Germany - Country Commercial Guide
Energy

This is a best prospect industry sector for this country. Includes a market overview and trade data.

Last published date: 2022-08-04

Overview

The energy transition in Germany known as the “Energiewende”, is the country’s planned transition from a clear dominance of coal, oil and nuclear to a low-carbon and nuclear-free economy based on the utilization of renewable sources. The ambitious goal is to cut CO2 emissions by 80% and increase the share of renewable energy in total energy consumption to 60% by 2050. Investments in offshore wind, photovoltaics, grid expansion and energy storage projects will be necessary as well as the implementation of a new, smart energy infrastructure that can balance the fluctuating supply of renewable sources. Energy efficiency will play a central role. For decades, Germany has been the global pioneer in applying renewable energy and environmental technologies.

However, Germany has maintained a high degree of oil and natural gas to maintain electricity supply security. The lack of natural resources has led to an energy sector that highly depends on imports. Oil and gas are almost exclusively imported. These dependencies have created two situations of instability. First, global price changes strongly affect German energy importers and end users. Second, market developments depend heavily on Germany’s international relations with certain countries, with Russia playing a crucial role. The planned nuclear and coal phase-outs at the same time are set to increase the country’s reliance on natural gas, making it increasingly important to continue efforts to diversify gas supply options, including through liquefied natural gas imports.

Although the share of electricity produced from renewable sources fed into the grid has been constantly increasing, there have been no remarkable incidents of power interruptions thus far. Commercial and private consumers can rely on a stable, continuous energy supply, for Germany has one of the lowest power interruption rates worldwide.

More than 90,000 companies employ about 245,000 employees and generated approximately USD 408 billion in 2020. Uniper Global Commodities SE, E.ON SE, EnBW Energie Baden Wuerttemberg AG, Statkraft Markets GmbH, and Tennet TSO GmbH are the top 5 energy companies regarding total revenue.

Energy Consumption and Generation

Energy consumption: Germany is the largest energy consumer in Europe followed by France and the UK. As of 2021, primary energy consumption amounted to 12,193 Petajoule, with more than 75% coming from fossil sources, 16.1% from renewables, and 6.2% from nuclear energy.  Energy consumption is still noticeably lower than before the outbreak of COVID 19. Price developments in energy markets also caused a noticeable reduction in consumption. The phase-out of nuclear energy by the end of 2022, the incipient phase-out of coal and the continued promotion of renewable energies have caused changes in the 2021 energy mix. Mineral oil remained the most important source of energy with a share of 32.3%, followed by natural gas with 26.8%. Lignite accounted for 9.2% and hard coal for 8.5%. The contribution of nuclear energy was 6.1%. Renewable energies slightly reduced their share of total energy consumption to 15.9% due to weak wind and at the same time colder weather. Biomass, which accounts for more than 50% of renewable energy, recorded a 3% increase in consumption. Hydroelectric power stations increased by a 4%. Power generation from PV systems increased by 1%. Onshore wind farms saw a 15% drop in power generation and offshore plants fell 1%.

Energy production: Domestic energy generation was able to cover 29% of total consumption and increased by 4.9 percent to 3,552 PJ in 2021. The most important domestic energy source is now renewable energy with a share of 54.7%, a decline of 4% compared to 2020. Lignite follows with 32.4%. Domestic natural gas production increased slightly and added 4.6%. The other energy sources reach shares in the low single digits. Hard coal mining stopped in Germany at the end of 2018.

Electricity production: A major part of electricity produced and fed into the grid in Germany in 2021 came from conventional energy sources and accounted for 57.6% of total electricity production. Lignite-fired power plants increased their net production to 99 TWh. Net electricity generation from nuclear power was at 65.4 TWh, from gas-fired power plants around 51 TWh and from hard coal-fired power plants at 46.4 TWh. The proportion of electricity produced from renewable energy sources and fed into the grid decreased by 7.6% to 42.4%. Due to weather conditions, the share of renewables in the net electricity generation fell to 45.7 percent, compared to 50.0 percent in 2020. Electricity from wind power amounted to about 113.5 TWh and with a share of 23.1% wind was again the most important source of electricity. German photovoltaic systems generated about 48.4 TWh electricity, about 44.6 TWh of which were fed into the public grid and 3.8 TWh were self-consumed. Hydropower contributed 19.4 TWh to electricity generation. With hardly any change in installed capacity, biomass generated slightly more electricity in 2021 (43 TWh). In total, renewable energy sources produced about 225 TWh in 2021, about 6% below 2020’s value.

