Renewable Energy Act Reform: A Difficult Balance To Strike
BMI View: We believe that the reform of Germany's Renewable Energy Act is aimed at controlling the expansion of renewable energy, and not a sign of any retrenchment in policy. Whilst rising electricity prices are likely to remain a contentious issue for the government, industry groups, utilities and public alike, we believe that it is unlikely that the German energy policy - to aggressively pursue renewable energy and phase-out nuclear - will be altered under the Merkel-led government. As such, we expect to see the continued adoption of renewable energy, in line with the government's targets, and do not believe that nuclear will be brought back on the table.
We have been following Germany's ambitious 'Energiewende' (energy U-turn) closely over the last couple of years as the German government has strived to meet its targets of achieving a 35% share of the total power generation mix from renewables by 2020, 50% by 2030 and a staggering 80% by 2050. So far, the country has made incredible progress in its renewables expansion, primarily in the wind and solar sectors, where capacity has increased by roughly 16.1% and 47.6% respectively between 2011 and 2013. We have also witnessed significant progress in the country's offshore wind sector of late; a sector which was once prone to delays stemming from difficulties in connecting wind farms to the power grid, as well as grid outages after the plants started operations. Tangible progress was made in Germany's offshore wind sector during 2013 - in terms of improving regulation, transmission and distribution (T&D) links and bringing projects online ( see 'Offshore Wind Sector Gaining Momentum', November 19 2013).
That said, this rapid adoption of renewable energy technology as an integral part of the country's power mix has not been exempt from problems, and it has had wide-ranging affects on utilities operating within the market, as well as wholesale and retail electricity prices and German competitiveness.
Wholesale Electricity Prices Still Sliding Germany - First Year Baseload Electricity Forward Price (EUR/MWh)