BIPR (2024)

Germany Will Not Meet Its 2030 Renewable Energy Build-Out Targets

Germany recently revised its Renewable Energy Sources Act (EEG). Germany's EEG targets are a core part of its strategy to fulfill its commitments to the 1.5°C Paris Agreement goal. Failure to meet the targets will significantly impair global decarbonization efforts. In light of the rising energy demand, energy security and prices within the German market will be subsequently impacted.

Analysis

Germany's Renewable Energy Sources Act (EEG) sets ambitious targets for the buildout of its renewable energy capacity by 2030, specifically for onshore wind energy and solar photovoltaic (PV) cells. The capacity for onshore wind energy is to be doubled from 59 gigawatts (GW) in June 2023 to 115 GW in 2030. Capacity for solar PV is to be almost tripled from 75 GW to 215 GW in 2030. To reach these goals, Germany would need to significantly increase its yearly buildout rates from an annual 2 GW (the rate from the past 5 years) to 8 GW for wind energy, and from an annual 7 GW to 19 GW for solar PV.

Germany has set financial incentives through its EEG legislation to accelerate its renewable buildout, but this will likely be insufficient. Three key factors are expected to hinder the buildout. Firstly, lengthy, and complicated approval processes delay realization of new energy projects, particularly onshore wind farms. Secondly, Germany's high dependence on Chinese producers and the limited availability of essential raw materials renders supply chains at risk of disruption. Thirdly, a shortage of qualified labor will likely lead to further delays in the development of energy projects.

Lengthy and Complicated Approval Processes

To be able to start the construction of a wind farm, developers currently must go through a long, complicated, and bureaucratic approval process. Over the past years, the duration of approval processes has increased from an average of 3.5 years in 2013 to 5 years in 2022. Reasons for this include understaffing of administrative offices, the fragmentation of the process across many different institutional bodies, and the lack of digitalization (a developer currently has to hand in over 10,000 printed pages of documents per application). This impacts future buildout rates in two significant ways:

• Inertia: For a wind energy project to be realized in 2024, its application should have been submitted 7 years prior, in 2017, to account for the 5-year approval process and the average construction time of 2 years. This gives Germany's EEG only limited scope to boost its buildout rates over the next few years. Only a sudden transformation of the legal and administrative procedures could expedite the process.


• Low approval rates and low planning security for developers: Wind energy project applications are frequently rejected because legislation has changed during the approval process. This reduces planning security and attractiveness for developers and has led to a shortfall in meeting government approval targets in recent years, with a 20-40% approval volume below the target. This trend is expected to persist, making it likely that government targets will also not be reached in the coming years.

Risk of Supply Chain Disruption

Germany's supply chains for solar PV modules and wind turbines are at risk of disruption in the coming years. This will likely lead to shortages in the supply of critical components needed to achieve Germany's renewable-energy targets. The disruption risk is mainly due to:

• High (solar PV) and increasing (wind turbines) dependency on China: Approximately 70-95% of the production of solar PV modules currently occurs in China. This is unlikely to change. The US's effort to boost local production through its Inflation Reduction Act is unlikely to extend much beyond covering its own domestic demand in the near future. Additionally, European wind turbine producers are facing rising competition from Chinese suppliers with lower prices and higher margins, leading to a gradual shift of wind turbine production to China. Germany's heavy reliance on China renders its supply chains vulnerable to disruptions caused by trade disputes, Chinese policy changes, or interruptions in transport routes.


• Expected shortage of essential raw materials: Several rare earth metals are required to produce renewable energy technology (e.g., Neodymium and Praseodymium for wind turbines). These rare earth metals are often not only needed for renewable energy, but also for other rapidly growing industries such as the battery sector. Demand is therefore expected to increase faster than supply, leading to potential supply shortages. Additionally, China is the world's leading supplier for these rare earth metals, highlighting Germany's dependence on China once again.

Shortage of Skilled Labor

The German economy is currently facing a skilled labor shortage, with over 60% of German companies reporting this as a significant business risk. The two key sectors crucial for the renewable energy buildout – energy and construction – are among the most affected. This trend will likely continue due to:

• Decreasing availability of labor in the construction sector: Germany's investments in infrastructure, especially in its rail networks, power grids, and fiberglass networks will generate a significant increase in labor demand in the construction sector. This will likely exacerbate the current shortage of labor required for the construction of renewable energy projects.


• Increasing need for skilled labor for the renewable buildout: To realize its renewable buildout, Germany will need an estimated 280,000 full-time workers each year. This represents more than a tripling of the number of workers currently employed in the sector. This high expected demand, combined with increasing competition from other sectors, is at risk of becoming a key bottleneck in the realization of renewable energy projects.

Conclusion

Germany will not achieve its 2030 targets for the expansion of its renewable energy capacity due to its lengthy and complicated approval processes, its supply-chain vulnerability and dependence on China, as well as its shortage of skilled labor.

Pia Siegele is a Masters of Global Risk candidate at JHU-SAIS. Her main research interest lies in using interdisciplinary approaches to study complex systems. She has experience in management consulting in the life sciences, health, and energy industries and holds a BSc in Neuroscience and an MSc in Cognitive Science and AI from the University of Edinburgh.