Energy Policy

The Federal Ministry for Economic Affairs and Climate Action (BMWK) oversees the country’s energy policy and supervises the energy sector. The Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) is responsible for environmental protection, nature conservation and consumer protection.

Key to Germany’s energy policies and politics is the so-called “Energiewende”, meaning “energy transition”. Germany aims to fulfil all its electricity needs with supplies from renewable sources by 2035, compared to its previous target to abandon fossil fuels by 2045. Germany intends to increase the share of renewables in final consumption to 30% in 2030. It aims to reduce GHG emissions by 65% in 2030 and to reach carbon neutrality by 2045. The policy includes phasing out nuclear power by 2022 and the phase out of coal and lignite will be advanced to 2030.

The two pillars of the “Energiewende” are renewable energy sources and energy efficiency. The legal background is the Renewable Energy Source Act (EEG) that regulates the renewable electricity sector, and the Renewable Energies Heat Act (EEWärmeG) promotes the increase of heat generated from renewable energy in new buildings.  Another amendment to the country’s Renewable Energy Sources Act has already been prepared. The share of wind or solar power should reach 80% by 2030. By then, Germany’s onshore wind energy capacity should double to up to 110 GW, offshore wind energy should reach 30 GW - arithmetically the capacity of 10 nuclear plants - and solar energy would more than triple to 200 GW.

Germany relies heavily on imports of fossil fuels as its domestic resources are largely depleted or their extraction is too costly. Rising European energy prices and the Russia-Ukraine war have led to a permanent shift in Germany’s energy and foreign policy. Germany, being Europe’s leading economy, needs to become less dependent on Russian gas, but its plans to phase out coal-fired power plants by 2030 and to shut its nuclear power plants by end-2022 have left the country with few options. Accelerated capacity expansion for renewable energy and investments in LNG and hydrogen infrastructure will be the key elements in making the country less dependent on Russian fossil fuel supplies.

The European Climate Law sets a legally binding target of net zero greenhouse gas emissions by 2050. EU Institutions and the Member States are bound to take the necessary measures at EU and national level to meet the target. https://ec.europa.eu/clima/eu-action/european-green-deal/european-climate-law_de

Market Entry and Best Prospects

Germany is Europe’s largest electricity market with an annual power generation of around 625 TWh and a capacity of around 200 GW. More than one thousand market participants are active in the fully liberalized market, with new market actors – who do not own power plants or supplier networks - successfully entering the domestic electricity market. The “Federal Network Agency” (Bundesnetzagentur) is the regulatory office for electricity, gas, telecommunications, post, and railway markets. The agency is also responsible for ensuring non-discriminatory third-party access to power network.

  • Energy infrastructure

Germany’s power grid ranks among the most reliable in the world, despite an increasing share of fluctuating renewable energy sources. The government has made the extension of the grid a priority to maintain this high level of resilience. The German energy transition is creating completely new challenges for the transport of electricity because the power generation structure is changing. Increasingly, electricity is being generated by distributed wind and solar installations, some of them located a long way from the consumers. Not least, the electricity generated by wind turbines and new conventional power stations in the north of Germany must be transported to the major power consumption regions in the west and south.

Hence, major investments in the expansion of the transmission and distribution networks are planned as a result of renewable energy integration and the growing consolidation of Europe’s energy markets. New technologies in the energy grid sector – for example superconductors, high-temperature lines and local power transformers – are being tested in pilot projects. ICT solutions provide important information for the safe operation of power grids. Alongside battery storage with solar systems, large-scale storage solutions are playing a growing role in the balancing energy market. Hydrogen also plays an important role thanks to the linking of energy, heat and the mobility sector.

