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Federal government’s governance of energy transition still inadequate

Statement made by Kay Scheller, President of the German SAI

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Ladies and Gentlemen,

Energy transition. An important issue for the state, society, economy, climate and environment. An issue that affects all of us, citizens, economic actors and government actors. The key challenge is to make Germany's energy supply sustainable. This will require far-reaching changes that the federal government needs to address. And these changes will cost money.

For the electricity generation sector alone, including grid expansion, related costs are expected to amount to some 520 billion euros between 2000 and 2025.

We have studied energy transition in our audit work already several times. In 2016 and in a special purpose report in 2018, we noted that the Federal Ministry for Economic Affairs and Energy insufficiently coordinated and poorly steered the project. The enormous efforts made and the burdens placed on citizens and businesses were not rewarded by an adequate outcome. The result of our audits was little promising.

That is why we decided to scrutinise this issue once again, three years after our last review, since energy transition is still characterised by tremendous expenditure and cost.

This time, we put our focus on security and affordability of electricity supply. We based our audit work on the federal government’s reports on the monitoring and progress of energy transition.

However, the result of our audit still is little promising:

Since 2018, little has been done. The federal government still neglects governance of the transformation process. This puts a safe, secure and affordable electricity supply of private households and businesses at risk. A reliable supply in the years ahead is subject to risks that the federal government has not fully taken into account. Energy supply is not monitored consistently, the federal government has failed to define indicators to measure affordability. This jeopardises both implementation and acceptance of the energy transition project and endangers Germany’s competitiveness.

 

Full stocktaking and assessment of security of supply

The first aspect I wish to mention is secure electricity supply. In this regard, the Ministry needs to enhance monitoring and include scenarios that identify current developments and existing risks reliably and realistically.

The Ministry has to measure and evaluate secure electricity supply by means of indicators and threshold values. However, we found weaknesses that I wish to illustrate by two examples:

  • Monitoring is incomplete as to the criteria of reliable energy supply and system security. Key aspects are covered only to a little extent, or even not at all, by the Ministry’s monitoring. This includes the aspects of grid expansion and storage, grid maintenance and stability or supply disruptions. There is need for immediate action.
  • In the case of other criteria, underlying assessments have been made on the basis of unrealistic or outdated assumptions. Some of these assumptions are overly optimistic or not reasonable. For example, the federal government failed to duly consider the
    • phase-out of coal power
      This will lead to a capacity gap of up to 4.5 gigawatt – the power of four large conventional power plants.
    • stagnating grid expansion and restricted cross-border exchange capacities
      These two aspects strongly impact on security of supply.
    • new plans on hydrogen production and ”electrification” of heat and transport
      This will require a considerable additional need for electricity.
    • years with extreme climate conditions
      As a result, wind and sun produce far less electricity.


What is more: The Ministry did not analyse a scenario with a coincidence of several risk factors for a reliable supply. The Ministry failed to conduct such a stress test of a worst-case scenario.

The Ministry needs to enhance and adapt monitoring accordingly in order to effectively address these real dangers for a secure energy supply. We therefore urge the Ministry to analyse comprehensive, topical and realistic scenarios, also including a worst-case scenario, in which several risk factors coincide.

Define affordability and accelerate an overall price reform

Already in 2018, we recommended that the Ministry transparently define the concept of affordability of energy transition. Today, however, we note that little has been done:
The Ministry has still not clearly defined an affordable and efficient electricity supply. Up to what level electricity is regarded to be reasonably priced? Still unclear.

I am concerned about the high electricity prices for private households and small and medium-sized enterprises. This jeopardises the acceptance of the intergenerational project. And endangers Germany’s competitiveness.

The current system of price components including surcharges, taxes, fees and levies adds to soaring electricity prices. These components account already for 75 per cent of the electricity prices. All government efforts to stop this trend have failed so far. On the contrary: This trend is likely to increase. Factors such as the expansion of renewable energies, grid capacity or carbon pricing will generate an additional demand for electricity. One example is the hydrogen strategy. Or the inclusion of the sectors of heat and transport in the energy transition project. The promotion of electricity-intensive sectors such as electric mobility or heating from renewable sources (e.g. geothermal heat pumps) will lead to a higher demand for electricity. A significant price increase will be the likely consequence.

We are concerned that in its current form, the energy transition project will put Germany’s competitiveness at risk and that it will also overburden businesses and private households. This may jeopardise the acceptance of the intergenerational project.

There is need for action: The system of state-regulated price components has to be reformed fundamentally. The Ministry needs to analyse how it can accelerate an overall price reform to mitigate the future burden on final consumers. In this effort, the Ministry has to clearly define an affordable and efficient energy supply. The Ministry needs to address these issues without further delay.

 

Thank you very much.

 

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