Germany’s need for energy transition and the boom of PV and wind-developments

Germany’s economy is heavily dependent on secure access to energy. The war in Ukraine has painfully demonstrated the vulnerability especially of Germany’s energy intensive industry. End consumers were heavily affected by the imminent risks of interruptions in the energy supply and highly volatile energy prices.

While the war in Ukraine has highlighted deficiencies in the supply chains and the energy infrastructure and also showcased price sensitivities, it cannot fully be blamed for the current status. For some time, Germany has been reluctant to accept that increased efforts are required to diversify its energy procurement and strengthen energy infrastructure. At the same time, the decision to stop nuclear power production has created additional pressure.

Lengthy planning procedures for both network infrastructure but also for renewable power production and substantial restrictions for site developments have created a massive backlog on investments. Still, it seems that there is now some movement. As described in more detail in the article on Germany’s infrastructure and energy challenges, recent and imminent governmental action will create some traction for renewable energies. The recently amended Renewable Energy Act (Erneuerbare-Energien-Gesetz, EEG 2023), which came into force as of January 1, 2023, is expected to accelerate and facilitate the development of renewable energy installations, as expansion paths and tender quantities have been raised and adjusted.

 

Germany’s solar boom

Anyone traveling on German highways will notice: solar plants now line the edge of the road.

The solar boom is picking up speed in Germany just like it is worldwide. Costs are falling, and expansion and demand for solar plants and systems are growing. Large PV power plants produce unrivaled low-cost electricity.

In 2022, 11 % of the electricity fed into the grid in Germany was generated by photovoltaics (roughly a quarter of all renewable energy). By the end of March 2023, solar parks, public institutions and private households in Germany had already installed photovoltaic systems with a total capacity of 70.6 GW (11.5 GW or 21% more than in the same month last year). By comparison, a nuclear power plant supplies only around 1.2 GW.

But the solar power expansion will not stop there.

The EEG 2023 sets a goal of PV expansion to 215 GW by 2030 and to 400 GW by 2040 and provides for key features to promote the solar development in Germany even further (see the article on Germany’s infrastructure and energy challenge).

With a projected gross electricity consumption of 658 TWh in 2030, the planned PV expansion to 215 GW will lead to a solar electricity share of about 30%, while renewable energies as a whole is expected to reach 80%.

Europe's largest solar trade fair in 2023, the Intersolar in Munich, shows trends for the future of photovoltaics and the concept of integrated photovoltaic as an important component to create the required areas and conserve farmland – from agriculture PV above the fields to floating modules for water surfaces.

The real estate industry has discovered rooftop PV installations as a trend for necessary ESG measures for their assets (especially for logistic facilities) and as a gateway to infrastructure investments. Due to the planned Future Financing Act, (see the article on Germany’s infrastructure and energy challenge) German Real Estate Funds will be able to invest 15% of its fund value in infrastructure.

One thing is for certain: solar energy will become one of the most important energy sources in Germany.

 

The boom of onshore wind parks

Following the record years for installation of new onshore wind capacities between 2014 and 2017, this continued expansion trend dropped sharply in 2019 but has been steadily recovering again since then. In 2022, 551 new onshore wind turbines with a total capacity of 2,403 MW have been installed, representing a year-on-year increase of around 25%. And in the first half of 2023, another 1.6 GW of new capacity has been installed, a 35% increase compared to the same period of the previous year. Despite this strong upward trend, significant expansion efforts are needed to achieve the government’s ambitious goal of 115 GW by 2030 as set out in the amended Renewable Energy Act. To reach this capacity of onshore wind energy, a yearly expansion of around 9 GW (gross) will be required. Looking ahead even further, the Renewables Energy Act foresees an ambitious 160 GW by the end of 2040, underlining the expansion track for onshore wind energy in Germany.

