It's actually 3 p.m., so it's quite pleasant. Thanks for having us. I'm quite flattered.
I'm an independent consultant with an extensive background in renewable energies, both at the national and international levels. I used to be a researcher for a study commission of the German Parliament from 2000 to 2002, studying low greenhouse gas futures for Germany, so I can very much relate to the situation you are in. I also worked and did my PhD in the United States, so I have a connection to North America in general. I've been to Canada many times.
My last job was as head of the renewable energy division at the German energy agency. We delivered policy advice to the German government as well as to other governments. We were working with German companies, particularly in the area of renewable energies, and we generally promoted in public discussion the issues of energy efficiency and renewable energies; for example, in terms of grid integration, smart grids, and telecommunication links, as well as biogas feed-in. These are just a couple of examples.
I was asked to speak to the German experience in renewable energies. I was told that you have been given a couple of slides that I provided. Is that correct?
The Chair: Yes, that is correct. Thank you. We have the slides.
Dr. Christine Wörlen: Thank you very much.
I'll ask you to move to the first slide I provided. It's on page 4, and it is not the upper but the lower one, with a number of bars. These bars indicate five different ways to see how the German renewable energy sector has developed over the last 10 years.
When I started working in this area, around the late 1990s, we were told that this is as good as it gets in terms of renewables. As you know, Germany is not a very resource-rich country, either in terms of fossil resources or in terms of renewable energy resources. But because of a decided and very consistent, coherent, and stable policy framework, we were in fact able to develop that resource base quite a bit.
You can see the developments on these slides. In terms of overall final energy consumption, we were able to almost triple our use of reusable renewable energies. In the case of electricity, we were able to multiply it by a factor of 3.5, and in terms of heat, we were able to more than double the use of renewables in this sector.
Nevertheless, the European Union asked us to reach further for more ambitious targets, and you can see those in the slides in the red bars with the little dots. In fact, by 2020 we are asked to achieve 18% of our final energy consumption from renewable energies, and the German government intends to do that by covering 30% of our electricity use from renewables and 14% of our heat use.
Last but not least, we also have to cover a significant share of our transportation needs from biomass, but this is not something we will cover today.
On the next slide, on page 33, which has bars that go across rather than vertically, you can see what this meant for Germany in terms of CO2 emission avoidance. In total, Germany was able to avoid about 117 million tonnes of CO2 in the year 2007 alone. This compares with total emissions in Germany of 820 million tonnes. So we avoid about a seventh of the CO2 emissions from the energy sector just by using renewable energies in the heat and electricity sectors.
If you turn to the slide numbered page 15, you can see where most of this growth comes from; it is the electricity sector. The German system relies, for the most part, on the functioning of a feed-in tariff system, meaning that as long ago as the early nineties, renewable energy electricity producers were guaranteed a specific rate for electricity for each kilowatt hour they produced. But this is only one aspect of why this law was so successful.
A very important aspect also is that the transmission system operator actually is required to buy every kilowatt hour that is produced from renewable energies. Also, the law specifies very clearly who bears the cost of grid connection and what timeframes are allowable for providing that grid connection. These kinds of clear rules save a lot of transaction costs on both sides--on the side of the transmission system operator as well as on the side of the plant operators.
The law is reviewed on a regular basis. It has a built-in digression, meaning that the tariffs go down by a pre-specified rate every year. So if I connect my plant to the grid this year, I will get more than if I wait a year and only connect it next year. This incentivizes early action, and it also adds to the cost-effectiveness of this regulation as well as to the long-term stability of the overall system.
In this review process, the government also uses the opportunity to adjust small technicalities in the law. For example, they provide additional guidance on grid codes and very technical details. This regular review process adds to the overall stability of the whole program.
This is as much as I want to say on the electricity sector, and I'm happy to take questions afterwards.
Let's now turn to heat. Heat generally was not quite as successful as electricity. You can see this on the slide on page 26. The upward trend is not quite as pronounced as it is in electricity. The government is also more cautious in terms of putting out targets on heat, for three reasons, really. The policy instruments that have been used so far have relied on investment subsidies and therefore have been very dependent on the government's budget. Secondly, this also implied that the detailed regulations for this type of support had to be adjusted every half-year, which is a very short timeframe, and basically all the small investors in solar thermal installations, for example, or in small biomass heat installations had to constantly keep track of the investment conditions that were supportive at this point in time and then wait or delay their investment proposals or just drop them. This constant revision of the rules was not very helpful to provide stable growth. So we had those two aspects of the lack of an effective policy framework.
