- The level of ambition of the Federal government for the Energiewende has dramatically increased with the new coalition elected in 2021, the share of renewables to be reached in the power mix by 2030 being set at 80 per cent.
- The German wind industry has however been affected by a slowdown of the expansion of capacities, several rounds of onshore wind and solar auctions being in 2022 undersubscribed. The added value of the Energiewende in terms of job creation has been ambivalent so far.
- The country’s current industrial geography might be partly reshaped with the efforts made by northern and eastern States to deploy renewables and green hydrogen at large scale. Stakes are high for southern Germany since new spatial patterns are emerging in the automotive sector too.
- While Chinese competition in the solar and wind manufacturing sectors is tough, the Inflation Reduction Act has reinvigorated discussions around a stronger industrial policy.
A strong push for more renewables
In the aftermath of the Ukraine invasion by Russia, Federal authorities doubled down on their pledge to increase the share of renewable energy sources at the expense of fossil fuels, notably doubling the country’s onshore wind capacity to 115 GW by 2030, meaning that the number of turbines built each week must rise from currently 8 to about 302. Solar photovoltaic installations, offshore wind additions and green hydrogen production and imports have to be increased sharply.
Beyond the new targets set, the expansion of renewable energy sources will be given priority over other issues (such as biodiversity protection). New conditions shall be provided to communities to benefit financially from wind parks and ground-mounted solar PV nearby and spatial planning laws will reserve 2 percent of the country’s surface area for onshore wind power (more than twice the area currently designated). The challenge now is to enforce at the state level the initiatives adopted at the national level and to ensure that the German economic ecosystem can benefit from the ambitions set.
However, 2022 has been disappointing in terms of capacity expansion. The federal government was aiming to auction 4.5 GW of onshore wind capacity as well as 3 GW of solar capacity. However, several bids attracted far fewer bidders than expected. At the end of the year, only 3.2 GW of onshore wind capacity and 2.4 GW of solar capacity were effectively awarded. However, rooftop solar installations have picked up.
The added value of the Energiewende in terms of job creation has been so far ambivalent. Between 2000 and 2021, the number of jobs in the sector of RES has been multiplied by three but Germany has today 60 000 fewer jobs in this sector than ten years ago. Two crises have had a negative impact on employment. Starting in 2011, competition from Asia led to a sharp increase of bankruptcies in the German solar sector leading to a loss of jobs that has never been offset since. The wind sector has proved to be more resilient, but the sector was providing fewer jobs in 2021 than in 2016 and in the biomass sector, jobs creations have been significant, but no sharp increase is in sight.
The bust and revival of the solar industry
In 2007, Germany produced every fourth solar cell worldwide. In 2021, Europe contributed only 3% to global PV module production while Asia accounted for 93%, of which China made 70%. In the aftermath of Germany’s Renewable Energy Act in the year 2000, German solar companies ascended to global leadership and 150,000 jobs had been created by 2011. A solar cluster emerged in the south of the former GDR (German Democratic Republic) against the backdrop of generous support schemes, a supportive industrial legacy in the silicon sector as well as the support of R&D institutions (such as the Fraunhofer-Center für SiliziumPhotovoltaik CSP in Halle). Overall, financial support to solar R&D has increased in past years to reach about 90 million EUR, notably under public-private support schemes.
Imports from Asia added to a parallel drop in guaranteed remuneration stopped the expansion of the solar industry. Several companies such as Q-Cells, Solar World, Solon and Conergy went bankrupt or cut their production and the number of jobs plummeted to 45,000 in 2016. Trade barriers adopted at the EU level in 2013 were lifted in 2018 as if the priority was at that stage given to lowering the cost of solar energy. Whereas most companies dropped out of business, the cost of solar energy indeed went down (5 cents per kilowatt hour (kWh) in 2021 auctions) and around 95% of solar cells are imported from China.
Solar power companies that offer digital services (for example for home storage) see rising turnover. Whereas world market leaders are focused on large-scale projects that yield high returns, small-scale prosumers have become a key market for SMEs. Storing and sharing (or trading) solar energy has triggered a new wave of solar power investments in the country. Regarding the manufacturing of solar panels, automation should help since the difference in labor costs between China and Europe will play a minor role in the near future.
The wind sector: a success story at risk?
