NORTHERN GERMAN POWER - BRIDGING THE GAP WITH WIND, COAL,

UNCLAS SECTION 01 OF 03 HAMBURG 000015

SIPDIS

STATE FOR EEB/ESC, OES, AND EUR/CE.

E.O. 12958: N/A
TAGS: ENRG EINV ECON SENV GM
SUBJECT: NORTHERN GERMAN POWER - BRIDGING THE GAP WITH WIND, COAL,
AND GAS

REF: BERLIN 434

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1. (U) Summary: Energy security is a top priority for German
politicians. Northern Germany has developed plans intended to
make the region an energy exporter over the next several years
of a mix of renewable and fossil-based energy sources. However,
construction of the required new power plants faces various
challenges. Public opposition to new coal-based power plants
and some wind farms is high and the current financial crisis has
limited credit for offshore wind farm development for small and
medium sized companies. Most importantly, the electrical grid
is not capable of handling larger inputs without significant
upgrades. End Summary.

FOSSIL FUELS CONTINUE AS BASIS FOR THE ENERGY MIX
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2. (U) In 2002, Germany's Social Democrat (SPD)/Green Party
federal coalition amended the Nuclear Energy Law to phase out
the use of nuclear energy by about 2020. In the past two years,
two nuclear power plants near Hamburg have gone off-line due to
technical difficulties. Several of the region's nine brown or
hard coal power plants will soon be closed due to age.
Approximately two-thirds of the 28 power plants that produce
each 100 Megawatts (Mw) or more in northern Germany will be out
of use by 2020. In response, state governments in the region
have developed plans to construct 13 new hard coal power plants
over the next decade and to expand the region's wind energy and
biomass capabilities. The region is well situated
geographically for coal-based power plants due to its proximity
to ports. The states of Schleswig-Holstein (S-H),Lower Saxony
(LS),and Mecklenburg-Vorpommern (M-V) have been expanding
onshore wind farms since the mid-1980s and hope to develop
extensively offshore farms in the North and Baltic Seas.


3. (SBU) Due to public disapproval, construction of several
power facilities -particularly coal powered plants - has been
delayed. Whether to approve continued construction of a 1,600
Mw hard-coal plant in Moorburg by Vattenfall was a very
controversial issue in Hamburg this past fall. This case
typifies the challenge facing local governments, which must
provide sufficient energy while addressing environmental
concerns.


4. (SBU) Mecklenburg-Vorpommern plans to establish an energy hub
in Lubmin on the Baltic Sea near the Polish border. The Nord
Stream pipeline will come ashore in Lubmin in 2011. The
pipeline is designed to handle initially 27.5 billion cubic
meters of Russian gas annually. Plans by the Danish energy
company, Dong, to construct a 1,600 Mw hard-coal power plant in
Lubmin have run into significant public opposition due to the
plant's proposed location directly next to popular beach resorts
and concerns that its coolant water will impact Baltic Sea
bacteria and fish populations. While Chancellor Merkel (CDU)
has spoken out strongly in favor of the plant, her party's
senior coalition partner in M-V, the SPD, has recently begun to
waiver.

EEG: AN INCENTIVE FOR WIND DEVELOPMENT
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5. (U) Following the Kyoto proceedings in 2000, the German
parliament passed the Renewable Energy Act (EEG) that promotes
research, development, and construction of water, wind, solar,
geothermal, and biomass alternative energy. The EEG contains a
"minimum price system" that regulates financial compensation for
renewable power. According to the EEG, electric grid operators
must pay investors fixed prices per Kilowatt-hour (kWh) for any
regenerative energy fed into their networks. The EEG
established price scheme is adjusted annually to encourage
immediate investment and is revisable every four years to
compensate for market fluctuations and improvements in
technology. In turn, the government is able to strengthen the
nation's ratio of renewable energies faster, while financers
benefit from higher, "locked-in" compensation rates that are
paid by electricity operators.


6. (U) Conventional energy providers dispute the view of the
German Wind Energy Association (BWE) that the EEG "places almost
no extra burden on the consumer." The association argues that
green energy adds only one Euro to the average monthly power
bill, but saves the environment from 5.40 Euros worth of damage.
The Federal Ministry for the Environment, Nature Conservation
and Nuclear Safety estimates that in 2007 wind energy deployment
in Germany prevented the production of 34 million tons of CO2.

