Renewable energies 2020. A year for setting the course

February 2020 – Climate change is currently the main topic governing politics and the economy. People are placing great hope in wind energy and photovoltaics. However, local renewable energies did not enjoy equal measures of success last year. The people who participated in the “2020 New Year’s Reception” held by the German Renewable Energy Federation, which Hamburg Commercial Bank has long supported as a sponsor, expect one thing above all else, and that is clear framework conditions from politics.

Nils Driemeyer, global head of renewable energy at Hamburg Commercial Bank, didn’t mince words at the “2020 New Year’s Reception” held by the German Renewable Energy Federation (BEE) with more than 1,000 guests from politics, the economy, and society, “2019 was a disaster for German wind energy.” After years of rapid growth and expansion, the former exemplary industry of on-land wind energy has been slowed down drastically. Today, wind energy is the most important source of energy in Germany. However, there are a lot of questions concerning its future.

Wind energy
Nils Driemeyer, Global Head of Renewable Energy of Hamburg Commercial Bank
Nils Driemeyer, Global Head of Renewable Energy of Hamburg Commercial Bank

Energy expert Driemeyer says that there are many reasons for this, from bad decisions made by individual companies to extremely complex and tedious approval processes for projects on land. Then there is also the veritable wave of litigation against new plants, which entails additional uncertainly for project initiators. The plan of the Federal Ministry for Economic Affairs and Energy to allow new plants only at distances of at least 1,000 meters from residential areas is also dampening project developers’ and investors’ spirits considerably.

And there is little consolation in the fact that at least things have recently been going a bit better with offshore wind energy on open seas. The network operator, Tennet recently reported that in the North Sea alone, the amount of energy produced by wind energy plants grew by 21 percent in 2019 in comparison to 2018.

"2020 is going to be a decisive year for German wind energy."

Financing expert Nils Driemeyer of the Hamburg Commercial Bank

Wind energy has displaced coal

Nils Driemeyer, Global Head of Renewable Energy of Hamburg Commercial Bank
Nils Driemeyer, Global Head of Renewable Energy of Hamburg Commercial Bank

Simone Peter, president of the German Renewable Energy Federation (BEE), warns, “There is still no master plan for the spectacular nosedive in on-land wind energy in 2019.” Her words have clout. As the governing body of the renewable energy industry in Germany, the BEE consolidates the interests of 55 associations, organizations, and companies with 30,000 individual members, including more than 5,000 companies.

The president of the BEE says, “It is a great success that now, 20 years after the implementation of the Renewable Energies Act, more power in Germany is being produced from renewable energy sources than from black and brown coal.” However, German politics cannot rest on its laurels because it has achieved this intermediate goal.

Now it is important that the federal government’s goal of increasing renewable energy in the power supply to 65 percent by 2030, which was recently supported by the coal committee, quickly receive support via a reliable expansion plan. If that does not happen, we will face a green energy gap in the power supply.

“2020 is going to be a decisive year for German wind energy,” Nils Driemeyer predicts. Above all, he is demanding that politics fulfill its duty to provide more reliable framework conditions for investors and financing parties. “We are already noticing a significant diversion of capital funds,” Driemeyer notes.

During the crisis in wind energy, however, another renewable energy industry has recovered and that is photovoltaics. After the lucrative, guaranteed feed-in tariffs from the Renewable Energies Act (EEG) for solar energy were radically slashed, the domestic market for large projects nearly came to a halt. The spectacular corporate bankruptcies like the one Solarworld experienced exacerbated the situation.

Wind energy: Proportion of different types of energy in net power generation in Germany

Wind energy: Germany’s most important energy source [Source: Fraunhofer Energy Charts (values have been rounded)]

Photovoltaics and power purchase agreements are gaining ground

Nils Driemeyer, Global Head of Renewable Energy of Hamburg Commercial Bank
Nils Driemeyer, Global Head of Renewable Energy of Hamburg Commercial Bank

That is the reason photovoltaics renaissance is all the more surprising now. But the present plants have little in common with the former power plants, which can now be operated economically only thanks to subsidies. New plants tend to be larger and can now operate without funding via the EEG thanks to the technological progress made in recent years. Instead, such projects are now realized on the basis of market prices in conjunction with so-called power purchase agreements (PPAs), which necessitates innovative financing models and partners in the banking business that, like Nils Driemeyer’s department, have been addressing renewable energies for decades and have a broad and deep knowledge of the market.

Hamburg Commercial Bank has already been involved with PPAs for many years and has acquired extensive expertise concerning them. These PPAs generally conceal direct offtake agreements between a renewable energies provider and a purchaser, such as a large industrial company. These deals have advantages for both sides. Producers sell the energy they produce at a price that is normally fixed, and the purchasers receive verifiably green energy.

For instance, the Deutsche Bahn, which is already the country’s largest green energy consumer, announced a tender across Europe last year in order to acquire 500 gigawatt hours of green energy in the future, in the scope of PPAs. In this manner, the Deutsche Bahn wants to increase its proportion of renewable energies from the recent value of 57 percent to 61 percent this year. Perhaps local wind farms can also contribute to this goal. That could turn the disaster into a happy end.

Deutsche Bahn, which is already the country’s largest green energy consumerGermany