SEA Banner

Claudia Kemfert, DE

Energy Economist, German Institut for economic Research

The transition to alternative sources of energy that everyone likes to talk about is a group project that affects consumers, corporations and politicians equally. How far away are we today from the age of renewable energy?

The move to renewable sources of energy is a long-term project. By 2022 all of the nuclear plants in Germany will have been taken off the grid. Much of what they produce will be replaced by renewable energy. But since a lot of old coal-fired power stations will also be shut down over the same time period, we’ll be needing quite a few new power stations. Natural gas power stations are better suited to be combined with renewables because they can be taken on and off line as needed. Because of increased use of renewable sources, market prices for energy are decreasing, thereby lowering the profitability of these kinds of power stations. That’s why we need to design an intelligent market that not only offers enough financial incentives to provide enough choice but also to take consumer demand into account. This could mean allowing energy-intensive industries to adjust their demand to market conditions if they are offered the provisions to do so. But increasing the energy efficiency of buildings is also important. As is expanding the grid from the north to the south and into other European countries as well as investing in decentralised, intelligent grids. We’re right at the beginning in all of these undertakings, and we’ve got four decades ahead of us.

Germany plans to increase the percentage of renewable energy over the next four decades to 80 percent. Over the next ten years, they are aiming at a mark of 30 percent, doubling the current level. Do you think this plan is realistic based on current national budget issues and looming cuts in infrastructure investment?

The plan to expand the use of renewable energy is definitely practicable. Today, 25 percent of the energy used to produce electricity comes from renewable sources. The biggest challenge is going to be dealing with the fluctuation and volatility associated with renewable energy by increasing the size of storage facilities, expanding and optimising the grid to respond more quickly to demand as well as implementing a smartly designed market. The investments and risks that will accompany the biggest changes in our movement to renewable energy will need to be spread across lots of different institutions. The government can only provide an initial financial impetus and act as a buffer for some of the risk. But the banking industry will have to provide the loans to make the whole project manageable.

The central question for consumers that arises from the expansion of renewable energy is the price. At DIW you have used models to calculate how expensive the changeover to renewable energy might be. Knowing what you know now, what is your prognosis for the future?

The effect it’s having on the price of electricity is mixed. There are as many factors that are raising prices as are lowering them in our quest for more renewable energy. Expanding the grid is leading to higher prices, but this is predictable and manageable. If you replace nuclear with coal, CO2 prices in a functioning emissions-trading scheme are going to rise, leading to an overall price increase. Subsidies for renewable energies are also going to rise – the level will definitely depend on the market price for electricity on the exchange as well as how much electricity is produced using renewable sources and what kinds of special regulations there are. On the other hand, market prices are going to fall on the exchange as the supply of renewable energy increases. And the ability to import electricity also lowers the price, since electricity from other countries is cheaper. Also, increased competition could further lower the price. As capacity increases, new companies can enter the market, creating more competition, which will lower prices. On the whole, however, we’re probably going to see a slight increase in electricity prices.

You emphasise that mitigating climate change is the economic engine of the future. There’s an immense potential for growth in the green business sector, which German corporations are really starting to realise. What’s going on in other European countries and the rest of the world?

Germany is still the market leader in numerous green areas of the market. Other countries, however, have definitely seen the economic potential. China is now making massive investments into renewable sources of energy and green technologies. China was the 2012 partner country at the Hannover Messe, where it was amazing to see how quickly the market is developing. But the United States is also investing in innovative technologies. Germany is still the leader in the classic environmental technologies like water treatment, resource recovery and recycling, and renewable energies, although we’re definitely seeing with China that other countries have realised the economic potential of the important markets of the future. But this kind of competition isn’t harmful; it provides an incentive to work harder.

What does sustainable entrepreneurship mean for you? And what is its present role in the energy market?

The way we do things now is not sustainable. We’re living above our means. If we keep squandering so many precious resources like we have been doing up until now, we’re going to need three spare planet earths to exploit. This means that we’ve got to find ways of using resources a lot more efficiently and find ways to replace fossil fuels. Sustainable entrepreneurs from my point of view are companies, projects and people who don’t just pay lip service to sustainability and social responsibility but are actively working toward achieving it and serving as role models. We need a lot more companies and people who are thinking today about the world of tomorrow.

Which industries do you think are the best role models and where to you see the greatest need for improvement in the area of sustainable entrepreneurship? Is there a project that really stuck in your mind – and if so, why?

Definitely the energy industry, but also infrastructure, sustainable mobility and city planning. Chemical companies are also playing an important role, because they’re the ones who are doing the research on new technologies and materials to replace fossil fuels. They’re also producing innovative storage systems and materials to increase efficiency in the technologies and types of insulation used to heat and cool buildings but also in vehicle manufacturing. Because I’m a member of numerous prize committees, I get to see a lot of inspiring sustainable-entrepreneurship projects. I’m always fascinated by people and companies or projects that offer an ideal combination of economic aspects, green ideas and social sustainability. These could be decentralised projects that aim to bring about a transition in the way we use energy at the regional level in Germany or successful projects dealing with nutrition, health or water resources in lesser developed countries. I think it’s important to concentrate on innovative solutions but especially sustainable ones that can serve as a model for new developments in the future.

What do you think of the Sustainable Entrepreneurship Award (SEA) initiative?

I think it’s great. The SEA honours companies and people who have put sustainability and social responsibility into practice in unique ways. Being able to implement new projects, new ideas and corporate responsibility often means struggling against old models and ways of doing things. But not everyone can or wants to live up to the challenge. Important developments toward a sustainable future are often blocked by opposition. I think it’s important and admirable to award prizes to people, companies and projects that have either already been successful or want to make a change that is worthy of support. This could be an innovative idea or an established sustainability project. Making these ideas and projects known to the public and honouring the people responsible for them is extremely important. That’s why an award for these achievements is so meaningful. It makes the SEA very valuable.