But also, to be honest, the sector is much more difficult, and for renewable electricity generation, normal investment frameworks work. It's easy to build something on a green field. In the heat sector the retrofitting aspect is much more important, so this adds to the difficulties of achieving high growth rates here.
Lastly, I would like to draw your attention to slides 37 and 36, which demonstrate the overall impact these policies had on the German economy. In fact, renewable energies are a major growth factor for the German economy. We have, I believe, about 250,000 jobs in the renewable energy field. Some are consultants, like me, but we are really the very smallest part. We have more than 245,000 jobs in producing the facilities, running the facilities, setting them up, installing them, maintaining them, and financing them.
On slide 36 you can also see the effect on our GDP. It adds to the German economy a total turnover of about 25.5 billion euros, and this actually does not even include those revenues that regenerate from exports, which are significant. You can also see that most of this, 42%, comes from the biomass sector, 30% from the solar sector, and 23% from the wind sector. Hydro power and geothermal play a smaller role here.
Last but not least, in these times of crisis, we also notice that the renewable energy sector is good for the economy in that it is not very affected by the current crisis. We are confident that the sector will continue its growth. Yesterday I was at the Hannover Messe, which is one of the biggest fairs for machinery suppliers. They had to correct their growth predictions downward, but from a very optimistic 26% to a less optimistic 15% growth rate that they still expect to realize this year.
So much for my presentation. I'm looking forward to answering more of your questions.
Thank you very much for the opportunity to participate in this hearing. We are both independent consultants working in the district heating sector. We are normally helping Swedish district heating companies in their operation, and especially in their market presentations.
We are also focusing on exporting Swedish district heating competence, as we understand that Sweden is among the world leaders when it comes to district heating systems.
We have been called in a very short time to participate in this hearing, so unfortunately we have not been able to send any presentation to you or any figures; we'll just have to read it. I'm sorry about that. All the same, we are going to focus on district heating, as I suppose this is the main interest for this hearing.
To begin with, I'd like to say something about the district heating advantages as we find them in Sweden. The district heating system.... There is actually a low prime energy demand due to the high system efficiency. There is a very high efficiency in the system when it's correctly done.
We also have good utilization of domestic renewable energy resources. There is big utilization of industrial waste heat in the Swedish system. The carbon dioxide emissions are very low. We use incineration where heat recovery is gained for the district heating systems. Cogeneration is normally a basic system in district heating systems where we produce electricity. Heat supply is profitable in Swedish cities. The environmental performance is actually outstanding.
There are so many advantages to district heating systems, not only in terms of energy sources and fuel usage but also environmentally. As well, it's always produced in a profitable way.
The district heating history in Sweden covers about 60 years now. All major cities in the country invested in these systems in the 1950s. Initially it was local environmental reasons that started the replacement of individual oil boilers. Although there was continuous expansion in the 1950s and 1960s, mainly in the big cities, a dispersion took place after two oil price peaks in the 1970s. Then even smaller cities invested in district heating systems in order to reduce heating costs and to improve system performance efficiencies.
Most municipalities started their district heating expansion by connecting major buildings such as hospitals, schools, administration buildings, and municipally owned apartment blocks. When network pipes were passing areas of smaller houses, these were also connected to the district heating system, basically due to bulk demand.
The infrastructure within each building made it easy to convert from oil boilers to district heating, where we normally have centralized systems, but the production and distribution system needed heavy investment. For the municipalities, normally the owners, the accepted depreciation period was about 20 to 30 years, but the return on investment was much shorter than that.
In Sweden, the municipalities dominated ownership of district heating systems. Fifty years ago, 35% of the system operations were organized in municipal administrations. Today, though, almost 100% are organized in business-driven companies. They are also making good profits.
Historically there has been a regulatory system advantage for these systems, which we call heating plants. The legal heating plan, which was sort of a map of the city, had different areas planned for district heating, electricity heating, and gas heating. This system was abolished in the mid-90s; district heating companies are now operating in an unregulated market, competing with other heating systems, often heat pumps in Sweden.