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LAND-BASED WIND OPPORTUNITIES
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7. (U) The northern German states lead the country in harnessing
wind energy. As of 2007, Germany had approximately 19,000
land-based turbines with a capacity of 22,247 Mw. According to
the German Wind Energy Institute (DEWI),29 percent of S-H's
power is generated by wind. M-V produced 30 percent of its
power through wind in 2007. Northern German firms, such as
Nordex, Enercon, REpower, and Prokon Nord, are leading producers
of wind turbines employing over 82,000. The Lower Saxony town
of Emden relies completely on renewable power to provide
approximately 99.5 percent of its power supply. The Emden
region currently has 56 modern wind mills that alone reduce
190,000 tons of carbon dioxide emissions per year.


8. (SBU) In a recent meeting with Pol/Econ Officer, BWE
representatives stated that the German wind energy sector has
been dominated during the last 15 to 20 years by small and
medium sized companies. Although the energy company E.on has
attempted to develop onshore wind parks, due to their smaller
size they are generally not profitable for large energy
companies. The market for new onshore wind parks is saturated
and the best locations have been developed. Germany's
population density makes it possible to construct only small
projects that have no more than 20 turbines. This has forced
companies to focus on replacing old turbines with newer, more
efficient models, often increasing blade size and tower heights.
However, legal restrictions on land use and local public
opposition can inhibit construction. According to Karsten
Benecke from the Hamburg turbine producer REpower, despite
Germany's investment in wind power, the German market does not
support the necessary research and development.

WINDY START TO OFFSHORE DEVELOPMENT
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9. (U) Offshore wind farms have had a slow start in Germany.
Unlike most offshore wind farms along the Danish and Dutch North
Sea coasts that are close to shore, Germany is required to
locate it offshore farms further out to sea in 30-40 meter deep
water in order to avoid development in the Wattenmeer National
Park. Construction on Germany's first offshore wind farm, Alpha
Ventus is already a year behind schedule due to technical
challenges posed by the deep water and shore distance. Three
offshore wind farms are to be completed by 2009 with a combined
output of approximately 512 Mw. The federal government has
approved 16 North Sea wind farm projects and three Baltic Sea
projects.

CREDIT CRUNCH FOR SMALLER COMPANIES
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10. (SBU) In a recent meeting with Pol/Econ Officer, Tobias
Kempermann, Berlin Office Head of EWE energy company, stated
that while financing for Alpha Ventus is secure, the economic
crisis has made financing smaller wind park projects more
difficult. Under current credit conditions only large energy
companies can afford to finance major offshore projects.
Reportedly banks are requiring borrowers to put down 30 percent
of the costs compared to only 15 percent prior to the financial
crisis.

GRID UPGRADES CRITICAL TO FURTHER DEVELOPMENT
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11. (SBU) Electric grid limits also pose a problem. Only five
percent of land in Schleswig-Holstein, which has favorable wind
conditions, can be used for wind farms because of grid limits.
The Infrastructure Planning Acceleration Act of 2006 requires
system operators to provide grid connections for offshore wind
farms, but laying the cable connection can take 24 to 30 months
and grid providers have no incentive to lay offshore cable.
Costs for integrating wind parks into the grid which are
currently borne by the system operator or transferred into
higher electricity costs. The Upper Chamber of Parliament,
however, is expected to approve the Law to Accelerate Expansion
of the High Tension Grid on June 12. The Law was drafted in
recognition of the need to connect offshore wind power from the
north German coast to industrial centers in the west and south
and aims to reduce the time needed (currently often over 10
years) for planning and construction of power lines. A major
feature of the new legislation is the reduction of legal
objection rights to planned links. Whether all such links will

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be laid underground is still an issue. Environmentalists have
been successful in Lower Saxony, which has passed legislation
that to a large extent forces new power lines underground but
pushes up costs.

COMMENT
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12. (SBU) Comment: If energy projects move forward in the five
northern German states as planned, energy production will double
by 2020 compared to 2005 rates, but CO2 emissions will also
double if states only focus on constructing coal power plants.
Without major infrastructure upgrades, the current electric grid
is only able to handle non-fluctuating energy from sources such
as coal or nuclear power plants. For Germany to continue
pursuing CO2 emissions reductions, energy independence, and
increased renewable energy generation, particularly wind along
its coastline, politicians will need to take measures to improve
the grid's capabilities. As S-H Minister President Peter Harry
Carstensen (CDU) has stated, "When you mention wind, you also
have to talk about electric grids." While financing for wind
projects is currently a problem, interlocutors in the field
believe it is only temporary, and that offshore wind energy
development will continue. By diversifying energy resources
among gas, coal, and wind, northern Germany is establishing
itself as a reliable energy provider for the rest of the country
but is unlikely to succeed without an upgraded grid. End
Comment.


13. (U) This cable has been coordinated with Embassy Berlin.
JOHNSON