Praising the country’s commitment to sound energy policies, in its latest policy review the agency says that losing the nuclear option will have significant impacts on energy security, economic efficiency and environmental sustainability.

The IEA notes that eliminating nuclear from the supply portfolio will reduce supply diversity, increasing reliance on energy imports – particularly natural gas – and will also increase reliance on carbon-emitting fuels. While additional renewables capacity along with energy efficiency gains could make up some of the resulting gap “without a doubt, a phase-out will limit Germany’s full potential to reduce its [greenhouse gas] emissions,” the IEA says.

In addition, shutting down “productive assets” before their useful lifetime requires additional near-term investments that could otherwise be avoided, impacting on economic efficiency.

Claude Mandil, executive director at the IEA identified a number of challenges for the country commenting: “Key among these challenges are the announced nuclear phase-out, reform efforts in electricity and natural gas markets, and overall climate change policies.” Other issues to be overcome include the dominance of large incumbent companies at all levels of the electricity and natural gas markets, with E.ON, RWE, EnBW and Vattenfall controlling 70% of German electrical capacity. While legal unbundling rules are in place in both sectors, they are not sufficient to prevent such companies from using their ownership of network infrastructure to favour their own affiliated companies, the IEA says.

The IEA is urging the government to introduce separate independent system operators to manage transportation assets so that all market participants – including existing and potential new entrants – play on equal footing and help drive competition. With regard to climate policy the IEA says the government can better align its policies so that it gets the greatest benefits of efforts to reduce emissions. Policies which endanger its climate efforts include the use of the European Union’s trading scheme for carbon dioxide to protect and promote coal-fired power generation, the Agency says. Furthermore, the feed-in tariffs provided to renewable electricity generation sources do not provide long-term signals to lower costs – incentives that would allow more renewables to be procured from the same pot of funds. In particular, the high feed-in tariffs for solar photovoltaics can be up to ten times higher than those provided to wind and even higher than investments in efficiency, diverting money away from other areas where it would have been better employed to reduce emissions.

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