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Germany’s Bet on Renewable Energy is an Investment in Digital Disruption

The extraordinary amount of money Germany is spending to transition its market away from fossil fuels and nuclear energy sources is looking increasingly like an investment in the country’s future industrial competitiveness. Most experts have estimated the cost of Germany’s ‘Energiewende’ policy in the hundreds of billions of euro, some as much as a trillion euro. However, the less-often-told story of the Energiwende is that German engineering and its industrial base are at the forefront of global efforts to integrate renewables into energy networks.

To better understand the Energiewende policy, I took an in-depth look at Germany’s decision to transform their energy market in 2015 and recently published my findings in a white paper, “Putting the Pieces Together: Transition and Transformation in Global Energy Markets.” The work examines Germany’s efforts, particularly the technical and engineering aspects, so as to gauge Germany’s likely success in meeting its aggressive targets.

In spite of what has been mostly negative coverage in the United States about Germany’s energy ambitions, in reality, their efforts are actually very successful. After all, in terms of overall renewable energy usage, the country passed the 30 percent mark of total use in 2014, and plans to reach 40 to 50 percent countrywide by 2025. By 2050, that figure is expected to grow to 80 percent. As a result, the most important question is how this has been achieved.

To uncover the real story, I spent time on-the-ground in Germany with a large variety of constituents across the energy ecosystem. I posed extensive questions to them in order to find out how they are making this energy transformation work, as well as to determine the true sentiment from German engineers tasked with making this transformation happen. I wondered if they were more optimistic or more concerned about the pace and the approach the country was taking.

I learned that the vast majority of the engineers and technical experts working in the trenches in the energy sector are increasingly viewing higher levels of renewables – even up to 100 percent use — as technically feasible. This is remarkable, considering most of those same individuals admitted that they would not have believed what has already been achieved was technically feasible just five short years ago.

The key to the German transformation is the entry of “digital disruption” into its energy space, including the advent of digital control platforms for aggregating distributed energy resources, such as so-called ‘Virtual Power Plants (VPP’s), which combine the use of many smaller-scale connected energy systems to provide a bigger, grid-balancing resource. What I discovered is that the integration of these technology tools, sensors and VPP’s to better control these distributed resources and make them responsible at grid scale in the same way fossils have been, was really the answer of how Germany is making this engineering challenge work.

Many of the past international studies on this topic have focused primarily on the differences between the United States and Germany in terms of scale, policy and existing energy infrastructures, but what I wanted to learn was why Germany would take such significant economic risks on renewable energy. That gets to the questions of why its government believes it will ultimately be successful with it, and what the United States and other markets could contribute to and learn from it.

From Germany’s standpoint, it is clear the government realized that its industrial base, with companies like Siemens, ABB and others, was well positioned to win in a digital energy economy. It seems obvious that Germany is positioning its industrial companies to get ahead in research and development and associated technical work and know-how, so that they can create new value for the country in the future. I think their future economic success and whether or not the Energiewende is ultimately judged to be a wisely crafted program rests on the ability of ABB, Siemens and others to capitalize in the way that they would expect based on the investment.

My white paper describes the overall differences between Germany’s environmental and security views, its razor-sharp focus on maintaining grid stability, and the rise of the VPP’s that are helping solve some of the more sophisticated energy balancing challenges involved in the process today. However, the study also shows there are some energy blind spots Germany will have to address to meet its energy goals—and this is where the U.S. can both learn and benefit.

What I ultimately concluded is that, while the U.S. lacks a similarly aggressive national plan to transform our energy market, we are home to the technology innovations and disruptors that Germany (and other countries throughout the world) will ultimately need to support their own transformation efforts. Specific innovations I looked at were battery storage, intelligent transformers and inverters, sensors and data analytics, and their associated standards. Developing VPP’s in the United States is also a high-potential opportunity.

We know that companies with massive computing power and intelligence like IBM, as one example, are motivated to provide U.S.-based utilities with increased digital controls over distributed energy resources. In addition, investing in VPP’s is an option that utilities and other stakeholders can now seriously consider, and they actually have been looking into those investments.

The white paper further concludes that a much more distributed, resilient and smarter energy future globally will take hold over the next decade. Such an energy network is now technically feasible because of today’s mechanical, electrical engineering and information technology resources – which makes it an exciting time for every country looking to increase use of renewable energy.

Dr. Erin Grossi is chief economist for UL. The full white paper is available for download at UL’s online library.

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One thought on “Germany’s Bet on Renewable Energy is an Investment in Digital Disruption

  1. An important insight your study points out is that transforming to a 100% energy infrastructure is, simply put, an engineering problem. This is an engineering problem that is well within our ability to solve. It is becoming clear that as German engineers and operators gain experience with the new systems they are getting more confident in its application. You also make a good point that a renewable infrastructure will be made possible by our digital revolution. Another important point you make is that Germany is investing in developing 21st century technology and positioning the country to be an industrial leader. My feeling is that Germany, for example, did not let “Solar World” fail so that Germany could maintain a position in the PV market.

    The United States does not have this vision and has enormous industrial interests holding onto the “buggy whip” of our energy infrastructure, e.g. oil, natural gas, and even coal… China and Germany are positioning themselves to become the industrial powerhouses of the 21st century and beyond. The US does have TESLA and other companies that have been pushing forward, but without the support that will facilitate a sure place in future markets.

    The US has a lot resources to maintain a place in future markets, but the lack of support, strong fossil fuel interests, and the new US religion of bowing to the “market” to tell the country what it should do is putting the US at serious risk of falling behind….And of course there is the other problem that the lack of support puts the country and world at risk of not achieving world climate goals too……

    I do think at this point we need more economists and engineers to study and discuss the nuts and bolts of how to make a 21st infrastructure possible. From more analysis, as you found, its becoming clear that more will discover it is not as difficult as many think.

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