Still, the expansion not only proceeded, it even increased. During the 1980s, there was a major increase in district heating systems all around the country. This was a politically driven expansion in order to reduce oil dependence and emissions of especially sulphur dioxide and nitrogen oxide.
The incentives were basically economic in order to stimulate market conversion, but this was also the starting point for fuel conversion within the district heating systems. I'll talk about a few of the systems just to show what happened between 1981 and 2007.
In 1981 we had about 97 petajoules of district heating in the Swedish system. By 2007 it was almost double that, at 175 petajoules. The fossil fuel accounted for 87% in 1981; in 2007, it's 12%. Biomass was none in 1981 and 45% in 2007. Incineration has increased from 5% to 16% in these years. Heat pumps accounted for 0% in 1981, and today, or at least two years ago, it was 9%. Industrial waste heat was 3% in 1981 and 7% in 2007.
So in 2007, renewable energy sources, like biomass incineration, industrial waste heat and so on, accounted for 75% to 80% of the fuel supply in all the Swedish system. Since the eighties, the expansion of district heating indicates that Sweden has achieved the Kyoto agreement more than four times over.
The reduction of CO2 emissions from the district heating system has exceeded 80% in these years. The market share for district heating among multi-family houses to date is 88%; offices and public buildings, 75%; and small houses, 12%.
Customer opinion about district heating is that the environmental aspects are the most important for choosing district heating, but they also say that simplicity and the trust in district heating is one of the biggest reasons for choosing it. It's also said to be modern and price-worthy, although the companies are profitable.
Fifty years ago, 35% of the operation was under municipal administrations, but there has been a conversion. Today, almost every operation is a business-driven company.
This was just a short brief of the development for more than 50 years. I hope to give you more appropriate and helpful answers to your questions.
Thank you very much.
:
I have already mentioned the two most important parts. For electricity, it was the so-called EEG or Renewable Energy Sources Act. In North America, it is also sometimes known as the feed-in tariff or FiT scheme. This scheme works in two ways: first, it gives a guaranteed rate; second, it guarantees many other factors, like the grid connection. The guaranteed grid connection ensures that you can sell your electricity to the market, something that is not possible in Texas and other places. There are other regulations that take away certainty.
So one side is the purely financial side. The other side is the uncertainty in investment conditions. These incentives are often called subsidies, but they are not subsidies because they are not coming from the government's budget. They are coming from the transmission system operator, who has to buy this electricity and then sells it again on the free market.
Every utility in Germany, or every retailer for power, has to buy a share of this electricity to sell to customers. So every customer in Germany gets the same share—14% of electricity from renewables in their power mix. This is something similar to a renewable portfolio standard but very different in respect of what is actually regulated.
The rates compare not too badly with rates on the general market. On the power exchange, you can have power prices as low as 35 euros per megawatt hour, but we have also observed power prices as a high as 160 euros per megawatt hour.
The tariffs for wind, which are the lowest, are in the range of 60 euros per megawatt hour. So the more economical of these electricity sources are becoming marketable. We are also thinking about how to change this market setup so as to allow for a free market in this area.
Actually, I must correct myself. The most economical source is actually hydro power, even in Germany. But we have very limited natural potential for hydro power. The one that still has growth potential is wind.
So much for the electricity side. I have maybe one last word. The investment on the electricity side is made mainly by a special type of project developer, who has been developing this product for the last 15 years. The traditional utilities within Germany do not invest in wind-power farms. They are starting to invest in offshore, but not onshore. This is an indication that these rates are not high enough to give a standard mainstream utility an incentive to invest. They'd rather go into fossil fuels, where they can still make more money.
For heat, we had an incentive scheme that was building on investment support. If someone wanted to build a solar thermal collector on his roof, he would have to go to a merchant and get it installed and then hand in the bill to a public authority to get a cheque for reimbursement. The details on these regulations have changed very often. This proved to be a pretty unreliable program for consumers, which limited the take-up and effectiveness of these subsidies.
