Employee Maximilian Bergemann checks a completed electrolyzer for hydrogen production at the test benches.CHRISTOF STACHE/The Globe and Mail
On a factory floor in a sprawling Siemens Energy industrial complex in Bavaria, a robot inside a cage is assembling a piece of Germany’s industrial future.
The stack of electrolyzer cells the mechanical employee is busily putting together as it wheels around, aided by a pair of uncaged humans, will produce green hydrogen. That’s the fuel, made by extracting hydrogen molecules from water using electricity generated by renewable sources, that Europe’s biggest economy is counting on to power its transition off fossil fuels in heavy manufacturing, commercial transportation and even its electricity grid.
Soon, this lone automaton will have company. Next year, Siemens will open a bigger and fully automated electrolyzer factory in Berlin that’s eventually supposed to produce several gigawatts of annual hydrogen capacity – a step toward Germany’s target of 10 GW of domestic capacity by 2030, and toward enabling hydrogen production in other countries as well.
These plans, detailed by Siemens executives during a factory tour, and similar to those of other German industrial giants, did not suddenly materialize after Russia’s invasion of Ukraine cost Germany the cheap imported natural gas that fuelled its economy. They were already in the works, primarily as a means of reducing greenhouse gas emissions.
But the plans got immensely more urgent – a matter of energy security and economic survival, and a make-or-break opportunity for Germany to realize its previously fuzzier ambitions to bravely point the way toward a more sustainable planet.
Share of primary energy consumption
in Germany
First half 2022, in petajules
Others
42 (0.7%)
Nuclear power
183 (3.1%)
Hard coal
546 (9.2%)
Lignite
576 (9.7%)
Renewables
1,087 (18.3%)
Natural gas
1,616 (27.2%)
Oil
1,901 (31.9%)
the globe and mail, Source: clear energy wire
Share of primary energy consumption
in Germany
First half 2022, in petajules
Others
42 (0.7%)
Nuclear power
183 (3.1%)
Hard coal
546 (9.2%)
Lignite
576 (9.7%)
Renewables
1,087 (18.3%)
Natural gas
1,616 (27.2%)
Oil
1,901 (31.9%)
the globe and mail, Source: clear energy wire
Share of primary energy consumption in Germany
First half 2022, in petajules
Others
42 (0.7%)
Nuclear power
183 (3.1%)
Hard coal
546 (9.2%)
Lignite
576 (9.7%)
Renewables
1,087 (18.3%)
Natural gas
1,616 (27.2%)
Oil
1,901 (31.9%)
the globe and mail, Source: clear energy wire
Hydrogen, despite being the most-hyped aspect of Germany’s energy transition, and the one in which it might be furthest ahead of other countries, is only part of the story.
It’s also about trying to get back to the forefront of renewable-electricity generation, in which Germany once led but has in recent years stagnated; about rolling out technologies that make homes and businesses more energy efficient; and about the country’s massive auto sector trying to take a lead in an electric-vehicle race in which it has trailed international competition.
On all these fronts, the world has a lot riding on Germany getting it right – even if that does not always come across.
Germany approves rules to turn down heating, lights this winter in bid to rein in gas usage
As this year’s energy crisis has caused German consumers to face skyrocketing costs and businesses to threaten closure, there has been a hint of schadenfreude in North America and elsewhere. The perception is that a very rich country prone to wagging its finger at other nations’ economic and environmental policies made some very bad decisions – relying on Russian gas, prematurely phasing out nuclear power – and it’s paying the price, including increased reliance on burning dirty coal.
But if Germany now truly leverages its accumulated wealth, industrial prowess and infrastructure toward clean-energy transition, it could mark a major advance in the global climate fight. Not only might the country dramatically reduce its own emissions; it could develop or scale up technologies that enable similar progress elsewhere, while illuminating policy pathways for governments and the private sector.
