Sector coupling - Shaping an integrated renewable energy system

What is sector coupling?

Sector coupling (German: Sektorkopplung) refers to the idea of interconnecting (integrating) the energy consuming sectors - buildings (heating and cooling), transport, and industry - with the power producing sector.

So far, Germany’s energy transition – the move away from nuclear and fossil fuels and the shaping of a system almost entirely fuelled by renewable energy sources – has largely happened in the electricity sector, where the share of renewables in gross power consumption stands at 36 percent. Other areas, particularly buildings and transport, still predominantly depend on fossil fuels, and in Germany’s primary energy consumption, renewables only have a share of 13 percent (preliminary figures 2017).

The use of electricity in all energy-related processes, whether transport, heating, or manufacturing, would revolutionise the energy world as we know it.

Today, electricity is used for operating machinery and technical devices, such as computers. Industries and households use electricity for lighting, but to keep their homes warm, Germans mostly rely on natural gas and mineral oil heating systems and practically all forms of road transport -  cars and trucks alike - rely on petrol or diesel fuel.

Making electricity the default form of energy in these sectors would be a step towards what is sometimes referred to as an “all-electric world” – and it could solve several problems power generation from renewable sources currently faces.

Since the main sources of renewable power in Germany are wind and solar, these are not always available when energy is needed, so storing electricity is a major issue. The interconnection of sectors could help here: part of the power could be used to heat large amounts of water (power-to-heat) for heating houses, thus indirectly electrifying the heating sector. At peak power production times, electricity could be used to produce hydrogen or synthetic gas (power-to-gas). The gas that stores the energy can either be used to fuel vehicles or it could be turned back into electricity or heat in times of little sun and wind.

The German government has opted for using renewable electricity in most processes. It considers the use of renewable power (directly or indirectly, i.e. power-to-x) the best way to decarbonise the country’s economy, i.e. to make it largely carbon-neutral by 2050. Other options, such as using biofuels - e.g. biodiesel, wood (pellet)-burning – alone to make transportation and heating powered by renewables, are not seen as viable because of the limited potential to grow large amounts of biomass for fuel production.

Using electricity in all energy-hungry sectors raises difficult questions, such as how much power will be needed if the whole economy makes electricity the default form of energy, and how will energy be stored and distributed across the country in the most cost-efficient and practical way.

How can each sector be “electrified”?

1. Power sector

Substituting electricity generated from coal, natural gas, and nuclear plants with power from wind, solar, biomass, water, or geothermal installations.

2. Buildings (heating and cooling)

Status quo (2016/2017) - Households in Germany are the biggest users of heat (44%), followed by industry (38%) and commerce, trade, and services (18%). Households are predominantly heated (not including hot water) with fossil fuels (47% natural gas, 24% mineral oil, 17% renewables, 2% electricity, 9% district heating). Energy for heating is also used in industry and in the commerce, trade, and services sector. The overall share of renewables in the heating sector was 12.9 percent in 2017. The use of energy for cooling processes is negligible - two percent of Germany’s final energy consumption. German households do not normally use air-conditioning systems.

Targets- The government’s target for the building sector is to reduce heat consumption by 20 percent by 2020, and greenhouse gas emissions by 67 percent by 2030.

Technologies to increase the share of renewables in the heating sector include the use of biomass (currently two-thirds of the renewable energy used for heating households comes from biomass, e.g. wood pellets), solar thermal and geothermal installations, heat pumps, power-to-heat and power-to-gas installations.

Heat pumps are considered a key technology to integrate the heating sector into the electricity-based energy system. These devices use electricity to circulate hot/cold liquids, using the heat from outside air, geothermal heat, or ground water. The installation of heat pumps must go hand-in-hand with the insulation of buildings to make sure that less heat is lost and that the whole sector becomes more efficient.

Another power-to-heat solution uses excess electricity (e.g. in times of very high renewables generation from wind or solar) to heat substantial amounts of water, which is then circulated in district heating networks (which already exist in several German towns).

Excess heat from biogas plants can also be used in such heating networks.

Synthetic gases, generated in power-to-gas installations that use electricity to make hydrogen (electrolysis) and add CO2 to create methane (= natural gas), can also be used in the heating sector instead of fossil natural gas.

3. Mobility

Status quo (2017) – A total of 94.8 percent of the energy used in Germany’s transport sector comes from fossil fuels. Renewable sources contribute only 5.2 percent (mainly biodiesel).  

Targets - By 2020, the government wants to reduce final energy consumption in the transport sector by 10 percent (2050: -40%), and greenhouse gas emissions by 2030 by 40 percent.

Key technologies to decarbonise the transport sector include the use of compressed natural gas (CNG), biofuels, batteries, hydrogen, or synthetic fuels.

