December 2021
Germany has led European renewable investments throughout the last decade, aiming to fully transform its power sector. However, Germany’s decarbonisation plan does not seem to be consistent with its large coal fleet closure timeline.

In the first half of 2021, coal-fired plants provided the largest share of power to Germany’s electricity grid, while wind power plummeted to its lowest level since 2018. This trend in 2021 is not a particular resurgence of coal in the country, but a repeating national strategy of reliance on coal when demand increases and wind generation decreases.

Germany’s power generation figures from the first half of 2021 do not fully reflect the concerns of exclusively relying on renewable energy to achieve climate goals. In 2020, when the Covid-19 pandemic diminished power demand by around 5.9% in the country, wind power was Germany’s top electricity source.

However, wind’s 26% share of generation was only slightly above coal’s 25%. Coal gained ground in the electricity mix, jumping from 21% in the first half of 2020 to 27% in the first half of 2021. Furthermore, conventional energy sources, including nuclear energy, provided 56% of the total electricity for the country in the first six months of 2021.

Despite this, the new German coalition government, formed by the Social Democrats (SPD), Greens and Free Democrats (FDP), has agreed on a coalition pact that accelerates the country’s coal phase-out date from 2038 to 2030.

Among the discussion points, the parties also aim to increase Germany’s renewables 2030 target from the existing 65% to 80% of electricity demand with a substantial expansion of wind and solar. The coalition announced the country’s solar goal for 2030 would be expanded to 200GW, the offshore wind level lifted by 50% to 30GW and the electrolyser capacity target for hydrogen production doubled to 10GW.

The strategy is based on the expected growth of power demand to the range of 680-750TWh per year in 2030. Robert Habeck, the Green Party co-leader who is expected to become the new economy, energy and climate minister, has confirmed the 2030 coal exit date and stated plans to set a EUR60/t floor price for CO2. The coalition aims to finalise a review of the coal exit law by the end of 2022.

The Phaseout Challenge

There is a missing link in Germany’s power market transition which highlights that the new coal phaseout strategy considerably oversimplifies the challenges that the power market will encounter over the rest of the decade. German power demand is anticipated to grow substantially as electrolysers come online to meet the country’s hydrogen objectives and transport is electrified.

The German power sector needs to replace 8GW of nuclear capacity that is closing in 2022, 14GW of lignite capacity and 15GW of coal capacity which should be expected to close by the mid-2020s. A large percentage of these units have been operating at relatively high load factors, which will increase the solar and wind capacity required to replace them.

Although Germany is promptly acting upon its plans for the expansion of renewable energy generation capacity, with policies rapidly improving support for solar and wind investment to reach the 2030 renewables target, advancement and deployment of technologies have proven to take time and require further flexibility.

Unachievable Rollout of Renewables?

Germany has made clear that the achievement of its carbon emissions reduction targets will demand a fast-tracked exit from coal power generation. The coalition aims to cover 80% of the country’s electricity demand with renewables by 2030, a major increase from the existing target of 65%. This new goal includes using 2% of the country’s land for onshore wind power generation. In this way, renewables will no longer be considered an addition but will be responsible for the country’s power supply security.

Currently, Germany’s offshore wind capacity is around 8GW, with a target of 30GW by 2030 40GW by 2035 and 70GW by 2045. The solar photovoltaics goal is 200GW by 2030, compared to an existing 54GW. The government will make rooftop solar mandatory for new commercial constructions and potentially for new private buildings. It will also aim for 10GW of hydrogen electrolyser capacity by 2030.

Hydrogen Electrolyser Capacity

The incoming government next year aims to double Germany’s green hydrogen electrolyser capacity target to 10GW by 2030. Currently, there is only about 200MW of electrolysers installed globally, which even with an enormous ramp up will be insufficient to satisfy global demand by 2030.

Germany was one of the first countries to unveil a national hydrogen strategy last year, intending to produce 5GW of green hydrogen from onshore and offshore renewable plants. It had also stipulated an additional 5GW of domestic electrolyser capacity by 2035 or 2040. However, Germany’s plans are now much more ambitious, with the new government relying on a drastic acceleration of the energy transition and looking to expand electrolysis capacity through a massive development of offshore wind energy together with international partnerships.

Green hydrogen is expected to be used in economic sectors where greenhouse gases cannot be removed through direct electrification, which would exclude building heating. The new coalition stated that the ramp-up of renewables will not be fast enough to cover the simultaneous phaseout of coal and nuclear energy. Therefore, fossil gas will act as a key bridging technology.

The coalition’s phaseout strategy includes the construction of new gas-fired power stations to provisionally replace coal- and lignite-fired plants. However, these stations must be hydrogen ready including, in the meantime, the use of blue hydrogen, which is produced from natural gas linked to carbon capture and storage.

Despite Germany’s improvement and plans to achieve emissions reductions in the power sector, the government is aware of the need to advance in the heating and transport sectors. Transport particularly has been a major idler on emissions cuts and the most relevant obstacle to Germany meeting its GHG targets. The Climate Action Plan 2050 distinguishes local public transport, rail, cycling, walking and digitalisation as the main players in terms of achieving its climate goals, combined with efficiency improvements and the expansion of electric vehicle use.

Additionally, heating still lacks a clear progress formulation in the decarbonisation plan. Heating accounts for over half of Germany’s final energy consumption and approximately 40% of emissions as it is highly dependent on fossil fuels. The residential sector relies on oil for around 25% of its heating demand, and a substantial share of co‑generated district heating is still produced from fossil energy sources.