At the beginning of this year, the government put in place a regulation that obliges each household to cover a certain share of its heat demand from renewable energies. So if you build a new house, you have to cover about 15% of your heat demand from a solar resource. This is a regulation that has been proven on a municipal level in Germany. So far a number of municipalities have tried to put this in place in their local area and it has proven very effective. However, the federal government actually does not have any powers to put this in place and no mechanism for enforcing this. So we are now waiting for the länder, which are comparable to your provinces, to put in place directions on how to enforce this locally. And then also municipalities might, or might not, put in place even stronger regulations and even stronger demands on this. But without action on the side of the municipalities and länder, we will not see strict enforcement of this law.
Does that answer your question?
We don't have a lot of time today to ask questions, but I would like to ask you if you could provide us with some information.
Ms. Wörlen, you had talked about power rates a little bit earlier. I'm wondering if it's possible for you to send the chair your rates for the different energy sources you've talked about this morning. There were a number of them—hydro, wind, biomass, photovoltaic, geothermal, and solar thermal. I'm wondering if we can get that, and some information on how your rates vary from business to residential, and baseload to peak and those kinds of things. If it would be possible for both of the presenters to do that for us, we could get an idea of how we can compare those rates, and then compare them to what's happening in our country right now.
I'd like to talk a little more specifically about these feed-in tariff rates. I think the other committee members are getting sick of me talking about the monopoly utility provider in my local province, but the reality is that it has not been very cooperative in terms of giving people alternatives for energy provision. So I'd like to know at what height those feed-in tariff rates have had to be applied in order to encourage development.
Then, Ms. Wörlen, you talked about how they have been decreasing gradually. I'd like to know where they are right now and at what point you think they won't be a factor anymore. Have you reached that point in your country?
I'd also be interested in having our Swedish guests speak to that as well.
:
There were a number of questions. Let me give you the last answer first.
It depends really on who you want to incentivize and what the framework conditions are that they must meet. I think as I mentioned and tried to emphasize earlier, it's not only the level of the tariff that is an incentive. If you give them a stable, long-term framework, this will already be a big help. So you tell them who has the obligation to connect them to the grid, what grace period the grid operator has, how long they have to wait until the grid operator takes action, whether they have to wait at all, and whether or not there are response periods that are tolerable.
Grid codes are, for example, often a point of debate. So if there is a clear grid code, if everybody knows what technical demands a plant has to fulfill, that saves a lot of time and transaction costs. So there are non-monetary factors that a regulator can put in place in order to make the process easier.
In terms of the absolute height, I would have to pull up those rates somewhere, because, as I said, they change every year. They are different according to each technology. They vary according to, for example, plant size in terms of photovoltaics, as they do under the Ontario scheme.
For wind, they depend on each single location, so the quality of the wind in a specific site is measured, referenced against the benchmark, and then also the tariff is referenced against the benchmark. So it's not a simple, straightforward answer. Wind, on average, reaches tariffs that can also be achieved on the power exchange, so the average tariff is not much higher than it is on the power exchange average. But for the others--biomass as well as solar photovoltaics--the tariffs are much higher. In fact, for solar photovoltaics, they are in the range of 40 euro cents per kilowatt hour.
The retail tariff for household consumers on average in 2007 was 20.6 euro cents per kilowatt hour. So that, too, is much higher than it is in Canada and most places. That retail tariff contains a significant share of taxes and fees that are put on top. Of this, the actual cost of transmission and the generation of electricity is 12 euro cents per kilowatt. So the end-of-the-pipe price, the delivered price of the utility, is around 12 euro cents per kilowatt hour. All the rest is charges and fees put on top by the government.
Did that answer all your questions?
:
Thank you, Mr. Chairman.
Thank you so much to our witnesses.
The committee has been studying integrated energy systems, and I'm sure the members of the committee.... I certainly am impressed with the integration of the legislative framework and the cooperation that appears, on a strategic basis, to be between local authorities, transmission operators, and the other levels, the regional or provincial or whatever the equivalent levels of government are in both Germany and Sweden. I'm very impressed with that.
You have talked about the technology matches with residential and industrial parts of the economic sector. Are there any patterns or examples of how transportation, public transit--intra-urban, inter-urban--fits into the integrated energy format in both countries' experiences?
Mr. Chairman, as part of that, in Canada, in specific urban areas, there is a large environmental drive to electrify our old systems, diesel-driven systems and so on.