One of the main challenges for reaching these capacities is the availability of suitable land for the development of onshore wind parks. To address this issue, the German government’s coalition agreement foresees allocating 2% of land to onshore wind energy projects and has put in place the regulatory framework with the new German Wind Energy Area Needs Act. The Act sets out the scale of land that the federal states are obliged to designate to the development of onshore wind parks. The German legislator has also revised the regulatory framework regarding the processes for designating land to onshore wind projects to simplify and accelerate regulatory proceedings to speed up renewables permitting.

The results of these permitting reforms can also be seen in the latest onshore wind auction tenders: while some of the auction rounds where undersubscribed, they still led to 3.2 GW of new projects being permitted during the first half of 2023, a 44 % increase year-on-year.

 

The rise of offshore wind parks

Germany has also harnessed the power of offshore winds, especially in the North Sea. The advantages are compelling – consistent and stronger winds at offshore locations and the resulting higher energy yields, the possible scale of parks and reduced local opposition due to offshore parks’ location away from dense population zones.

Accordingly, the German government’s capacity targets for offshore wind energy are ambitiously set at 30 GW until 2030 and 70 GW until 2045 in the revised Wind Energy at Sea Act. However, given a currently installed total capacity of around 8 GW, enormous expansion efforts need to be made to achieve these goals as part of Germany’s energy transition.

The route for a boom in offshore wind parks is not without challenges. One is the provision of sufficient grid capacity to transport power from offshore to onshore locations. But also distribution from Northern Germany to the power-consumption-heavy industries further south is hampered by insufficient grid connection. The expansion of such much needed grid capacity is however slowed down by local opposition and onerous alignment between federal states.

Initially, offshore wind parks received guaranteed feed-in tariffs and premiums to attract investment. Increased experience regarding technical aspects of offshore construction, use of wind park components, development and operation procedures and energy yields have drastically improved and boosted the attractiveness of offshore investments for investors. So auctions for new offshore projects have now become the standard, and subsidies-free projects are being awarded.

In a recent auction round for the world’s largest auction of offshore wind park areas in the North and Baltic Sea, the successful bid not only lacked a statutory guaranteed rate per kilowatt hour for the park’s output but instead it included substantial negative auction premiums of EUR12.6 billion to be paid by the successful bid-consortium for receiving the bid award, underlining the high demand for green (wind) energy.

This high demand for renewable energy, not least for green hydrogen as a key component of the energy transition of Germany’s manufacturing industry (see the article on Hydrogen as a Future Source of Energy for Germany), has prompted several joint ventures in recent auction tenders for offshore wind parks as well as increased M&A activities between traditional energy companies and renowned industrial players such as Vattenfall and BASF as well as the successful participation of oil and gas majors like BP and Total Energies in auction processes.

Germany's energy transition is built on and supported by the boom of onshore and offshore wind energy. While investors’ interest in wind energy projects remains strong, the challenges with regard to sufficient grid infrastructure for distribution of the generated electricity remain a key bottleneck for wind energy’s growth

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¹ Aktuelle Fakten zur Photovoltaik in Deutschland, Harry Wirth, Fraunhofer ISE, Download von www.pv-fakten.de, version dated 27.09.2023, p.5, accessed 10.10. 2023.
² Statistisches Bundesamt (Destatis), 2023, accessed 10.10. 2023.
³ Aktuelle Fakten zur Photovoltaik in Deutschland, Harry Wirth, Fraunhofer ISE, Download von www.pv-fakten.de, version dated 27.09.2023, p. 7., accessed 10.10. 2023.
⁴ Deutsche WindGuard, Status of Onshore Wind Energy Development in Germany 2022, accessed 08.10. 2023.
⁵ Wind Europe, New 18. July 2023, accessed 08.10. 2023.
⁶ Wind Europe, New 18. July 2023, accessed 08.10. 2023.
⁷ Deutsche WindGuard, Status of Offshore Wind Energy Development in Germany 2022, accessed 08.10. 2023.