“One power plant per company”

The 1985 book entitled The Energiewende is possible not only described the problems that the energy transition faces, but also proposed some solutions. Craig Morris describes them.

Solar Village

30 years ago, the authors already called for decentralized & democratized power production. (Photo by blu-news.org, CC BY-SA 2.0)


The authors state at the outset that they are not investigating what is politically feasible, but rather what would be best for society. Their call for a transition away from large, central power plants and towards small cogeneration units meant that high-voltage transmission power lines across the country could gradually be done away with. Here, we see the beginnings of the current criticism of the plans to cover Germany with 380 kV lines from north to south. Foreign onlookers tend to accuse such critics of NIMBY-ism, but there is substance to their arguments. The question today is still whether we want large, central plants or a greater number of small, distributed ones – only that the current grid discussion largely pertains to wind power.

30 years ago, the German authors found little to praise from their own country. Instead, they repeatedly looked to the US. In particular, the authors found the US Public Utilities Regulatory Policy Act (PURPA) of 1978 to be inspiring. PURPA opened the US power market to non-utility producers.

Three decades later, US energy policy does not seem to inspire too many Germans. After the Energiewende book from 1985, Germany took the idea of PURPA, improved upon it, and ran with it, leading to the massive deployment of both wind and solar. Swanson’s Law states that the cost of photovoltaics drops by 20 percent for every doubling of production. The German iterations of PURPA – the 1991 Feed-in Act and the 2000 Renewable Energy Act – provided that market growth for wind, biomass, and photovoltaics.

Still, the authors could not be completely happy with the situation today. They call for “one power plant, one company.” In 1998, the EU forced the unbundling of companies in the German power sector (thereby finally overcoming legislation from 1935), but Chancellor Gerhard Schröder’s government envisioned and supported the merging of top utilities, creating an oligopoly with an even smaller number of firms than the country had before.

All of the authors’ arguments about greater reliability, lower overall cost, and far greater efficiency through smaller power plants still apply today. We have lost 30 years of opportunity since the publication of the book reviewed here (and 17 years since the liberalization of the German power market in 1998).

We could have also used those decades to divest from coal. Today, RWE is struggling to remain profitable. Now, local governments face serious divestment challenges. How can they step away from RWE, especially when the power giant needs help? Let’s not forget that city governments can hardly afford to sell their stakes in RWE now that share prices are down.

Utility death spiral anticipated in 1980s

Amazingly, the authors implicitly anticipate the current utility death spiral. Kilowatt-hour prices drop as we move from the smallest consumers (households) towards the largest (industrial firms). The rationale generally given is that bulk purchases make unit prices cheaper, but the authors convincingly prove that the reason is different. In the first half of the 20th century, industrial firms often made their own electricity and heat. In order to expand, large utilities had to underbid the price of on-site generation for these firms. The utility recovered its profits from captive consumers, households and small businesses (for more details see the last post). In the 1980s, these parties had few options to the retail rate, though the first wind power generators did provide electricity at around seven pfennigs per kilowatt-hour, a fraction of the retail rate. However, even those early turbines often had a rated capacity of 55 kilowatts, a size that would overwhelm a normal household.

Historic power prices in Germany

1983 2015
Lowest industry price 3 pfennigs 3 cents
Retail rate 24 pfennigs 29 cents

 

Nowadays, solar power in particular gives households their first real alternative to grid electricity. Solar arrays are basically infinitely scalable as well, so three or four kilowatts on a rooftop is an affordable option. Utilities worldwide have historically shifted the cost burden from industry onto households because the latter were captive. Now that age has ended, and we are entering the world of grid defection.

The result need not be blackouts, however. Instead, we could move towards a future that the authors called for 30 years ago. If large utilities fold or at least shrink to a manageable size (and communities weather divestment from them largely unscathed), households and companies (large and small) will once again start generating their own heat and power. The result, as the authors argued, will be far greater efficiency (not to mention citizen participation). The grid will not be needed so much, and Germany will rid itself of a few companies that are too big to fail. Excess generation capacity will also be reduced, further shedding unnecessary expenses.

This scenario from 1985 remains compelling today and deserves closer scrutiny. Unfortunately, it is as politically unrealistic now as it was then. Indeed, almost no one calls for such radical measures today. Experts at Öko-Institut, which published the book three decades ago, now cover an impressive range of international topics. But such in-depth political calls for distributed energy have become rarer in the German research landscape.

At the beginning of the 1985 Energiewende book, the authors thank the “numerous donors” who made the study possible – in other words, no government or large company contracted the book. Funded with donations, the 1985 Energiewende book investigated a topic of interest to society. To paraphrase Margaret Thatcher, society does not contract a lot of research studies. German energy researchers now focus more on topics that moneyed interests want investigated.

The Öko-Institut still has donors, and they provided 230,000 euros of support in 2013 (PDF) – less than two percent of the Institute’s total budget of around 13 million. When the 1985 Energiewende book was written, the Öko-Institut lived almost entirely off of donors, according to Dieter Seifried, one of the book’s original four co-authors and now an independent consultant.

Has the German research landscape behind the Energiewende moved away from its roots? In 2013, I sat down with another top energy researcher from Öko-Institut for lunch. During our conversation, we drifted into the topic of re-communalization (exactly what the 1985 book calls for), and he expressed his skepticism: “I don’t know why people automatically think a municipal utility is better than a private-sector utility.” So for this article, I asked the original author Seifried to respond:

“The cogeneration of heat and power requires planning and optimization at the municipal level. Efficiency requires close cooperation with customers. And energy supply is an important public service that should be accountable to (local) democratic processes and control. Only when these criteria are fulfilled do municipal utilities chiefly pursue energy policies for the benefit of the common good, rather than for profits – regardless of whether these profits flow back to corporate or municipal utilities.”

So Seifried and his skeptical colleague currently at Öko-Institut both agree that municipal utilities are not always better, but Seifried believes that municipals done right are the best option. If I sat down with that skeptical researcher today, I know what I would answer: your institute has written an excellent book on that subject.

The series reviews the 1985 follow-up book on the Energiewende study from 1980. That book was also reviewed here in 2013:

Craig Morris (@PPchef) is the lead author of German Energy Transition. He directs Petite Planète and writes every workday for Renewables International.

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Craig Morris

Craig Morris (@PPchef) is the lead author of Global Energy Transition. He is co-author of Energy Democracy, the first history of Germany’s Energiewende, and is currently Senior Fellow at the IASS.

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