Apart from the use of natural gas and biofuels, all of these technologies would be part of the interconnection with the power system, either directly (batteries, charged with electricity) or indirectly, in power-to-gas (hydrogen or synthetic natural gas) or power-to-liquid (liquid synthetic fuels produced in a similar procedure to power-to-gas) applications. Aviation, shipping, and road freight transport will be candidates for power-to-x technologies, rather than for battery-based engines.

In the area of individual mobility, public transport, car-sharing, cycling, walking and, eventually, automated driving are projected to play an increasing role in the development of an electricity-based, new mobility concept in Germany.

4. Industry

Status quo (2016) – Industrial processes are responsible for 28 percent of Germany’s final energy consumption. Most of industry’s energy need is covered by gas (35%), hard coal (14%), and electricity (32%). Only 4 percent comes from renewable sources. Three quarters of the energy needed in the industry sector is used for processing heat, and the rest for running engines and machinery. 38 percent of all emissions come from processes not related to energy use, but for example to the manufacturing of cement, chalk, or steel, or to other chemical processes.

Targets – The government wants to reduce greenhouse gas emissions from the industry sector by 50 percent by 2030.

Technologies – The industry sector is to be made more energy efficient, and the technologies to be used to reach this goal depend on the specific manufacturing processes and recycling strategies.

Depending on whether an industrial process needs gases, mineral oil, chemicals, heat, or power, all the power-to-x technologies applicable in the other sectors can be used to electrify the industry sector as well.

However, the government admits that not all industrial and agricultural processes can be decarbonised entirely. Therefore, if Germany achieves its planned 80-95 percent greenhouse gas emission reduction in 2050, the remaining 5-20 percent of its CO2 emissions (10 percent = 125 million tonnes CO2 equivalent) will likely come from these sectors. To reach carbon neutrality anyway, greenhouse gas emissions from industry could be captured and utilised, or stored (CCU/CCS), or offset by CO2 sinks.

How much power will Germany need, and how much will be lost in power-to-x processes?

One major question that researchers are trying to find answers to by modelling Germany’s future economic, social, and energy systems is how much electricity will be needed if all energy-using sectors are electrified. The outcomes of these scenarios range from 462 to 3,000 terawatt-hours (Twh) per year.

In 2016, the country’s annual final energy consumption was 2542 TWh,  and power consumption totalled 516 TWh. In 2015, heating/cooling and hot water services alone used 748 TWh.

Meanwhile, US energy company ExxonMobil estimates that Germany’s energy consumption will drop by around 30 percent, and two-thirds of cars will still run on mineral fuels in 2040, with e-cars accounting for only one fifth of the vehicle fleet in that year.

In 2010, the government set the target of reducing primary energy consumption by 50 percent and power consumption by 25 percent by 2050, compared to 2008 levels. In light of the electricity requirement of electric cars alone, but also of the heating and industry sectors – always depending on efficiency gains – these power consumption targets may have to be revised, Fraunhofer ISI said in a 2018 study.

The amount of electricity needed will also depend on the technologies chosen to electrify each sector. The amount of energy lost when transforming one form of energy into another (for example in power-to-gas processes or when charging a battery) – known as energy conversion efficiency -  is unique to each process. Using power to create hydrogen (electrolysis) and using this hydrogen to generate power again has a conversion efficiency of 40 percent, which means that 60 percent of the originally produced power is lost in the transformation process.

A battery driven car has an energy conversion efficiency of 69 percent, compared to 26 percent for a hydrogen fuel cell car and 13 percent for a car powered by synthetic fuel.

In the heating sector, an electric heat pump has an efficiency factor of 285 percent, because the electricity helps to use the heat from the outside air, the soil (geothermal) or the ground water. A hydrogen fuel cell heating appliance has a conversion efficiency of 45 percent, while the respective figure for a heating system fuelled with renewable gas (methane) is 50 percent.

Which one is the “right” technology for sector coupling

In Germany, the jury is still out on which of the many technologies that use electricity directly or indirectly the different sectors will eventually adopt in the future. Some argue for the direct electrification of most sectors, while others believe that only the use of power-to-x technologies will be feasible.

The main argument (by researchers such as Leopoldina, Agora Energiewende/Verkehrswende, or Ökoinsititut) for using electricity directly in heating, transport, and industrial processes wherever possible is that this is the most energy efficient solution, i.e. less energy is lost in conversion. This means that fewer renewable installations (for which there is limited space available) will be required, less energy will have to be imported, and thereby the overall costs will be lower. As a priority, private cars, trains, buses, and private houses should all be powered/heated by electricity, while larger vehicles and industrial processes would be powered by hydrogen, methane, or other synthetic fuels. This would also be important for the long-term storage of energy, the think tanks Agora Energiewende and Agora Verkehrswende argued in 2018. They warned against substituting petrol with synthetic fuels and gas in personal transport in particular because such cars would consume around five times as much power as battery electric vehicles.