A residential area on the outskirts of Frankfurt, Germany, on Dec. 15. This year’s energy crisis has caused German consumers to face skyrocketing costs as winter settles in.Michael Probst/The Associated Press
Conversely, if Germany cannot adjust to new energy realities, the spillover economic effects could be felt far beyond its borders, and an opportunity for environmental leadership will be squandered.
During a visit to Germany this fall, The Globe and Mail spoke with more than two dozen industry executives, government officials and policy experts about whether their country is positioning itself to emerge on a sustainable and prosperous path.
The interviews revealed tensions between the immediate response to energy shortages and longer-term ambitions.
There are worries that, as Germany necessarily seeks new near-term natural gas imports to replace Russian supply, it will lock itself into arrangements and infrastructure that later serve its environmental and economic interests poorly. And economists warn that putting off planned increases to Germany’s carbon price on heating and transportation fuels, although understandable amid other soaring costs, could undermine the government’s climate credibility by showing that the stringency of policies is contingent on circumstance.
German Chancellor Olaf Scholz is given a presentation on a heat pump system, during his visit of a training center of the Chamber of Crafts in Munich, on October 22.LUKAS BARTH/AFP/Getty Images
But there is also recognition that Chancellor Olaf Scholz’s year-old coalition government, including Green Party members in top cabinet positions, has generally been scrambling to develop policies – from regulatory reforms to new subsidies – to reconfigure Germany’s economy while meeting its ambitious climate goals.
And industries that once envisioned a relatively gradual energy transition now appear to be moving with greater urgency, albeit impeded by factors such as strained global supply chains and domestic labour shortages.
Germany is currently in a situation that countries with more secure fossil-fuel supplies, including Canada, haven’t reached yet.
But it’s providing a case study in what works and what doesn’t for others that soon may also need to speed up their efforts to meet emissions targets and compete in a decarbonizing world.
“If I look at the debates in other countries,” says Jennifer Morgan, the former head of Greenpeace International who now serves as Germany’s international climate ambassador, “we’re living it in real time.”
Matthias Taft knows very well how Germany positioned itself as a global front-runner in wind and solar power, installing enough to meet nearly half its current electricity needs, and what’s required to return to the front of the pack.
As CEO of BayWa r.e., Mr. Taft presides over a success story from the first wave of Germany’s clean-energy push. Formed in the 2009-to-2012 period as a subsidiary of BayWa AG, a century-old company with agricultural roots, it’s grown into a major international renewables developer, with approximately €3.5-billion in annual revenues.
But BayWa is also headquartered in southern Germany, where the country’s renewables revolution stalled, and where it most needs to gain steam to hit new national targets of 80 per cent renewable power by 2030 and 100 per cent by 2035.
Gross power generation in Germany
Power generation in TWh, 1990-2021
300
250
Renewables
200
150
Lignite
100
Natural gas
Nuclear
50
Hard coal
Others
Oil
0
1990
1995
2000
2005
2010
2015
2020
the globe and mail, Source: clear energy wire
Gross power generation in Germany
Power generation in TWh, 1990-2021
300
250
Renewables
200
150
Lignite
100
Natural gas
Nuclear
50
Hard coal
Others
Oil
0
1990
1995
2000
2005
2010
2015
2020
the globe and mail, Source: clear energy wire
Gross power generation in Germany
Power generation in TWh, 1990-2021
300
250
Renewables
200
150
Lignite
100
Natural gas
Nuclear
50
Hard coal
Others
Oil
0
1990
1995
2000
2005
2010
2015
2020
the globe and mail, Source: clear energy wire
While a scaling back of government subsidies contributed to investment slowing in recent years, Mr. Taft points to a different culprit.
“Financing and pricing are not the most relevant topics anymore,” he says, in a boardroom in BayWa’s Munich headquarters. “We need permits.”
He’s referring to a wall of NIMBYism, in which Germany’s regional governments have imposed zoning restrictions that make it difficult to build new wind projects in particular.
