Is the Energy Transition Moving Forwards? – An Interview with Johannes Lackmann

Published in SOLARZEITALTER 2-2023/1-2024.

The interview was conducted by Irm Scheer-Ponteagel.
This record of the interview was translated from German.

The adoption and success of technology using renewable energy (EE) has to be viewed in connection with the German Erneuerbare-Energien-Gesetz (Renewable Energy Act – EEG) from 2000. The law was initiated from Hermann Scheer and other representatives as a “Parlamentsgesetz” and brought to the German Bundestag and developed a comprehensive dynamic. In the years following the law’s adoption, it was “adjusted” in-line with the views of the following governments which led to uncertainty, a slowdown and stalling of the relevant actors. Hardly any law, whose content consists of just a few paragraphs, has such confusing and bureaucratic scope. The purpose and starting point of the adoption of technologies for the utilisation of EE to supply society with energy are being sidelined. The leitmotif of the energy transition “the sun does not send us a bill” means that as soon as the technology for EE is matured, the costs of generating electricity will be cheaper than it would be from fossil and atomic resources.

SOLARZEITALTER: In the meantime, the technology has matured. What do we need to do so that electricity reaches households, trade and industry at a favourable price?

Johannes Lackmann: It is certainly a contradiction that in the last 30 years we have experienced the impressive technological development of EE, while at the same time the electricity costs for consumers have increased. In the interests of our own self-belief and to prevent the slowing of further developments, the EE industry must address this contradiction. The increase in efficiency of individual technologies must lead to a secure and cost-efficient overall system.

SOLARZEITALTER: Which changes are necessary for that?

Johannes Lackmann: The necessary measures consist of many single steps which can overall make a significant difference. First of all we should lose the perception that we may finance significant price breaks and cheap industrial electricity prices with billions of Euros in taxes. The concerns about threats to a successful energy transition and securing the industry’s future arising from the €60 billion cut from the federal budget from the Constitutional Court ruling are unfounded. It was a mistake from the start to attempt to achieve a transformation through taxpayer funded subsidies. Neighbouring countries that are a decade ahead of us, for example the Scandinavian countries, have especially used incentivising structures as guidance, orienteered towards a principle of making polluters pay.

A reliably calculated CO2 price prediction with stable price developments and promised relief for citizens and industry belongs to this principle. The European Emissions Trading System (ETS) with greatly delayed and volatile price developments has no far not been successful in this respect, as no investor security was provided. Insecurity doesn’t only prevent investment, it also prevents further technological developments. In contrast, the success of the EEG in the early years was based precisely upon the consistent and transparent development of feed-in tariffs.

The electricity tax as part of ecological sectoral reforms in 1999 was intended to have a similar guiding effect on the ETS. Unfortunately, this has become a pure consumption tax with no distinction between energy sources. For the electricity tax, parallel to the ETS there is no longer legitimisation. It should be abolished without replacement. The now agreed temporary reduction to the EU minimum rate for the manufacturing industry will only create new bureaucracy due to the many issues with delimitation.

The argument that an increased CO2 price is unsocial for lower income groups does not hold up. For one, lower income groups will be more relieved through the climate money than by the energy surcharge and additionally, the ETS abolishes itself, when the era of fossil fuels is over. That also applies to personal energy consumption.

SOLARZEITALTER: Which improvements are possible in individual sectors, for example in wind energy?

Johannes Lackmann: The largest contribution to a potential CO2-free energy system is rightly expected to come from onshore wind energy. The wrong incentives have however lead to price increases rather than decreases over the last 30 years. In 1993 we received around 18 Pf/kWh (around 9 ct/kWh) from the first 500-kW installations. Following 30 years of technical developments, if we place 6-MW installations to bid today, we will receive nominal surcharges of just over 7 ct/kWh, which will be increased to 9 ct/kWh for medium-sized sites by the reference yield model. To this effect, wind energy can currently be generated at 4 to 6 ct/kWh, depending on the location. Consumers are therefore not benefiting from the major technical development. This mismanagement can never be compensated with budget funds.

SOLARZEITALTER: What are the disincentives and how may they be remedied?