Intelligent networks or “smart grids” allow fluctuating renewable energy power generation and consumption to be optimally managed by allowing a shift from “consumption-oriented generation” to “generation-optimized consumption.”

Information and communication-based technologies (ICT) will play a central role in connecting the different parts of the energy system. Intelligent ICT solutions will allow smart grids to efficiently manage power generation, consumption and storage in tandem with so-called “smart meters.”

  • Investment in High Voltage Lines and Grid Expansion

The total length of Germany’s transmission grid is around 35,000 kilometers. It transmits power with a maximum voltage of 220 kilovolts (kV) or 380 kV. Most of the power lines use alternating current, but the new transmission lines between northern and southern Germany, planned to be completed by 2025, will use the more efficient high-voltage direct current (HVDC) technology. Currently, just 0.4% of the German transmission grid is laid below ground. In response to public protests against overland powerlines and pylons, new legislation has given priority to underground cables, although this technology is more expensive to install and maintain. According to the Federal Network Agency, around 12,234 km of new power lines are needed to successfully implement the energy transition. Only about 1739 km of the newly planned power grid has already been completed.

Some USD 117.5 billion are needed to expand and upgrade Germany’s electricity network by 2050 according to a study commissioned by electricity supplier E.ON. Some USD 34 billion of that amount would be needed by 2030. More solar and wind systems must be integrated into the network, and charging infrastructure for e-mobility, as well as heat pumps and electricity storage systems will need to be expanded. Without these investments, “follow-up costs” of USD 4.4 billion a year could be incurred because of overloaded networks that are not able to absorb renewable-generated electricity.

Transmission system operators (TSOs) keep control power available to maintain stable and reliable supply. Demand for control energy is created when the sum of power generated varies from the actual load. There are four grid operators in Germany: 50 Hertz Transmission, Amprion, TenneT TSO, and TransnetBW.

  • Energy Storage

The German energy storage market has experienced a massive boost in recent years. Germany is the global leader in energy storage technology for renewable energy systems. While the demand for energy storage is growing across Europe, Germany remains the European lead target market and the first choice for companies seeking to enter this fast-developing industry. The country stands out as a unique market, development platform and export hub. Energy storage systems will play a fundamental role in integrating renewable energy into the energy infrastructure and help maintain grid security by compensating for the enormous increase of fluctuating renewable energies. Germany’s geography limits the development of new pumped storage capacity. Hence, new storage technologies and smart grids are needed.

Small and commercial battery systems: Around 1.7 million solar power plants with a total capacity of approximately 45 GWp have been installed in Germany over the past 25 years. Around 1,000,000 are residential rooftop installations with a capacity of smaller than 10 kWp. Every second newly installed residential PV-system is combined with an energy storage system to increase the amount of own-consumed PV electricity. Retrofit storage installations will also be a major driver for improving energy self-sufficiency in private households and commercial operations. Only 8% of rooftop PV systems in Germany are equipped with a battery today – by 2030 it could be well over 80%.

Larger battery systems: To integrate the large amounts of wind and solar energy safely into the existing grid, large battery systems will play an import role in Germany’s future energy infrastructure. These are well suited to providing control power to stabilize grid frequency. At present, several demonstration and commercial projects have been put in operation. Companies can find a large pool of potential partners to optimize their technology and move it towards commercialization.

  • The German National Hydrogen Strategy and Hydrogen Exports

Green hydrogen is key to the country’s clean energy future given the fact that Germany has a significant natural gas market. In June 2020, the Federal Government of Germany adopted a National Hydrogen Strategy (NWS). Germany aims to become the “world number one” in clean hydrogen energy technology - with the government investing USD 9.6 billion. USD 7.4 billion will be made available for hydrogen and hydrogen-related projects or instruments. Financial support of another USD 2.1 billion will be provided for international partnerships. Only renewable-based hydrogen is addressed and supported by the national strategy. 