Arguing for the predominant use of power-to-gas technologies are the gas infrastructure industry, the business-oriented German Energy Agency (dena), but also the German Wind Energy Association (BWE) and, in this study, Greenpeace. They reason that only gas (e.g. in the form of methane) can be stored in quantities needed by the power system as backup in times of low renewable electricity generation. Furthermore, the existing gas network can be used not only for storage but also for transporting gas throughout Germany – thereby alleviating the pressure on the power grid. And because natural gas is in use in both the heating and the industry sectors, several existing applications and processes could be used without the need to introduce new technologies (e.g. heat pumps in houses). The existing biogas plants could provide the CO2 needed to create methane from hydrogen.

Generally, most actors agree that a mix of many technologies will be needed to decarbonise and interconnect the different sectors. All stakeholders ask for predictable framework conditions, and many for a level playing field where the most cost-efficient technology wins.

In its 2018 coalition treaty, the government states that it will support research in an integrated energy system; that power distribution networks and public transport play a crucial role in such a system; and that it will promote hydrogen technology. It also wants to reform the financing of the gas and heating infrastructure needed to connect the sectors.

Challenges – getting the integration right and connecting the sectors

Interconnecting the energy-using sectors will require the digitalisation of numerous processes to better synchronise supply and demand (see the dossier on Digitalisation). Several practical and legal questions must be answered to enable the creation of an integrated energy system. These include the way power generators, grids, storage devices, and electrolysers are taxed and/or subsidised; who is allowed to operate them; who is in charge of managing the power flow from and to renewable installations and households to stabilise the grid (the distribution or the transmission grid operators?); and the rules on how, when, and where people are allowed to charge e-cars.

If 30 percent of Germans were driving e-cars and preferably charged them after coming home from work in the early evening, the low voltage grid would very likely collapse, consultancy Oliver Wyman has warned in a recent study. It wouldn’t so much be the amount of power needed by the car batteries than the act of simultaneous charging that would make the grid unstable.

Considering that the power needs of electric vehicles alone could drive up Germany’s electricity consumption by 100 terawatt-hours - 20 percent of today’s consumption, the Institute for Applied Ecology (Ökoinsitut) calculates -, stakeholders are suggesting ideas for ways to incorporate e-cars into the system without risking blackouts.

There could be either financial incentives or rules (or both) to make sure that not all e-cars are charged simultaneously. Furthermore, car batteries could be used to feed power back into the grid if necessary. Extremely load-heavy fast charging stations that would put a lot of pressure on the grid could only be allowed in public spaces.  And those car owners who would want to have a fast charging point at their home would have to pay for the necessary grid upgrade.

“What’s important is that these rules are clearly and honestly communicated from the beginning. If we want people to only charge at certain times, we cannot let them get used to refuelling their cars whenever they want, and then change the rules later,” Christoph Bals, policy director at NGO Germanwatch, says.

While it may seem strange how much detail these suggestions for future rules go into, all stakeholders are keen to get it right from the beginning and avoid expensive mistakes, such as the so called “50.2 Hertz problem”. Back in 2005, grid operators decreed that solar PV installations must be shut down for safety reasons if the frequency in the grid exceeded 50.2 Hertz. As the installed solar capacity skyrocketed from 3 GW in 2006 to 33 GW in 2012, it transpired that blackouts could occur if a large number of solar PV facilities are shut down simultaneously because of this problem. Eventually, over 300,000 solar PV installations had to be refurbished. “We solved this problem, it cost us several billion euros, but we’ve also come forward with a lot of innovation solutions along the way,” RWTH Professor Armin Schnettler commented. 

Grid operators TenneT and 50Hertz which plan new power network structures, have presented various scenarios, showing that the need for grid expansion depends on the way Germany approaches the energy transition, and also on the technologies used in coupling sectors to the power supply (see the factsheet  Set-up and challenges of Germany’s power grid). For example, the decisions on where large electrolysers will be located, at what times they will be operated and by whom, and how much they will cost, are equally important for the planners of the future grid, Peter Barth, head of the planning department at transmission grid operator Amprion, said at a conference in Berlin in early 2018.

What will it cost?

Since many questions around the technologies that will be used in sector coupling remain unanswered, judging how much the whole undertaking will cost is notoriously difficult. At the same time, calculating the potential costs for different integration solutions can inform the debate on which technology is preferable.

A 2017 Enervis study calculates the costs for the different scenarios and comes to the conclusion that using power-to-gas technologies is more cost efficient than full electrification. 

In its 2018 study on the costs of power-based synthetic fuels, Agora Energiewende and Agora Verkehrswende concluded that the assumption that power-to-gas technology (electrolysers) could be operated only with excess renewable power was false. In order for it to make economic sense, this technology would have to be used continuously, which would require larger amounts of power. Only through a high CO2 price could it become a viable alternative to fossil fuels. Other researchers that the direct use of electricity in as many applications as possible throughout the different sectors would be financially preferable.