Posted on Tuesday, November 1st, 2011
First published in Energy World, November 2011.
For decades Britain seemed to have cornered the market in bad energy policy, but these days it has some stiff competition from Germany. Which is ironic, really. Germany has long been widely admired for setting world-leading growth in wind and solar, while Britain trailed near the bottom of the European league. But now Germany’s decision to ditch nuclear by 2022 will set back efforts to decarbonize its electricity supply by ten crucial years, and Britain’s support for nuclear renewal looks far more sensible. Yet Britain and Europe may end up paying for the German U-turn.
The German about-turn was of course a highly political manoeuvre. Last year Angela Merkel’s government made the sensible but unpopular decision to extend the life of Germany’s nuclear plants to 2036 as a ‘bridge technology’. But after the Fukushima disaster public hostility intensified and Ms Merkel retreated. The U-turn may help her hold off the Greens in the 2013 elections, but it is a major reversal for the climate.
In 2010 Germany sourced 23% of its electricity from nuclear, and 17% from renewables – so 40% low-carbon in total. Under targets that pre-date the nuclear U-turn, the government aims to raise renewable electricity to 35 per cent of consumption by 2020. So the planned 18 per cent increase in renewable electricity falls 5 percent short of the hole left by nuclear.
Meanwhile, Germany also plans to build another 20GW of coal and gas fired plant – which the government now describes, apparently without irony, as ‘the new bridging technology’ – for cloudy and windless days. Some of this may never be fitted with carbon capture and storage because German NGOs don’t like this technology either.
So on current plans, it looks as though by the end of the decade Germany will at best have about the same amount of low-carbon generation as today – 40 per cent – and probably less. Had Germany retained its nuclear capacity and achieved its renewables target, the low-carbon share would have been 58 per cent. We are told this decade is crucial for our emissions reduction trajectory. For Germany it will be a lost decade, during which its electricity emissions are likely to rise.
In Britain the timetable is similar, but the policy diametrically opposed. All but one of Britain’s ageing nuclear plants is due to close by 2023, but the government wants nuclear to remain part of the generating mix. The carbon price floor introduced in the last budget, and measures in the white paper published in July, are designed to ensure that happens. This has produced its own political contortions.
The Liberal Democrats went into coalition with the Tories on condition that there would be no subsidy for nuclear – clearly hoping this would kill off the technology’s budding revival. So now Chris Huhne, the Lib Dem Secretary of State for Energy and Climate Change, is forced to maintain the fiction that measures that produce a large windfall for existing nuclear plants do not amount to a subsidy. Of course they do – although the same measures also support renewables. But the casuistry is justified, because nuclear provides something that wind, wave and solar cannot yet deliver: low-carbon baseload power, the minimum level required day in, day out.
In Britain, baseload is about 20GW, and current nuclear capacity is 11GW, most of which will disappear within a decade, while the industry has plans to build another 16GW.
Renewables on the other hand are intermittent, and require far more back-up than conventional generators. If, like Germany, we were to abandon nuclear and try to replace the lost capacity with renewables, the amount of backup required would soar. DECC’s online energy model, the 2050 Pathways Calculator, shows that in high-renewables scenarios, ditching nuclear would require almost 50GW of gas-fired back up. So we would need to build almost an entire ‘spare’ generating system, at great expense, for the relatively few days when the wind doesn’t blow. We would also need vastly more gas storage, capable of delivering as much as two weeks’ consumption in real time, for when the wind doesn’t blow. Today our storage is tiny, and can supply only 10 per cent of current demand on any given day.
There are alternative forms of baseload and back-up, but all come with drawbacks.
Baseload power could be provided by coal fired stations with carbon capture and storage, but not soon, apparently. The government’s CCS competition has been grinding along since 2007 yet the first pilot plant is not due for completion until 2015. What’s more, CCS is only likely to reach around 90 per cent efficiency, meaning 10 per cent of the emissions would still escape. So the more CCS plants we build, the harder it will be to hit our carbon reduction targets.
