Germany has been ahead of the curve in terms of pushing the integration of renewable generation. Its so-called “energy revolution,” or Energiewende, is something it has been both heralded and criticized for over the years. In my opinion, the impacts of Energiewende on the energy industry have to a large extent been positive, since the investment has served to motivate and fund a lot of technological advances, especially for solar. However, Energiewende has certainly made some big mistakes over the years which, in a few cases, have threatened to hurt investment in renewables in other countries.
One of the first of these missteps was its handling of incentives for solar installation. They made a mistake that any control-theorist could have warned them about – they had a certain budget for rebates, and then when it got used up, they simply stopped giving incentives cold turkey. This sounds reasonable on the budget sheet, but it creates a big shock for the solar industry, where all of a sudden the demand drops by orders of magnitude overnight. This shock reverberated around the globe, causing a huge number of manufacturers to fold in all regions, and it took more than two years for the industry to become healthy again; in some countries, the industry disappeared entirely.
The second big mistake was also made years ago, but we’re only seeing the impact of it now. For years, researchers have been warning countries about the huge challenges that renewables place on electricity markets. (We have a few papers on this ourselves.) Because of the uncontrollable, intermittent, and unpredictable nature of renewables like wind and PV, they both increase price volatility in the markets and lead to the need for a larger “safety-net,” which takes the form of larger reserves of conventional generation. These two things get even worse when one realizes that the generation that is most impacted by price variability are things like nuclear, which cannot respond quickly to price fluctuations. As the Economist points out in a recent article, this makes their participation in electricity markets very risky because if the price drops to, say, minus 100 euro / MWhr, as it is prone to do, then all of a sudden the generators are forced to pay the grid huge sums of money just to have it take their electricity! Now, as renewable penetration grows, this risk becomes so extreme that these generators leave the market, which means that more and more generation has to be provided by things like coal, which bring with them larger emissions. The consequence is that the larger reserves and the dirtier generator mix have actually led to more (not less) emissions after the installation of renewables in Germany!
Now this is really an example of a market failure brought on by inefficient regulations, but it is easy for opponents of renewable energy to use this as a rallying cry against efforts for investments in renewable installations in other countries. This is what makes this mistake in Energiewende perhaps even more damaging than the mistake with solar incentives.
Luckily, these issues are eminently solvable – I just hope that it doesn’t take too long for new market designs we in the research community have been suggesting and studying to bubble up, and for changes in regulations to take effect.
Happily, from our experience with utilities and ISOs in the California, I think we can avoid repeating these mistakes here. But, I think the takeaway from all of this is that one needs to be extremely careful to understand the impact that renewable generation is going to have on electricity markets, because market inefficiencies can easily be on the order-of-magnitude that can completely erase the gains from renewable generation in the first place. This is what makes research in this area so crucial (and exciting).