MUNICH -- Germany's push to radically remake its energy system by abandoning nuclear and embracing clean energy is threatened by delays in grid investments and, paradoxically, the success of its solar industry.
After the nuclear disaster at the Fukushima Daiichi plant in Japan, Germany adopted a policy of phasing out nuclear energy by 2022 and ensuring that 80 percent of the country's electricity supply comes from clean energy by 2050, or more than three times the level of 2010.
The 17 nuclear reactors that were operated in Germany at the time used to produce about a fifth of the country's electricity. One piece of the new system to take their place will be 5,000 wind turbines installed nearly 100 miles out at sea, in water as deep as 130 feet. Another piece will be thousands of megawatts of gleaming rooftop solar panels.
The money needed to complete this switch is estimated to be €550 billion, or about $720 billion.
Wind parks, for now mainly located onshore, already represent 17 percent of the country's installed generating capacity. Germany added 344 MW of solar power in May, taking the total to 33,877 MW, or 19 percent of installed capacity, according to the nation's grid regulator. But the expansion of offshore wind has been slowed by grid problems.
Meanwhile, Germany's solar boom is depressing energy prices and hurting the bottom line at the nation's big utilities such as RWE AG and E.ON SE.
Chancellor Angela Merkel's predecessor, Gerhard Schroeder, was the first to float the idea of decommissioning the nuclear reactors in the 2020s. Merkel initially pushed that target back to the 2030s, saying the reactors were safe and good for the economy.
But after the Fukushima tragedy in 2011, the anti-nuclear Green Party won elections in the state of Baden-Wuerttemberg, which had been ruled by Merkel's Christian Democratic Union for 58 years. Three months later, Merkel announced her about-face and the decision to permanently shut down all reactors by 2022.
Plenty of power, not enough lines
To make this happen, Germany needs nearly 1,000 miles of new high-voltage power lines in the coming years, according to plans approved by the federal government. Yet less than 155 miles has been built so far.
Frustrated with the slow progress, a member of Merkel's Cabinet even called for partial state ownership of Germany's power grid. Consumer Protection Minister Ilse Aigner is worried about the slow pace of expansion of the country's high-voltage lines needed to transport offshore wind energy from the North Sea to industrial areas in the south of Germany.
Difficulties connecting offshore wind farms to the grid reduce their profitability and change the original investment calculations. RWE has an offshore wind farm called Nordsee Ost that cannot be connected to the grid until 2014, two years later than originally planned.
Today there are four grid zones with different line prices, individual control centers and stations. If the companies were combined, administrative costs and electricity prices could be reduced.
"A strong government partner could provide security" in connecting offshore wind farms to the grid, Aigner wrote in a letter to Economy Minister Philipp Rösler. Some local politicians have also come out in favor of the idea, backing the formation of a national grid company with public investment. But Rösler has been quoted as saying he disapproved.
In another blow to the government's plans, E.ON and RWE are reducing spending on renewable energy to cut down debt. The two companies are among a group of select major utilities that could afford to build the type of offshore wind farms Germany needs to meet its objectives.
But E.ON is cutting renewable investments to €1 billion per year in 2015 from €1.8 billion last year, while RWE is cutting its green investments in half to €500 million per year in the next two years. Meanwhile, E.ON is seeking higher returns elsewhere, making investments in Turkey, Brazil and the United States.
Cheap solar takes market away from gas
The fastest-growing renewable energy in Germany has been solar power. Maybe too fast. Even as the government is cutting back on once-generous subsidies for the technology, the country is expected to reach a total solar installed capacity of 52,000 MW by 2017 or 2018, according to Environment Minister Peter Altmaier. That is up from 6,000 MW in 2008, almost a ninefold increase.
"Solar is already having a material impact on energy markets," said Jason Channell, clean technology analyst at Citigroup. "On hot, sunny days and weekends, the peak, which would previously have been supplied by gas, has almost entirely gone over to solar. This is the most valuable part of the curve, as electricity prices are highest at the period of highest demand."
Solar is already competitive with conventional energy in many parts of Germany and will keep getting cheaper, while conventional fossil fuels are more likely to increase in production costs, Channell said.
"This peak effect has resulted in some gas plants in Germany running in 2012 for no more than a handful of days, with resulting profit warnings from associated utilities," he said. "The flexibility of gas lends itself to peak generation, and hence it has been the first to suffer."
If and when wind and solar capacity double their outputs from current levels, base-load plants, which have to run constantly to ensure grid stability, will start to suffer financially as well and risk becoming uneconomical.
"Ultimately, markets such as Germany must move to a capacity payment mechanism, whereby the owners of a base-load plant are compensated via consumer bills to keep it open so it's available when it's needed, for example in the winter," Channell said. "Ironically, this upward impact on bills will only likely to make consumers more likely to put panels on their roofs" and use the power they generate for themselves.