Thought leadership from our experts

The Digitisation of the Energiewende

Germany's energy industry has gone through enormous changes. "Energiewende" has become a synonym for the transition from nuclear and conventional electricity generation to renewable energy. It looks like digitisation of the Energiewende will contribute key elements to develop it further.

Share & Cost

A key driver of the Energiewende has been – and continues to be – the German Renewable Energy Sources Act (EEG). Since its entry into force in 2000, the share of renewable energy in the gross electricity consumption has risen from a mere 6.2% to 31.5% in 2015 and 32.3% in 2016.

The Energiewende comes at a cost. Net expenses for the EEG support regime (as organised by the transmission system operators) added up to EUR 24.2 billion for 2016, after EUR 22.6 billion in 2015. This is before additional costs for grid expansion and costs due to reduced use and early retirement of nuclear and conventional generation assets.

Based on figures from the Renewable Energy Statistics Working Group (AGEE-Stat), Germany avoided 168 million tonnes of greenhouse gases in 2015. The electricity sector accounted for about 122 million tonnes CO2-equivalents. From those reductions about 103 million tonnes are due to electricity covered by EEG support payments. Dividing the net EEG account expenses of EUR 22.6 billion by 103 million tonnes of CO2 reductions, this would mean a cost of about EUR 219 per tonne of CO2. In the same period, prices for European CO2 emission allowances were in the range of EUR 6.80 to EUR 8.72 per tonne.

Politics & Physics

Cost is only one important aspect of renewables growth. So far, the costs of the Energiewende have not lead to political opposition. On the contrary, political desire to maintain and expand renewables remains very high across a large part of the political spectrum.

However, the laws of physics are difficult to beat. Even for a country that is proud of its engineers. And physics are playing an increasing role. Integrating larger and larger quantities of intermittent renewable energy into a sophisticated power system with very demanding users has become an increasingly difficult task.

Industry 1.0, 2.0, 3.0 & 4.0

Fortunately, it looks like the current fourth technological revolution will help. In Germany, this revolution goes by the name of Industry 4.0. Industry 1.0 was the first industrial revolution, with its introduction of water- and steam-powered mechanical manufacturing facilities at the end of the 18th century. Industry 2.0 was the second industrial revolution that followed the introduction of electrically-powered mass production based on the division of labour at the start of the 20th century. Industry 3.0 would be the third industrial revolution, having started around the 1970s with the use of electronics and IT to achieve further automation of manufacturing. In that logic, industry 4.0 is the fourth industrial revolution, characterised by an industrial revolution based on so-called cyber-physical-systems.

Energy has been the key to all industrial revolutions so far, and it will also be for industry 4.0. At the same time, its digitisation will force transformation and help in transforming the energy industry. "Energy 4.0" is increasingly used to signify this change. We are still working on how and where those changes will be most relevant. Some areas are already quite apparent.

Smart Meters & Rollout

Smart metering is an obvious area of change. Contrary to other areas of energy policy (particularly for renewable energy), the German government had been wary of the costs of smart metering. It took a long time until a first legislative proposal was on the table and an even longer time to agree on the new – but still limited – German smart metering regime. In July 2016, the new "Digitisation of the Energy Turnaround Act" cleared final legislative hurdles. The new law finally got the long-awaited smart meter roll-out going. It defines future roles and tasks for all market participants.

However, despite its ambitious name, the new law mainly covers smart metering, not everything connected with digitisation in the energy sector. In fact, a new Smart Meters Operation Act (Messstellenbetriebsgesetz) is the key element of the new law. In 77 sections, the new Act sets out new rules on the marketing and use of "Smart Meters" and "Smart Meter Gateways".

The new law shall facilitate the implementation of smart meters and smart meter gateways. The new law also introduces specific and detailed requirements, both for the design of the smart meter devices and for the transmission of data. The overall goal is to open up the German energy market to digitisation, while ensuring a high standard regarding data protection and ICT security.

The Smart Meters Operation Act introduces new regulated market roles. The "Meter Operator" is in charge of and responsible for the implementation, operation and maintenance of smart meters.

In principle, responsibility for the roll out of the "Meter Operator" is initially with the energy supply grid operator (Energieversorgungsnetzbetreiber). Following a special public procurement procedure, he can transfer this position to a third party service provider.

The Smart Meters Operation Act also contains extensive technical requirements for the technologies involved. This covers in particular the reliability and security of energy measurement and the transmission of data. Compliance with the new rules is controlled and supervised by both the Federal Office for Information Security (Bundesamt für Sicherheit in der Informationstechnik) and the Federal Network Agency (Bundesnetzagentur).

Do not expect a smart meter rollout in Germany over night. The staggered roll-out is due to start in 2017, and shall continue until 2032. Due dates differ depending on type of end consumers and plant operators, taking into account the amount of energy consumption that they use or feed in. For some consumers and operators, the roll-out will have to be finished before the end of 2024.

The staggered roll-out schedule leaves room for the different players to decide on their approach. Meter operators, suppliers and service providers need to review the regulatory regime and adjust their business models.

Grid operators need to decide if and to what extent they want to use third party suppliers as part of their own smart metering infrastructure. The new law allows outsourcing of responsibilities and defines corresponding market roles. However, installing a third party as operator for the smart meters will need to take public procurement rules into account.

Suppliers and service providers only have little time before their products have to be ready for market, in line with the new legal requirements. This is particularly true for companies that design, manufacture and market hardware devices that shall be used as smart meters or smart meter gateways.

For telecommunications service providers who want to connect smart meters and smart grids, the new law is in principle technologically neutral. However, connectivity services have to comply with rather strict requirements, for example on their reliability and performance and transmission security.

Smart Grids & Challenges

Smart grids are not yet subject to a special German regulatory regime. Instead, they are in principle governed by the pre-existing regulatory framework for (all) grids. This actually creates various challenges, in particular when it comes to getting the right incentives in place.

The Incentive Regulation Ordinance (ARegV) is the major regulatory element for electricity and gas distribution system operators (DSOs). It deals with network operation and expansion costs that grid operators may pass on to grid users via the grid fees during a regulatory period of 5 years. It contains efficiency improvement targets for each network operator, determined on the basis of efficiency benchmarking between the network operators. Below the revenue cap, network operators are in principle free to decide, based on business considerations, how they want to meet these efficiency targets.

The ARegV was revised in 2016, with the intention to encourage modernisation of the distribution grid to make it better suited to deal with increasing amounts of renewable energy. However, it remains to be seen whether and to what extent the Federal Network Agency will be able to use revised rules to support making grids smart or at least smarter.

Blockchain & FinTech

Probably the hottest topic in 2016's energy digitisation discussion was blockchain. As yet, there are no specific energy law rules for blockchain technology. Of course, the fintech regulatory framework applies – but that is also still very much developing.

In any event, using blockchain technology for distributed generation payments is being explored by an increasing number of energy companies. However, in light of strong regulation, both for financial services and in the energy industry, it will take some further thoughts and therefore time before this exciting part of energy 4.0 will make it into the mainstream.

Energy 4.0 & Energy Law

The Energiewende has already brought many changes to energy lawyers. New generation technologies lead to an enormous number of changes to the energy law framework. Energy 4.0 is likely to bring about a whole new set of challenges, requiring creative approaches from all involved.