This commentary is part of Energy Rewired, a project from the CSIS Energy Security and Climate Change Program studying the industrial strategies of major economies for the energy transition. The project examines countries’ big bets on emerging energy technologies and how these will rewire the world’s energy map.
Vision
Germany has ambitious targets for offshore wind development to meet climate goals and is trying to find ways to support the industry with minimal financial subsidies. The country plans to install 30 GW of offshore wind power by 2030, 40 GW by 2035, and 70 GW by 2045. At the end of 2020, Germany had installed 7.7 GW, third in the world behind the United Kingdom and China. Renewable energy made up 45 percent of electricity generation in 2020, including 5 percent from offshore wind. Germany’s plans, however, must also be understood in the context of the European Union. In 2021, the European Union’s Strategy on Offshore Renewable Energy set a goal of installing 60 GW of offshore wind by 2030 and 300 GW by 2050. With the departure of the United Kingdom from the European Union, the bloc had about 14.5 GW of capacity at the end of 2020.
Germany is promoting offshore wind to meet its climate goals. Under Germany’s Climate Action Law, the country is targeting net-zero emissions by 2045, ahead of many other major economies. Interim goals include reducing emissions by 65 percent from 1990 levels by 2030 and 88 percent by 2040. As of 2020, the country had reduced emissions by 41 percent from 1990 levels, primarily by cutting emissions from the energy sector in half, industry by over a third, and transport by about 10 percent. The law establishes annual carbon budgets for each economic sector. Germany’s greenhouse gas (GHG) targets are even more ambitious than the European Union’s goals. In July 2021, the European Union increased the ambition of its GHG reduction goals to 55 percent by 2030 (down from 1990 levels) with a plan to achieve net-zero emissions by 2050. In 2020, the European Union had reached a 31 percent reduction from 1990 levels.
Strategy
The German government sees economic payments to offshore wind developers as an infant industry support until the sector is profitable on its own. In 2000, the country’s government included offshore wind in its feed-in tariff to entice developers. The support has been increased over the years, but at its peak, it was 15.4 euro cents per kilowatt-hour (kWh) for 12 years or 19.4 cents per kWh for 8 years, then fell to 3.9 cents per kWh for the remaining years of a 20-year contract. The Transmission System Operator (TSO) would buy the power from the project and sell it on the wholesale market. However, in 2014, the government changed how it paid out the tariff, instead paying a market premium equal to the difference between the feed-in tariff and the average wholesale electricity cost. In addition, the TSO would no longer buy and sell the power; the developers would now be expected to sell into the wholesale market directly.
In 2017, Germany switched to a reverse auction system in which the government would no longer set the market premium. Rather, developers would request the amount they needed, and the government would select the lowest bids. The first auction under this system saw an average bid of 0.44 cents per kWh. In 2021, all three of the offshore wind farms approved in the auction process requested no economic support at all. The government has presented this as a sign that the industry can support itself without government help. However, the country only added 219 megawatts of offshore wind in 2020, and 2021 is set to end with no new turbines in German waters. According to the country’s offshore wind industry trade groups, this is because the government has not made enough area available for development. Since then, the government has raised expansion targets, which the industry groups hope will allow for more development areas.
One area in which Germany is increasing its monetary support is the development of hydrogen from renewable energy, including offshore wind. In an update to the country’s National Hydrogen Strategy, detailed in another commentary in this series, Germany is planning to develop 10 GW of green hydrogen production capacity by 2030. As part of this, the government plans to invest €50 million ($58 million) in pilot projects to produce green hydrogen from offshore wind. In addition, an effort from German manufacturing giant Siemens to build an offshore wind turbine with a built-in electrolyzer will see €100 million ($117 million) from the government’s science ministry.
Germany has made it clear in recent years that the government is committed to promoting offshore wind both domestically and within the context of the European Union. Germany held the presidency of the EU Council in the second half of 2020, during which leaders stressed the importance of cross-border cooperation on projects. Germany also held the presidency in 2020 of the North Seas Energy Cooperation, which brings the country together with Belgium, Denmark, France, Ireland, Luxembourg, the Netherlands, Norway, Sweden, and the European Commission. The group helps coordinate the development of grid infrastructure across the member countries and called for a bloc-wide framework for offshore wind development to reduce the costs to individual countries of development. This is also important to ensure wind farms do not interfere with each other: a 2021 study from the Institute of Coastal Systems-Analysis and Modeling found that unplanned clustering of offshore wind farms in the North Sea has reduced the generation of each farm as wake effects from upwind turbines can dampen output from downwind turbines.
Geography
Germany has coasts on the North Sea and the Baltic Sea. Most of the offshore wind projects built or planned in German waters are in the North Sea, but some development is occurring in the Baltic Sea as well. Offshore wind development in these areas has helped revitalize many coastal communities that host construction, operations, and maintenance activities. Siemens opened an offshore wind nacelle construction facility in Cuxhaven on the North Sea coast of Germany in 2017, leveraging its proximity to a major port. The plant supplies nacelles to North Sea projects in German waters as well as off other countries’ North Sea coasts, including those of the United Kingdom and Denmark. However, the state with the greatest proportion of the country’s estimated 24,350 offshore wind jobs is Baden-Württemberg in the southwest, home of utility and major offshore wind player EnBW. Engineering, component manufacturing, and research and development primarily occur in the southern and western parts of the country, while project development, transport, assembly, and operations and maintenance are focused in the north.
Germany is exploring the potential to develop offshore transmission infrastructure strategically in clusters with its neighbors. In December 2020, Germany and Denmark agreed to plan collaboratively on offshore “energy hubs” that would enable offshore wind development and the potential for green hydrogen production. In 2021, Dutch TSO TenneT proposed building an offshore transmission hub in German waters that would connect three offshore farms to onshore green hydrogen projects and could, the company claims, later be expanded to interconnect with other countries’ grids as well. Later that month, one of Germany’s TSOs signed a deal with its Danish and Belgian counterparts to explore building offshore interconnections among their three countries to allow for better cross-border power trading.
One unfortunate implication of clean energy development off the northern shore of Germany is that it is far from the largest load centers in Germany in the south. The country has struggled in recent years to upgrade its grid to bring power across the country where it’s needed, faced by local opposition to power line development. German power demand is rising—the government estimates it will increase from 567.5 kWh in 2019 to 700 billion in 2030. At the same time, the government is poised to shut down its nuclear fleet by the end of 2022 and its coal fleet by 2030. Increasing reliance on geographically limited offshore wind will only be possible if the country’s grid can handle the increased north-south flows.
Stephen Naimoli is an associate fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.
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