23 Billion Euro. This is what operators of nuclear power plants in Germany have to pay into a public fund, which then covers the costs for the mid- to long-term storage of nuclear waste [1]. What eventually exceeds this amount will be paid by the state. If this deal materializes, the long-term risks of nuclear waste disposal will be socialized. Why is this necessary? Well, the economic survival of the ‘big four’ German utilities is more uncertain than ever before and it is high time to settle their estates.
Phase II
While in the first phase of the energy transition, expansion of (mostly renewable) alternative generation was in the focus, in the second phase also the decline of established technologies, industries and firms becomes important. The four big German utilities RWE, E.on, EnBW and Vattenfall have been struggling for years now with declining revenues from conventional generation based on nuclear, coal or gas. At the same time, they have delayed entry into alternative technologies and services for too long. Today they have lost much of their value and it is highly uncertain, whether and how they will survive.
That firms disappear is daily business in other industries such as ICT. For the electricity sector it is rather new. Consumers and policy makers were used to electricity supply being very stable – also with regard to the organizations responsible. Market liberalizations and now the energy transition have changed the sector fundamentally. And – dissimilar to ICT – policy is involved and affected: Power supply is just too important for society and economy, infrastructure is all too essential (natural monopolies with positive externalities) and the investments are long-term and capital intense.
The challenges are enormous. Below I discuss three of the many topics that will be important in the second phase of the energy transition.
Values, societal dialogue and vested interests
Whether it is about wind parks, energy crops, fracking or nuclear phase-out: The energy transition is closely intertwined with societal values. How important are climate protection, landscape, safe supply or energy independence for us? Which risks are we ready to take, which role for public policy, how centralized or decentralized should energy supply be?
For these value-laden questions there are no objective or general answers. Political processes and societal dialogues may deliver answers. However, given the uncertainties and complexity of the energy transition, it is an open question whether the regular and established political processes are even suitable to develop reliable, long-term goals and instruments for this transformation.
One of the challenges here is the high influence of vested interests. For example in the Netherlands, a pioneer in the area of consensus-oriented sectoral change, transition management was captured by powerful established players [2]. Also in other countries, incumbent utilities try to defend their interests and influence policy making in their favor.
Different paths
There is not the energy transition. Different countries, regions and municipalities take different approaches, pursue different paths. The UK, for example, continues to subsidize nuclear, while Germany and Switzerland want to leave this technology behind. It is a priori unclear, which way will turn out to be better. History of technology has a major lesson here. What we today perceive as ‘best’, i.e. the criteria we apply to assess technology are often a result of social processes (see above). And it is not even the ‘best’ that wins battles of competing technologies and finally becomes dominant but rather the one that has been supported early on by many different players.
Against this background, diversity is important. Dominant designs are like a double-edged sword. While they are desirable to lower costs quickly (e.g. as in the case of PV), they also create lock-ins and eliminate alternatives. Different countries pursuing different paths may seem inefficient at first sight, but it also is an opportunity to explore different options, maintain some diversity and to learn from the experience of others.
Interactions and complementarities
Energy supply is highly systemic. Different types of power plants fulfill different tasks in the system (e.g. base vs. peak load). For example, hydropower has traditionally a key role: In times of high demand it can be added flexibly to maintain stable supply. However, well-rehearsed roles change during transitions. Solar power, which – in the long run – benefits from the availability of flexible hydropower, currently creates one of the biggest problems for hydro – at least in some markets like Germany and Switzerland. As its production peaks around noon when demand is highest, it competes with the traditional peak load business of hydropower. In other words, technologies that are complementary at the sectoral level might compete at the technology level [3]. This is another challenge in the course of the energy transition. What makes it even more complex: modern batteries (stationary or in electric vehicles) are another emerging and competing technology in the markets for storage and peak load.
For policy making and firm strategy these changes are crucial. It is not only a question of whether to support or invest in specific technologies but also about their long-term interplay at the sector level. Shall we subsidize hydro as long as fossil or nuclear base load power plants are still operating? Shall we even expand hydro or build more interconnectors to Norway if solar power continues to increase?
What the future brings remains open. The energy transition fundamentally transforms the sector and established organizations, technologies and business models are acutely endangered. Many utilities nowadays eagerly try to get rid of their nuclear and coal generation assets. Whether this will help them to survive is unclear.
References
[1] Bloomberg, April 27, 2016. http://www.bloomberg.com/news/articles/2016-04-27/german-nuclear-operators-must-pay-26-4-billion-for-storage
[2] Kern, F., Smith, A., 2008. Restructuring energy systems for sustainability? Energy transition policy in the Netherlands. Energy Policy 36, 4093-4103. http://www.sciencedirect.com/science/article/pii/S030142150800308X
[3] Markard, J., Hoffmann, V.H., 2016. Analysis of complementarities: Framework and examples from the energy transition. Technological Forecasting and Social Change, in press. http://www.sciencedirect.com/science/article/pii/S0040162516301172
The original version of this blog piece was published at ETH’s website.