By Gerard Wynn
LONDON Feb 20 Britain and Germany have
contrasting blueprints for electricity policy, with Germany
funding greater diversity and security of supply that may avert
sharp increases in electricity bills in future.
The two countries have a similar starting point - a major
decommissioning of conventional capacity within a straightjacket
of mandatory European Union targets for carbon emissions and
Their contrasting strategies reflect differing political
priorities and geography.
They are at opposite ends of a spectrum of choices on:
inter-connection with neighbours compared with relative
isolation; nuclear versus more renewables; centralised versus
decentralised power; and high state taxes and levies compared
with high generation costs.
Each faces risks. Britain in the short-term will be
increasingly dependent on international gas markets, with the
danger of rising generation costs, while Germany has already
swallowed a huge bill for its new wind and solar capacity.
Germany has much higher residential power prices because of
renewable energy levies, but lower wholesale and industrial
power prices because it has far more low marginal cost capacity.
To increase its diversity and flexibility of supply, Britain
could invest more in small-scale, modular capacity, with a
natural advantage in energy from waste, and ramp up
interconnection with neighbours as far flung as Iceland.
To cut wholesale power prices it needs more low marginal
cost plant, which means more nuclear, wind or solar power, given
new coal is no longer an option under the country's carbon
Germany must limit taxes on households which presently are
more than ten times corresponding levies on British residential
power, while it faces additional costs to deal with the
intermittency of wind and solar, including reinforcement of its
In Britain, older fossil fuel power plants have run foul of
European pollution limits while Germany has chosen to close its
nuclear fleet in the wake of the Fukushima crisis two years ago.
Britain will lose about 11.6 gigawatts (GW) of coal and
oil-fired power by 2015 or earlier, not accounting for limited
retrofits to burn biomass instead, as a result of the demands of
the European Union's Large Combustion Plant Directive (LCPD).
Germany, meanwhile, closed some 8.4 GW of older nuclear
power capacity in the summer of 2011, after the Fukushima
crisis, and will close a further 12 GW from 2015-2022.
Each country will struggle to maintain an adequate capacity
margin, measured as the percentage excess installed capacity
over peak demand.
Germany has a theoretical capacity margin of about 100
percent after investing hugely in wind and solar capacity.
But the margin is much narrower when it comes to reliable
available capacity which can be called upon at any time: RWE
calculates such spare capacity at around zero now
rising to 5 gigawatts in 2015. (Chart 1)
Britain faces a wafer thin capacity margin from 2015,
according to the chief executive of the energy watchdog Ofgem,
"Life could get very tight and uncomfortable around 2015 to
2018. We have a form of near crisis for our power station stock
in the next few years," he told the BBC Today programme on
In a subsequent speech, he reported a base case capacity
margin of 4 percent in 2015 (and zero if the country made full
use of export capacity) compared with 13 percent now. (Chart 2)
Chart 1: (slide 112)
Chart 2: (slide 21)
Chart 3: (slide 103)
Benchmark, year-ahead wholesale power prices are presently
51 percent higher in Britain than Germany.
German baseload 2014 prices were 42.5 euros ($56.8) per
megawatt hour on Tuesday, and British equivalent
prices 55.65 pounds ($85.9).
Germany has a greater proportion of low marginal cost plant,
including wind and solar (near zero operating cost),
interconnectors, nuclear and lignite, which together account for
about 50 percent of installed capacity, according to RWE.
It is expected to replace all upcoming nuclear closures with
more, low marginal cost wind and solar.
Britain's equivalent low marginal cost plant accounts for
just 25 percent of installed capacity, including wind,
interconnectors and nuclear power. (Chart 3)
In Germany, power imports and exports accounted for 7 and
9.4 percent of domestic consumption in 2010, according to
Eurostat, compared with 1.9 and 1.2 percent in Britain, the
third lowest in the EU.
Partly because of the country's massive investment in
renewable power German residential consumers pay much higher
non-market charges, including a renewable energy levy,
cancelling out lower wholesale power prices.
German taxes and levies on household bills were 14 times
those in Britain in the second half of 2011, according to
Eurostat data, at 11.4 euro cents per kilowatt hour (kWh)
compared with just 0.8 euro cents. (Chart 4)
German retail power prices were around 25 euro cents
compared with 16 cents per kWh.
But Britain's Department for Energy and Climate Change has
confirmed that a maximum low carbon electricity levy on
households would rise in Britain, to 7.6 billion pounds (in 2012
prices) in 2020 from 2.4 billion now.
In conclusion, both Germany and Britain face inadequate
Germany's choice of distributed renewable power has high
capital and grid reinforcement costs paid for through higher
residential power bills, but very low operating costs meaning
much lower wholesale power prices, which benefit industry.
The decision to drive a more decentralised, modular approach
is less risky regarding project delivery and outages.
Britain's choice of gas and nuclear is probably cheaper up
front, but exposes the country to rising import prices and
higher wholesale power prices in the case of gas, and in the
case of nuclear, project overruns, delays and outages.
Both are edging towards more state intervention where both
could be less competitive than international rivals including
the United States.