Johannes Lackmann: 1. The bidding model is false, as it only simulates competition. When the bidding numbers are higher than the number of possible projects (bureaucratic impediments), every provider can orient themselves to the public price cap, which currently stands at 7.35 ct/kWh. This limit is too high. There must be an inventive to have bids which are as affordable as possible. Competition could emerge if in every bidding phase, only around 80% to 90% of the offers in each bidding round are awarded. The non-awarded projects can after a determined period of rest, apply once again and therefore not be lost in the expansion of wind energy. The experience of bidding so far indicates that the suppliers always follow the price upper limits exactly, when they assume that the tendered volume would be agreed.

2. In Germany the rent for windfarm locations comprise up to 30% of revenues. A single landowner then often receives several €100,000 per year. These high revenues are a direct indicator of a high income as a consequence of competition not working. The amount paid in rent should legally be set at a maximum of 5% of revenues. Whoever directly or secretly exceeds this, should have the income contract annulled and lose the entitlement to remuneration from the start. Such a harsh sanction is also very workable without institutional oversight. Even the financing banks will hold project operators accountable for compliance with the limit. Those driving high prices for rents are also often state administrations. Among others, Hessenhorst was one of the first to make rent demands of over 20%. Such claims should be made illegal for government agencies.

3. The reference yield model in the EEG was originally intended to orient to the wind potential of the relevant locations. Today, windfarms are often built so densely that the installations take a lot of the wind yield from each other. That would result in a good location becoming low-yielding. The EEG then compensates the missing wind yields with a higher remuneration. Then 7 ct/kWh can easily become 10 ct/kWh. For a long time we have been demanding that this avoidable worsening of the efficiency of the park should no longer be offset by the reference yield model in the EEG.

4. The approval for the building and service of wind energy installations are issued in accordance with the Federal Emissions Protection Law (Bundesimmissionsschutzgesetz – BImSchG). There are approvals for over 100 individual installations which increase building costs while limiting installation capacity and therefore increase production costs. These restrictions are part of the reality of higher German electricity costs.

5. The financing of installations through banks remains affordable, when the contract through a legal minimum remuneration (EEG) is secured. When the market prices shoot upwards as in 2022 however, there is no reason that the yield from the installations will grow at the same rate. When these yields have been exhausted (two sided difference contracts, like systemic market premiums) and the revenue from the levy is refunded to all electricity customers through a negative EEG surcharge, wind energy can contribute to stabilising electricity prices.

6. It was a serious mistake that years ago the levy-financed market premiums were abolished and replaced with state financing. For one, the refund options outlined in point 5 are lost, for another, the EEG has been downgraded to a subsidy law. That has disproportionate disadvantages on project financing. While the building interest rates have already peaked, the interest rates for projects, that through subsidy laws are refinanced, have actually climbed. Accordingly, the banks must orient the refinancing through the EU reference interest rate. Currently the interest rate difference is 1%. That has clear implications on the costs of wind energy generation. The EEG must in the short-term become a subsidy-free law. For exactly this reason, Hermann Scheer previously went to the European Court of Justice on his own and successfully pushed the law through. The lower the production costs for wind energy, the higher the probability that the symmetrical market premiums will lead to a lowering of electricity prices instead of an increase.

7. Currently, the legally outlined compensation is only paid-out when the wind energy is transferred to the public grid. A difference between legal compensation promises and trading electricity prices would then be equalised through a market premium. In many cases however, it is logical that wind power is offered via direct lines to industrial enterprises. There is no concrete reasons in these cases to deny the payment of market premiums. Without grid monopolies, wind energy can lead to very competitive prices for industry while simultaneously relieving the general grid.

SOLARZEITALTER: What contribution can solar energy achieve, to reduce electricity prices?

Johannes Lackmann: At the beginning of funding through the EEG, roof solar energy was clearly the most expensive form of energy production. Today however, electricity from solar is clearly the most cost efficient type of energy production. In the last year, the price of photovoltaic-modules has once again halved. The pure production costs are under 3 ct/kWh. That is a significant developmental achievement with global implications, set into motion by the fact that a social democrat-green majority in the Bundestag in 1999 exceptionally chose to pursue a markedly courageous policy.