The government strategy includes a two-stage plan of action. The first ‘ramp-up’ phase lays the foundation for a well-functioning domestic hydrogen market through to 2023, which includes the development of the transport and distribution infrastructure for hydrogen and derived products. The second phase will strengthen this market ramp-up and provide a basis for European and international cooperation. The strategy also sets a target for electrolysis capacity. However, this target emphasizes the need for imports as there will be a domestic supply gap.  To close the gap the government plans to import RES-based hydrogen from other EU member states, in particular those states that generate hydrogen from offshore wind in the North and Baltic Sea, or PV in southern Europe. Furthermore, cooperation with non-European countries is planned. 

The market for hydrogen, related technologies and systems is still under development. The current stage may be described as a ramp-up phase, as many solutions, networks/infrastructure, standards, and norms are still under development. Opportunities for US companies will surely develop, as the market ramp-up evolves.

Hydrogen Exports to Germany: There is with no doubt a great potential for green hydrogen exports to Germany. The government expects that around 90 to 110 TWh of hydrogen will be needed by 2030. And there is an even wider range of forecasts for 2050 for Germany from 150 TWh to 550 TWh.

At the end of January 2022, the European Commission has granted state aid approval to the German government to allow the funding of the hydrogen import program, ‘H2Global’, with USD 960 million. H2Global aims to promote the development of green hydrogen production plants in sunny non-EU countries. The hydrogen produced there will then be imported to the EU. The H2 Global Foundation will purchase green hydrogen abroad via auctions under long-term contracts. The first purchase contracts are to be awarded as early as 2022, with the first deliveries of hydrogen envisaged to arrive in Germany in 2024. 

The EU Commission has now confirmed that producers of renewable hydrogen and hydrogen derivatives wishing to participate in the tenders must comply with the greenhouse gas emission reduction target of up to 70% set in the revised Renewable Energy Directive (RED II) for plants with a construction date after January 2021. They must also meet social and environmental sustainability aspects. This will also be included in the procurement criteria for awarding contracts via H2Global. RED II thus indirectly binds producers who manufacture hydrogen in non-EU countries.

Germany and Norway plan to carry out a feasibility study on the construction of a pipeline to transport green hydrogen in 2022. The development of hydrogen collection pipelines in the North Sea would offer advantageous conditions for the transport of green hydrogen on land with an installed capacity of 10 GW.

  • Liquified Natural Gas

Germany does not yet have its own regasification terminals for LNG and imports enter through neighboring countries’ terminals, especially Belgium and the Netherlands. Only recently, Germany has made unprecedented changes in its energy and security policies following the Russian invasion of Ukraine. The recent decision to invest in LNG infrastructure and to begin the construction of two new LNG facilities has long been overdue. Given the fact that hydrogen will play an increasingly important role in the longer term, the German government has also said they want to make sure any LNG infrastructure is hydrogen compatible.

In addition to two onshore terminals in Wilhelmshaven and Brunsbuettel, the German government plans to lease so-called Floating Storage and Regasification Units (FSRU) in the short term, one of which could be installed as early as this winter (2022/2023). Due to the fallout of Russia’s war against Ukraine there is international competition for FSRUs, of which there are currently just under 50 worldwide.

Germany’s first, of possible four, floating liquefied natural gas terminal will be operational in Wilhelmshaven by the end of the year and have a capacity of 7.5 bcm per year, equivalent to 8.5% of total German gas demand. The second floating facility would be built in Brunsbuettel, northwest of Hamburg, should be operational next year, and have a capacity of 5 bcm per year. The northern cities of Stade, Rostock, and Hamburg, as well as Eemshaven in the Netherlands were possible locations for the other two FSRUs. On behalf of the German government, RWE has chartered two special ships with which liquefied gas can be imported and fed directly into the German gas grid.

Germany’s gas imports totaled 142 bcm in 2021 with about one third being piped Russian gas. The aim is to cut Russian gas supply down to 10% by summer 2024. In March 2022, the U.S. and the EU said that the U.S. would scale up LNG exports to Europe to 50 bcm per year starting in 2023. However, Germany’s goal is to generate all of its electricity from renewable sources — such as solar and wind energy — by 2035 and the strategy is to develop more renewable energy than LNG-powered energy. There is potential to export LNG to Germany in the medium run but one questions on how long Germany will commit to import contracts, which typically run from 10 to 25 years.

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