Drop in fossil fuel prices could derail Energiewende - study

Germany’s energy transition as a long term project with targets as far off as 2050 will be subject to uncertainties and unpredictable risks that have to be faced by shaping stable framework conditions, a study entitled "Black Swans (risks) in the Energiewende", commissioned by the Ministry for Economic Affairs and Energy (BMWi), has found.

But in general, the country’s transition path to a carbon-neutral economy based on renewable energies (Energiewende) is largely robust and resilient against so-called black swans - surprising events with major effects that can only be rationalised with hindsight - researchers from Energy Research and Scenarios EWI, GWS and Prognos write.

They assess that the Energiewende will proceed even under stress and added strain such as a change in societal priorities, the development of new “game changer” technologies like nuclear fusion or the later advent of carbon capture and storage (CCS). Neither curbed financial incentives for renewable technologies nor a failure to implement the international climate targets agreed in Paris would derail the energy transition for good, the study authors say.

Reduction in fossil fuel prices a "black swan" to reckon with

A change in energy prices, however, could affect the conversion to a renewable economy considerably, the study finds. The "black swan" trigger could be a technical breakthrough in extracting previously unreachable fossil fuel reserves. Low prices for oil, coal and gas on the world market as well as reduced consumer prices could lead to a fuel switch from gas to coal. Renewables would then need more support while industry would probably use more fossil fuels for economic reasons.

In order to manage this risk, policy decisions should account for this particular "black swan" by strengthening CO2 trading schemes and by making renewable and efficiency support more flexible, the researchers write. Other options are to strengthen research and development in the renewables and power storage area and encourage the “polluter pays” principle to internalise external costs of fossil energies.

Other "black swans" worth addressing are a lack in infrastructure expansion, for example in the power grid, and a change in societal priorities, the authors say. Other issues such as terror attacks, war or migration could take the focus away from climate and energy policy. But both of these risks can be addressed by proactively communicating the importance of the energy transition and the expansion of the grid infrastructure, for example for the future competitiveness of Germany’s economy and the security of power supply, the study says.

Acceptance remains fundamental

The acceptance of the energy transition, including its infrastructure projects, among the people will remain a “fundamental precondition” to make the generational project a success. “A fast and active communication has to be ensured when risks set in. Otherwise the acceptance of the Energiewende could suffer considerably,” the researchers write.

Generally, decision makers and politicians already have the necessary instruments at hand to react to and reduce possible risks, the scientists find.

The energy transition is dependent on stable framework conditions, the authors say.

Other potential risks that would require action are a lack in adequate (public and private) financing of renewable energies, which could lead to abandoning non market-ready technologies. The researchers also quantify the impact on renewable capacity in Germany under such a scenario, finding that it would be 50 gigawatts lower in 2040 compared to a non-renewable stop scenario.

If Germany was to pursue an ambitious climate policy without similar efforts in the rest of the world – a scenario that has become less likely since the Paris Climate Agreement of December 2015, the researchers point out – it would harm the German economy. The researchers quantified the potential losses in a computer model finding that energy intensive industries would reduce production and exports and incomes could decrease.

Digitalisation as a “pink swan”

By “rapidly spreading into all areas of life”, digitalisation could also be a "black swan" for the energy transition, according to the report. As it changes markets and technologies and destroys old business models, it could have a high impact on businesses and data protection issues – but for the Energiewende it could also turn out to be a positive “pink swan”, meaning that the benefits of an enhanced IT infrastructure could help to incorporate renewables into the energy system and increase energy efficiency.

For their analysis the researchers identified 150 potential "black swans" through literature analysis and expert interviews. They then chose 15 risk clusters which were analysed in more detail. For seven of them they quantified the expected damage for the national economy using computer models.