The only way to solve this is to burn a lot of wood along with the coal, which has the effect of making the CCS plants carbon neutral, since we would be burying CO2 captured from the atmosphere by trees. But in the DECC model this requires energy crops covering an area the size of Wales. This looks unsustainable both because of its impact on food security – Britain already produces just 60% of its own food – and Indirect Land Use Change, where increasing biofuel production in one part of the world leads to increased emissions through deforestation somewhere else.
The alternatives to gas-fired back-up include electricity storage, demand response, smart grids, and a European supergrid. But these promising technologies are all in the early stages of development.
So Britain’s position on nuclear makes sense, while Germany’s does not. It is all the more galling, then, to learn that we may all pay for Germany’s decision through the EU Emissions Trading System (ETS).
Trevor Sikorski, head of environmental market research at London investment bank Barclays Capital, calculates that, as a result of its nuclear u-turn, Germany will emit an extra 300 million tonnes of carbon dioxide between now and 2020. That is more than the annual emissions of Italy and Spain combined under the EU ETS.
Anti-nuclear campaigners have argued that the market will come to the rescue: the price of carbon will rise and encourage emissions savings elsewhere. But this is hard to support, certainly in the short term.
To start with, the carbon price has slumped since Germany announced its nuclear policy in early June. Sikorski says the price will rise as German utilities are forced to buy more allowances to cover their increased emissions, but not enough to impel matching reductions elsewhere. That’s because there are still far more allowances in circulation than carbon being emitted, for which the recession is only partly to blame.
In the longer term, the carbon market may well do its job – but at a price to all of us.
The outcome depends critically on the success or failure of the EU’s new Energy Efficiency Directive. This calls for energy companies to implement efficiency measures that will reduce the amount of energy they supply by 1.5 per cent per year, which could cut emissions by 335 million tonnes by 2020.
Barclays Capital estimates that if the efficiency drive works, the trading system will still have surplus certificates in 2020. But efficiency gains are notoriously difficult to sustain across an entire economy because of economic growth and the “rebound effect”, where greater efficiency leads to even greater consumption. For instance, improved insulation makes it cheaper to heat a house, encouraging residents to turn up the thermostat and consume more gas.
This is critical because if Europe fails to cut emissions by raising efficiency, by 2020 the trading system will have a shortage of allowances of 120 million tonnes, according to Barclays. If so, on the basis of today’s fossil fuel prices, the carbon price would have to rise to €70 per tonne to achieve the emission target.
It is then that the supporters of the German nuclear shutdown may wish to reconsider. Because had Germany kept its reactors going, the ETS would have had surplus allowances even without the efficiency savings. “Germany will make it more expensive for everybody else. They are requiring a market price to be higher to meet the same reduction target”, says Sikorski.
Even if the efficiency target is achieved, Europe will still have a price to pay. As things stand, if the efficiency target is hit the trading system will have some 200 million tonnes in surplus allowances. But had the German reactors continued to generate, the surplus would have been some 500 million tonnes, meaning carbon prices and energy bills would be significantly lower. “Prices will be higher under any scenario than if Germany had kept its nuclear plants running”, says Sikorski. “We’re all going to have to pay more for our power”.
It is widely agreed the cost of carbon is too low and needs to rise to spur more abatement; that’s the purpose of Britain’s carbon price floor. But the effect of the German decision is to raise unnecessarily the cost of achieving the existing targets. And if EU members do succeed in cutting emissions by 335Mt through energy efficiency, all that effort will be almost entirely negated by the additional 300Mt of German emissions.
One more generation of nuclear makes perfect sense for both Germany and Britain. The right time to phase it out is only after the electricity supply has been decarbonized, which the British government predicts will be achieved in the 2030s. Then we would have the remaining lifespan of the nuclear plants – say 25 years – in which to roll out the renewables needed to replace that capacity without delaying decarbonisation. It would also allow time to develop the balancing technologies that will, I am certain, enable an entirely renewable electricity supply.