free future using a combination of market based policies and huge number of competing standards. Both places have political leadership proposing radical long range policy targets, which we do not necessarily know how to achieve. Both places are relatively wealthy. Both places have industries that have been at the forefront of technological innovation, especially in the STEM fields.

Germany, specifically, has been at the forefront of pushing new distributed generation technologies and shouldering much of the cost of the global energy transition. This is laudable. California is along for the ride and doing its part. It looks like we might be the ones leading the charge on designing cost effective storage. Thanks Elon. While I don’t think a coal free Germany is necessarily an unrealistic idea, I want us to keep our eye on the prize. What we should shoot for are drastic global reductions in CO2. Germany and California are small. If what comes out of our policies is a way to drive coal and natural gas up the merit order in places like China and India, this would be the real success.

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Maximilian Auffhammer View All

Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.

46 thoughts on “Exiting Coal? Leave a comment

  1. “capacity continues to grow – 2014 installed capacity was 113% above that in 2010 suggesting a 21% growth rate p.a.”
    I suggest this is deliberately misleading: the included link shows annual capacity figures, and the data indicates annual growth of:
    70% in 2010 (7,378 MW)
    42% in 2011 (7,485 MW)
    30% in 2012 (7,604 MW)
    10% in 2013 (3,304 MW)
    5% in 2014 (1,899 MW)
    That data belongs to a different narrative than is provided.

    • I am not intentionally misleading anyone, which is why I provided a link. Yes growth is slowing down. But you will not argue that capacity has grown very rapidly over the time period cited.

  2. Your third chart shows a typical summer month in 2020, do you have chart showing a typical winter month, when the peak requirement is after sunset? Your third chart also illustrates that Solar penetration can substantially reduce minimum daily net load. This minimum value is relevant because it may limit the system operator’s ability to keep thermal plants operating. As is well known, keeping a number of units operating is not only economical, but is also essential to ensure that the system has enough spare capacity to respond in real time to deviations from expected levels of generation and demand.

  3. Dear Max – thank you for this post. These are really interesting questions. Especially your point on the “real prize”, i.e. a low carbon energy system in China, India and other fast developing places. I am convinced that there is a link between deployment of new technologies in high income countries, global cost reduction and adoption in lower income countries. We can see it happening with solar at the moment. In India (where I work, see http://www.bridgetoindia.com), there is another reason, why we might be able to reduce the usage of coal: the state is not able to provide reliable power through a centralised infrastructure. This leads to underdevelopment in some places and an enormous privatisation of power supply in other places. According to estimates, there are as many as 60-90 GW of installed diesel gensets in the country. So, distributed storage will be a real game changer. (But, as you rightly say: what will the industries do?)

  4. The environmental damage from coal is great and an appropriate policy approach is warranted. But a key question remains: How will the market respond? Coal continues to be mined and burned. Australia commits to burn less coal while it continues to mine the resource. Now local rail transport to burn coal in Australia is traded for bunker fuel and shipping to China, etc. This seems to beg the question of appropriate policy aim; restrictions on burning or restrictions on mining?

    And a question for the author (or his readers): What is the actual installed cost of PV? The data that is broadly published refers to the installed price of PV, a product with a highly subsidized manufacturing process. As China continues to reduce its manufacturing subsidies, where will the price of PV rest? Without subsidies, price and cost should be approximately equal. Where will this market go if China pulls its manufacturing subsidies altogether?

    Finally, what is the German word for “potentially wreck less policy overreaction”?

  5. What is your estimate of indirect subsidies, eg, capacity payments to coal plants, inefficient use of fossil fuels backing up variable renewables, and greater maintenance? Does the 260 euro include expanding transmission capability? I’ve been curious about the costs in Germany.

    You show huge amounts of fossil fuel in the flexible backup (is it true that Germany uses lignite to backup variable renewables, a point Merkel made when she celebrated the completion of a new 2,200 MW lignite plant?) I looked into GHG emissions for fossil fuel backup—it looked to me like for every kWh of solar and wind, GHG emissions are 1/4 of the 0.5+ kg from natural gas, and >1/4 of the 1 kg from coal. But the latter was hard to find, as there seems to be an assumption that utilities don’t actually use coal that way, although a couple of utility friends tell me they do. Doesn’t this plan encourage taking offline efficient plants like Irsching, and thus lead to the use of inefficient fossil fuel plants when there is little sun + wind?

    I’ve also read that there are already weekend days where California and Germany are dumping solar + wind. Wouldn’t a buildup be a problem in the absence of batteries? (My friends in batteries at the national labs are not as enthusiastic as my friends on FB about batteries being cheap and perfect a week from Thursday.)

    I just have trouble seeing either Germany or California really achieving our goals without more low GHG baseload than we use today.

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