In the meantime however, the German regulatory mania has created barriers that discourage many people from utilising this easy-to-use technology and is internationally laughable. Hanging two modules on the balcony is just as easy as installing a patio heater. Many grid operators have however, attempted to prevent this by any means possible. The truth is that unfortunately, legal thinking in Germany has prevented many people from connecting balcony modules to a power socket, without any risk.

The rented electricity model is extremely complicated and makes the installation operators an in-house electricity trader when passing on electricity to second-degree relatives. The setting up of a photovoltaic-installation was treated as a profession. Initially, all photovoltaic operators were Industrie- und Handelskammer (Chamber of Commerce and Industry) members, though without an obligation to pay contributions. It had to therefore be registered as a profession and so on. Nowadays, installations are freed from these obligations up to 30kW. The solar packet that should be adopted in the near future, will lead to further important relief, also for large photovoltaic-installations and for home devices and an expanding of contractual freedoms. For larger installations there is still however a senseless and expensive certification obligation. Many installations have been set-up and have been waiting for months for permission to operate from the grid operators.

The deterrent measures have convinced many people, including commercial enterprises that solar energy is not worth it. Following the adoption of the solar packet, it will take even more time for a shift in opinion. From a technical perspective, solar power from the roof, which does not have to go via the grid, is unrivalled in its affordability.

Today many photovoltaic-installation operators set-up battery systems in basements, in order to save on grid charges. That consistently transfers grid costs to users, who cannot install photovoltaic-systems themselves. That is not a positive social model. It would make much more sense, as in 50 other countries around the world, to allow for net metering so that electricity feed-in and electricity consumption can be automatically offset. The good old counters with power wheels fulfils this function automatically and one does not need a smart meter for this. It would be sufficient to compensate for the usage of the public grid by charging a flat rate based upon installed photovoltaic performance. Instead of basement batteries, in the future the many larger batteries of e-vehicles will be available. If all cars were electric, the output of batteries would be 30 times greater than the output of all power plants in Germany. If this performance in the grid served the system and not private interests, the system costs for the grid in Germany would be significantly reduced.

SOLARZEITALTER: If the energy transition in Germany leads to cheaper electricity prices, which further effects could that have?

Johannes Lackmann: Germany is an industrialised country. We will lose a lot of industry if we do not finally start to cost efficiently engage in the energy transition. There is already a decline of production in many areas. When it comes to medium-sized companies, there is no public outcry. They simply close up shop. This happens without much fanfare. We should not risk our societal cohesion through the loss of important production chains.

The international perspective is, as the case may be, even more important: we have begun the energy transition with high expectations. Today, we are no longer seen as an inspiration to emerging countries, but rather as a showcase: the energy transition works, but only large economies like Germany can afford it.

If we can integrate technical innovations into an affordable overall system, we have the opportunity to become a role model. Then rather than losing industry, we will win more export opportunities.

SOLARZEITALTER: What level of cost reductions can you see in wind energy, for example?

Johannes Lackmann: The expansion goal for energy is 115 GW until 2025 – a new expansion level of around 80 GW. The average is currently at 8.5 ct/kWh. From 2023, the price-cap will be raised from 6 ct to 7.35 ct. According to a study of transition grid operators, the bids and surcharges for new wind projects would also be based upon this new limit. The average bid follows the upper limit at 98% of the highest price. One may therefore reason that the leverage effect through the reference contract model will be maintained to at least the same extent as before. This is because the limits for the consideration of locations with less wind yield are generally 60% and in southern Germany are set at 50%. That makes the possible leverage even larger. The average revenue would accordingly go from 8.5 ct/kWh today to 10.4 ct/kWh. With this in mind, I see a cost reduction potential of 3.5 ct/kWh. If we do not use this potential, the expansion of wind projects alone will burden the electricity prices in 2035 with an additional more than €5bn every year than would be necessary for an economic expansion.

SOLARZEITALTER: Johannes Lackmann, we thank you for this interview.

Diplo. Ing. Johannes Lackmann is the chief executive of WestfalenWIND GmbH in Paderborn. The engineer has planned and built wind parks since the 1990s and co-founded the federal association WindEnergie. The energy expert and “wind power pioneer of the first hours” was recognised for his outstanding contribution to the energy transition with the German Solar Prize 2023 – Category Special Award for Personal Commitment.