26.08.2020 | The electric car boom in Germany is stirring up the power industry
The corona crisis has hit the German car industry at the core. The figures show just how badly: Sales in the first half-year of 2020 dropped 30 per cent. However, the crisis also resulted in an unforeseen development: Germany, where e-vehicles were formerly met with disdain, has recently seen massive growth in this area.
Is this the starting shot for the electric vehicle boom in Europe's largest automobile market? Well possible: German car sector experts expect sales of 250 000 e-vehicles for 2020 between the Zugspitze region and the North and Baltic seas – corresponding to a market share of 8.9 per cent. The number of new vehicle registrations last July for popular plug-in hybrids and purely electric vehicles indicates that the trend is heading in that direction – in particular, the figures for the latter have nearly tripled in comparison to the previous year from 5963 to 16 798 new registrations. The share of electric vehicles among all the newly registered cars in Germany rose from 1.8 to 5.3 per cent within a year.
But why now in the midst of the corona crisis? One of the main reasons could be buyer's premiums from the German government under the corona stimulus package, which has increased the demand for e-vehicles. Another factor is the reduced VAT rate – an additional political measure to boost German consumer spending after the lock-down in spring. In addition, e-vehicle manufacturers have also launched attractive offers in recent months.
How quickly the substantial growth for e-vehicles came about is nevertheless surprising. Just as unexpected is the fact that the e-vehicle pioneer Tesla has not been able to benefit from the positive environment in Germany. Buyers are mainly going for cheaper models such as compact e-cars and vehicles. In contrast, Tesla could only list 154 new registrations in Germany for the Model 3 in July. The larger models X and S were sold even more rarely.
What does this development mean for the German power industry? Will electric car owners demand green electricity to charge and drive their vehicles in an environmentally friendly way in the future, like the large, energy-intensive industrial companies?
"It’s obvious: As long as an electric vehicle is powered by electricity generated from lignite, it's not very environmentally friendly," says Johannes Pretel, Head of Origination at Axpo Germany in Düsseldorf. So it is likely that the demand for power from wind and solar plants will increase. One way would be to rely more on certificates of origin for green electricity in order to eliminate CO2 from Germany's fuel mix disclosure – which could ultimately be certified.
A better way – and an eco-friendlier one – would be for power consumers to procure green electricity through PPAs (Power Purchase Agreements) for wind farms and solar plants says Johannes Pretel: "With a PPA, a large-scale physical connection would be possible for the first time in Germany and the green electricity flows directly to the location where it is consumed. This added value is only possible by means of a PPA."
This could be an attractive solution for large company vehicle fleets to charge e-vehicles in an environmentally friendly way. However, whether long-term power purchase agreements could suit private customers remains to be seen. At least for the time-being and in the near future, it would make more sense to procure the power from one's rooftop solar plant, provided it is available.
The question remains whether Germany has enough power from wind and photovoltaics to cover the rising demand owing to the increase in the number of e-vehicles.
Johannes Pretel: "There would be enough green electricity for e-vehicles in Germany, but that would mean that industry would get less eco-friendly power – and that would contradict the sustainability goals of companies that have shown a strong interest in PPAs for some time. So an increase in capacities in the area of wind power and PV systems is unavoidable. Wind energy, in particular, is in a jam – this area needs to grow much more."
It will also be just as challenging to maintain and expand grids and infrastructure. Power distribution is the more difficult task as compared to pure green electricity supply, says Johannes Pretel: "The devil is in the details. In contrast to Germany, Scandinavia, for example, has a lot of IT-based providers because the power market design there enables the direct connection of decentralised systems."
E-vehicles themselves could come into play as small, decentralised systems as well – and an increasing number of charging facilities at filling stations can be found more and more often in addition to traditional fuel pumps for gasoline and diesel. An issue that mainly affects cities, towns and their utilities, which are among Axpo Germany's most important customers.
Johannes Pretel explains: "They have to be critical and make the right decisions when it comes to grid flexibility and stability. At the moment this is still a very confusing landscape, but the topic will become increasingly important."
So much so that major players like Tesla could be interested in becoming active on the German market in the area of green electricity supply, PPAs and grid services?
In any case, Elon Musk's US company is currently building a giant automotive plant in Grünheide near Berlin that is scheduled to go into operation next year. Wouldn’t it be conceivable that Tesla could strike out in other areas outside e-vehicle manufacturing and weigh in against energy industry top players?
Johannes Pretel doesn't think so: "I think Tesla is rather interested in expanding its green services in connection with e-vehicles. The company serves a special client base in this area. In order to go a step further and, for example, be in a position to offer grid services with the help of e-vehicles and charging stations, the number of cars is the decisive factor. And for the next three to four years I don't see a possibility despite the recent increase in electric cars because at the moment inexpensive compact cars are in demand."
Johannes Pretel also has a clear answer to the question of whether Tesla could become a green electricity or PPA provider: "Certainly there is a possibility that an industry outsider can develop some know-how in the energy sector area. But that is not all that is needed to be successful in our business: Good risk management is crucial in the PPA business."
Numerous risks must be hedged: "We are talking about a time period of up to 15 years - and all the involved parties must have the certainty that the counterparty will still be on the market down the road. Not every company can manage all this. PPAs are not only long-term, but very complex with numerous variables that have to be individually adapted to the needs of customers."
Johannes Pretel sees good prospects for the PPA business in Germany despite the corona crisis. With the drop in prices on the futures market as seen in the spring of 2020, concluding PPAs was not attractive enough for investors and green electricity producers. As a result, corona acted as a break and many of the planned deals were postponed – but not cancelled, clarifies the PPA expert.
"In addition, many industrial companies were confronted with other issues in the past months, rather than with the topic of PPAs. That was not their top priority despite the low prices. But now prices have gone up again significantly and reached a level that is interesting for both sides. The price for base load electricity must go in the direction of 50 Euros/MWh to make it work sustainably in the long term. In the meantime, the PPA market has picked up momentum again on the generation and consumption side.”
Of course, Axpo Germany wants a slice of the PPA pie: "It's a fact that the German market is behind other European countries in terms of the PPA business, owing to the long years of subsidies through the German Renewable Energy Sources Act (EEG). But it is also an opportunity because now it can all be designed to the market and, of course, we benefit from know-how and experience from our Axpo colleagues in other European countries and the US."
The highest precept is recognising customer needs and offering the respective solutions: "The consumer wants real green electricity – be it for the factory or the electric car. This is where we need to start to bring the appropriate services and products to the market and do outreach work, especially when it comes to the financial risks of a product. Customers must understand what they get from us, and learn to better assess the market," explains Johannes Pretel.
In any case the direction is the right one according to the PPA expert: "We have to give the market time to find itself. Then we will see a lot more PPAs in Germany than has been the case in the past."