Made in Germany Green power: Grow up and get ready for a revolution

The potential new German government agreed to backtrack on environmental goals. The green power sector is aghast. But in fact, they need to recognize this for the opportunity it is.
New German coalition spells sunset for green power in Germany? Not quite. The sector needs to wean itself off government subsidies and pitch products to the private sector.

There was a great gnashing of teeth, a lot of groaning and even more cursing. Could it really be true? Negotiators for Germany’s largest political parties, who are trying to form a coalition government, appear to have agreed to cut back on the country’s 2020 targets for environmental protection.

Criticism of Angela Merkel’s Christian Democratic Union, their sister party, the Christian Social Union and the country’s Social Democrats, was fast and harsh, particularly from environmental groups and renewable energy sector: This is a morally bankrupt decision, they said.

Such criticism is understandable. However, any rational person has known for a while now that Germany would not be able to reduce greenhouse gas emissions by the desired 40 percent, compared to 1990 levels, as it had promised.

Multinationals all share the vision of deriving 100 percent of their power from green sources in future.

That doesn't mean anyone should relax and put up their feet. Reducing Germany's climate protection targets is also forcing the local green power industry to face up to an unwelcome truth: Any business that relies on long term support from the government is playing with fire.

The domestic solar power sector already knows from painful past experience what happens when entire industries exist at the whims of policymakers. After soaring to intoxicating heights, fueled by more than €100 billion ($120 billion) in funding, the industry went into a tailspin when the then-coalition government lost interest in distributing alms.

Since 2010, more than 100,000 jobs have been lost from the photovoltaic sector in Germany, with only 32,000 people still working in the industry today. Almost all of the sector’s pioneers have collapsed. The bankruptcies of Solon, Odersun and Q-Cells were followed by the ultimate disaster in 2017: the end of SolarWorld, Europe's last major solar module manufacturer. The good news: Despite the solar sector’s disaster, some 330,000 people in Germany still earn their money in the production, installation and operation of green power.

But in order to secure these jobs for the long term, the sector must free itself from government subsidies. Clearly this is difficult. But if it does succeed in cutting the cord, then there are enormous opportunities for the green power sector. Although Germany has not become the mecca of green energy that many hoped it would, it is still undoubtedly a technological leader in the field. Green power technology “made in Germany” has the potential to become a long term export success.

And the next revolution in the renewable energy business is already in sight.

As governments around the world continue to massively slash subsidies, it will become increasingly attractive for solar power generators and wind farm operators to start selling their output directly to large customers with huge energy needs, instead of continuing to hope for government support.

So-called Power Purchase Agreements, or PPAs, are on the verge of a major breakthrough. These would see green energy producers signing contracts to supply industry clients for a period of up to 20 years, totally independently of government. The International Energy Agency – an OECD organization that advocates for green power – predicts that, worldwide, around half of all new green power capacity by 2022 will already have been sold – via PPA contracts, whether through auctions or directly to companies.

This development is not being driven by hippie environmentalists. The world’s largest corporations have seen the writing on the wall and are pushing this. More than a hundred influential companies have already joined forces in the RE100 initiative; they intend to convert their energy supplies either partially or completely to renewables by 2020, or 2030. Among the supporters are tech giants like Apple, Google, Microsoft and Facebook, major German companies like BMW, SAP and Commerzbank, as well as retail and food giants like Walmart, Ikea, Nestlé and Coca-Cola.

These multinationals all share the vision of eventually deriving 100 percent of their power from green sources in the future. And PPA contracts are the best vehicle for this. This is because they not only ensure the businesses in question can meet their ambitious sustainability targets, but because PPAs also enable them to plan ahead in another all-important area: electricity costs. Such costs are a major part of the operating costs for these companies. With the PPAs, companies can help defend against the risk of rising electricity prices.

The green industry also benefits from this model. On the one hand, it enables manufacturers of solar modules, inverters, wind turbines and rotor blades to detach themselves from political flip-flopping. On the other hand, they will need to develop completely new business models, because tech companies want a safe and continuous supply of power for their data centers and for all those Teslas in the company parking lot; they need to know power is going to be available even when the sun is not shining and the wind isn’t blowing.

Instead of being paid for every kilowatt-hour of green electricity generated, the power companies will have to offer a more comprehensive portfolio of concepts for supply. For companies like Siemens, which already offer an entire range of products – from wind turbines to battery storage systems, transformer stations and smart technology for power management – there are unimagined new opportunities to do business. They could do globe-spanning deals by customizing solutions for clients – and they can do all that, without having to worry about what the politicians are up to that week.

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