Over the last few years, the German wind industry has been affected by a slowdown of the expansion of wind capacities. Hence the slow increase of jobs in the wind sector that occurred after a dynamic period. In 2022, upward pressure on the price of inputs and shipping have hit several companies such as Siemens Gamesa which has closed its fiscal-year 2022 with a net loss of €940m. Offshore wind has however helped to strengthen the position of northern States in the German industrial geography. 80% of world offshore wind turbines are in the North Sea thanks to convenient natural conditions (shallow waters, strong and regular wind regimes) and an appropriate regulatory framework set in neighboring countries.
Offshore wind has helped revitalize many coastal cities and seaports affected by the decline in shipbuilding in the 1980s. Assembly work being more cost-effective if done close to the site, coastal areas have indeed become very attractive for different companies. The industry benefited from the transfer of know-how from other industries (modularisation in aeronautics for example). A windfarm requesting around several thousand mechanical parts, the strong interactions between different stakeholders in the mechanical sector at different levels have also supported the competitiveness of the sector. Regionally available competencies in steel construction, electronics and maritime logistics have helped (as well as training and education institutions), and sound conditions have been provided by local and regional authorities.
Hydrogen deployment could benefit lagging regions
Significant new solar and wind capacities should contribute in a near future to the production of green hydrogen and the related equipment. The country plans to establish up to 5 GW of generation capacity including the offshore and onshore energy generation
facilities needed for this. An additional 5 GW are to be added by no later than 2040. Several State governments also have defined hydrogen strategies or roadmaps, especially those where the RES potential is the most significant, which could trigger some new
dynamics regarding the industrial geography of the country.
From the geographical point of view, the deployment of RES has indeed been very different from one State to another. Lower Saxony, Schleswig-Holstein, Brandenburg, North Rhine-Westphalia, and Saxony-Anhalt have benefited the most from the expansion of wind capacities. States policy initiatives have played a role but weather conditions, low demographic densities have been instrumental. Auction’s procedures being designed to favor low prices over other criteria, developers have given the priority to the most profitable projects where regular and strong winds as well as cheap land are available.
The need for an industrial policy
Overall, the German green industry is facing headwinds and is now challenged by the adoption of the Inflation Reduction Act (IRA) in the United States which involves large incentives and tax credits for investments in green technologies. Providing a similar kind
of support would be difficult for the EU as subsidies are constrained by state aid rules. Since subsidies available only to domestic producers would not comply with WTO (World Trade Organization) rules, a subsidy race might raise legal and political hurdles.
Public support for R&D helps (around 750 million € have been spent on R&D solar projects by Federal authorities between 2012 and 2021 and around 620 million € on wind projects) but this is not enough to ensure a level playing field. Moreover, Europeans have found that even the concept of “friend-shoring” promoted by US leaders might prove irrelevant as shown by the concerns raised by the IRA among US trade partners.
The solar industry is not calling for new trade barriers like those implemented until 2018. Market players have instead called for an EU initiative such as the EU hydrogen strategy and the EU battery alliance. In response, the EC has endorsed an EU Solar Industry Alliance, launched in December 2022 and indeed modeled on the EU battery alliance. In all these cases, Important Project of Common European Interest (IPCEIs) shall pool public and private resources for cross-border projects while complying with State aid rules.
New opportunities have been noticed in sectors relevant to the energy transition, even in the solar industry. If confirmed, this trend could help to alleviate fears associated with the phasing-out of fossil fuels and the transformation of the automotive sector. It could
also support the social acceptance of the costs induced by the energy transition. Yet it is too early to predict that the manufacturing industry would reap the benefits of the strong demand induced by the upgraded policies, especially in the context of high energy prices, supply chain disruptions and stronger global competition. A new and major development though is that industrial policy is gaining momentum not only in Brussels but also in Berlin. Various pieces of legislation such as CBAM (Carbon Border Adjustment Mechanism) could in theory help the European industry to address simultaneously competitiveness and decarbonisation challenges.
However, more will have to be done to ensure that the Green Deal serves the European industry. At the German level, the current industrial geography might be partly reshaped with the efforts made by northern and eastern States to provide access to renewable energy sources and hydrogen. Energy access and especially the proximity to coal deposits has been a key factor for
the location of economic activity in Europe since the industrial revolution. An industrial relocation might occur in Europe in the context of the energy transition although “sticky” effects (whereby layers of economic activity agglomerate around existing
strongholds) should not be underplayed.
This is an extract from an article by Gilles Lepesant titled “Higher Renewable Energy Targets in Germany: How Will the Industry Benefit?” and has been sourced from the French Institute of International Relations. The complete article can be accessed here.