The industrialized nations of the world have made a number of mistakes in developing and deploying renewable energy sources over the years. Several publications produced by the National Academies of Sciences have pointed out examples of governments failing to sufficiently focus on and invest in technological research and the commercialization of product ideas generated in places such as national laboratories, universities and think tanks. Instead, governments have often favored the practice of making risky bets, subsidizing technologies that the market, in certain cases, did not perceive as valuable and was not prepared to absorb.
Yet, for all of the errors documented in media headlines, today in 2016, it is clear to most constituents in the energy sector – and even in the broader mainstream marketplace in wealthy nations – that renewable energy is on the march and quickly gaining momentum.
Germany deserves a lot of credit on the world stage for the progress renewable energy has made, primarily as a result of the country’s own major bets on the technology itself. In fact, Germany’s decision to close all of its nuclear power plants by 2022 brought about one of the biggest gambles ever made by an industrialized nation on renewable energy technology. The question of whether Germany would be able to meet its own tough climate change targets without harming its manufacturing and industrial sectors is a real and serious one that many across the globe have asked and wanted to answer. This bold risk-taking on Germany’s part has led to many other questions: Why would the fifth-largest economy in the world take such a significant economic risk on renewable energy? What has led the government to believe it would ultimately be successful? Lastly, what can the U.S. and other markets contribute to and learn from the German experience with their attempts at an energy transformation?
Germany continues to advance its energy agenda, without any significant technological or economic disruption on the home front in sight. Now, the biggest questions on the table are how best to combine Germany’s engineering “know how” in balancing the grid at scale and increasing levels of renewables, with U.S. technology innovation across a wide range of renewable energy products, in order to speed energy transformation around the globe and make it increasingly attractive economically in the process. As old methods, systems and technologies fade and reach the end of their lives, they will be replaced by new ones that carry with them the promise of new industry and value creation in the marketplace, not to mention the associated benefits for people and the planet.
Stakeholders in the energy sector are gaining more confidence and comfort in energy transitions because of the increasing convergence and perceived importance of certain values and beliefs about planetary responsibility and energy security. Views about climate change and its causes, energy and its ties to national security, and a country’s assessment of its own industrial strength and vitality shape related policy and market actions, as well as determine whether countries will achieve energy transformation and all of the benefits associated with it or fall behind in a protracted transition process.
Although the U.S. and many other countries are still considering their options in this regard, Germany has gotten out ahead by making clear decisions based on its values and beliefs and by focusing on implementation. Across the nation in every part, regulators, transmission system operators, distribution system operators and renewable energy suppliers are working together to ensure that Germany’s long-standing record of having one of the most reliable grid systems in the world is not hampered by the intermittency of renewable energy sources, such as solar and wind.
The energy transformation in Germany to date has largely been engineering focused. The question that German energy stakeholders have been asking and answering is how the country could add more renewable energy sources without compromising the reliability of the grid. They have managed to find the right levers from a policy perspective to drive an increase in solar and wind technologies and to get those loaded into the grid while utilizing technology tools and forming virtual power plants to keep the grid stable. As the country’s energy leaders become more proficient in this task, the focus will shift to developing the appropriate business cases to continue to drive the transformation to the next level.
No matter where a country stands in terms of energy transformation, it can benefit from a greater understanding of the process from an engineering and technology standpoint, as well as the related market implications. All individuals and organizations that believe in an energy transition to distributed power with increased renewable sources of generation should work together to develop broad consortia efforts to address the important technology and innovation questions involved with securing smarter, resilient, environmentally conscious and economically viable energy systems for the future. The result can lead to a clearer picture of what it takes to achieve transformative results in the energy sector, as opposed to a long, winding transition.
Dr. Erin Grossi serves as UL’s chief economic strategist, providing the organization with macroeconomic analysis, insight and trend forecasts. This article is an adaptation from her recent white paper, titled “Putting the Pieces Together: Transition and Transformation in Global Energy Markets,” which explores the key differences between the German and U.S. approaches to adding increased renewables to grid systems.