Fraunhofer Institute for Systems and Innovation Research ISIFrom resistance from power companies to the issue of future incentives
If we are to achieve climate neutrality and safeguard the future viability of our energy system, renewable energies are absolutely key. It is also true that the role of renewable energies in the German, European and global energy system has undergone a real transformation over the past 50 years.
From around 1970 to 1990, the focus was on exploring technological solutions. Government incentives were made available to conduct applied research into various renewable energy technologies such as wind energy, low- and high-temperature use of solar energy, geothermal systems, use of wood and biogas, and photovoltaics. The first phase of technological development was marked by strong resistance from established energy suppliers. Fraunhofer ISI got involved in this first phase by participating in a rather technology-focused project to examine a geothermal heat store, for example, and supporting an architectural competition for solar houses in Landstuhl, Germany, as part of a demonstration project.
Feed-in tariffs and certificate trading
The 1990s and 2000s were characterized by an ever-accelerating expansion of the market for renewable energies in the electricity sector — helped along by the climate developments agreed at Rio de Janeiro and the Kyoto Protocol. This market expansion was supported by various incentives. With its fixed-rate tariffs, for which power companies were obliged to collect electricity from renewable energies at previously defined feed-in tariffs, Denmark was a particular pioneer in promoting wind energy, followed by Germany then Spain. Feed-in tariffs have also applied in Germany since 1990, first as part of the German Electricity Feed-in Law (Stromeinspeisegesetz), then over time being adapted to changing conditions in the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz or EEG, valid since 2000). Besides fixed feed-in tariffs, renewable energies were also promoted in the EU by quota obligations in conjunction with tradable green certificates.
The design and performance of the various approaches to incentives were widely discussed within the scientific community. The scientific discourse mainly focused on whether renewable energies should be supported by sector-specific policies or indirectly via carbon pricing. Objective indicators illustrating the efficiency and effectiveness of an incentive, for example, were developed so different approaches could be evaluated and compared. Fraunhofer ISI, for instance, supported this work by evaluating the incentives provided by the German Federal Ministry for Economic Affairs to use renewable energies and through a European project by developing quantitative indicators for monitoring the effectiveness and efficiency of policies to promote renewable energies. The findings showed that, during that incentive phase, feed-in tariffs achieved better results than quota systems, both in terms of the efficiency of the incentive and the foothold it obtained (effectiveness), as well as in its application. Having in-depth knowledge of the costs involved in producing renewable energies, which vary widely from region to region and were determined by potential studies based on geographic information systems, became increasingly relevant.
Financial factors are not the only crucial ones
During the 2010s, renewable energies developed with a greater focus on aspects relating to market and system integration. Such aspects included the variable feed-in nature of wind and PV electricity and the need, motivated by growing competitiveness, for further economic integration in the electricity market. Scientific analyses examined these requirements using an increasingly integrated approach that included developing and utilizing models of energy systems to evaluate the effects and consequences of integrating renewable energies into the electricity system. Multi-criteria development and evaluation approaches to promoting renewable energies were also used more and more often. To facilitate greater integration into the electricity market, the incentive system of fixed tariffs used in Germany was switched to one of feed-in premiums, which were paid in addition to proceeds from the electricity market (EEG 2012). Furthermore, the grant amount, which had been determined administratively until 2015, was changed to a system where it was set by auction.
Other aspects also had a role to play besides market integration, such as a more decentralized production and consumption structure thanks to self-consumption concepts in which the provision and consumption of renewable energies are concentrated in one location. Non-financial factors like protracted approval processes are also crucial for the expansion of renewable energies and Fraunhofer ISI investigated those too.
Still a question of incentives
As part of the “Think-tank Renewable Energies (Zukunftswerkstatt Erneuerbare Energien)” project conducted for the German Federal Ministry for Economic Affairs, various options for fundamentally enhancing renewable energy incentives — independently of specific legislative proposals — were developed and examined. The increasing interlinking of sectors, for example by using electricity to supply heat via heat pumps, has resulted, among other things, in shifting the pay-as-you-go refinancing system for renewable energies to a system of financing based on households. This is to relieve the strain on end customers exerted by electricity prices and to make the use of fuels for sector coupling technologies more favorable.
As far as future developments are concerned, there are significant questions to answer around how to accelerate and implement the transition to a system of fully renewable electricity. Key issues here are whether and in what form incentives should continue to be used and how existing non-financial obstacles can be largely removed.