That obstacle is the target of one of the federal government’s most aggressive new policy efforts: a legislative package requiring states to designate about 2 per cent of land for onshore wind energy by 2032, with provisions limiting their ability to (sometimes spuriously) invoke concerns such as species protection and minimum distances from residences to block permits.
The law has been warmly received in principle by renewables investors and advocates, who say it should have happened sooner. And government officials downplay the risk of backlash, pointing to polls that show high support for renewables, and to growing awareness that reliable clean power is needed to keep manufacturers in Germany’s industrial heartland.
In practice, it will be a test of how quickly governments can flip the switch – one that should be watched in other countries, including Canada, where cumbersome regulatory processes make it difficult to start energy projects.
It’s still an open question how faithfully Germany’s regional governments will adopt the new requirements, and some companies are waiting for more clarity before ramping up renewables bids.
It’s also not clear how quickly subnational governments can process a sudden barrage of proposals even if they proceed in good faith, and the federal government is under pressure to help staff up approval authorities.
A yacht sails past wind turbines at the Arkona wind park in the Baltic Sea, off the cost of northern Germany, in June 2019.TOBIAS SCHWARZ/AFP/Getty Images
It’s a similar story with offshore wind energy in the North and Baltic seas. There, too, the government is trying to accelerate permitting after Germany established itself as an early leader, then lost momentum.
None of this will happen overnight. Mr. Taft predicts it will be two or three years before the onshore permitting reforms produce results.
Still, if Germany can get on track by mid-decade to meet ambitious renewables targets, the impact could go beyond immediate environmental benefits and even beyond pressure on others to do likewise.
The greater the domestic demand, the better the chances that the country’s wind-turbine manufacturing industry – one of the world’s biggest, despite some recent contraction – will keep advancing the technology’s efficiency.
The greater the chances, too, that Germany will take a lead in overcoming the intermittency of wind and solar power to build a fully renewable grid.
That also makes it one of the many places Germany’s hydrogen aspirations come in.
Sopna Sury pushes back when it’s suggested that using green hydrogen for long-duration energy storage – converting renewable electricity into hydrogen molecules, then converting them back to electricity at times wind and solar power can’t meet peak demand – is still a long way away.
The chief operating officer of the hydrogen wing of Germany’s largest power supplier, RWE, insists that by 2026, a project her company is leading will be producing “sizable, meaningful storage.”
She’s referring to Get H2, an industry initiative that involves RWE, Siemens and several other companies, which aims to create integrated systems linking hydrogen producers and users. It’s starting with a hub in the Lower Saxony region, including a planned cavern facility for hydrogen storage, near the Netherlands border.
Initially, the goal is for that storage to ensure a steady supply of hydrogen for manufacturers to use in industrial processes. By decade’s end, the stored molecules are also supposed to enable Germany’s gas-fired power plants to convert to hydrogen instead.
If Get H2 pans out, it will help fulfill Germany’s dream of proving that hydrogen produced through electrolysis can replace fossil fuels in a wide range of uses. Sooner than electricity generation, that includes hard-to-decarbonize industries such as steel, in which producers Salzgitter AG and Thyssenkrupp AG are scheduled to start replacing coal-fired blast furnaces with hydrogen-powered technology around 2025 and 2027, respectively.
Other countries are also launching hydrogen efforts. But none is throwing as much weight behind building a green-hydrogen economy. More than any other aspect of energy transition, this is where Germany is flexing its financial muscle.
Domestically, capital investments such as Siemens’s new electrolyzer lines are funded through about €8-billion in promised subsidies for large-scale hydrogen projects.
The government is also developing a flagship program offering what are known as carbon contracts for difference – a sort of smart subsidy, also being considered in some form in Canada, that aims to reduce the risk of investing in hydrogen and other new clean technologies by providing guaranteed value from each averted tonne of carbon emissions.
And Germany is committing billions to subsidize the production of green hydrogen overseas (including, potentially, in Atlantic Canada) because its own relatively small land mass and dense population mean it can’t generate enough renewable electricity to fulfill anticipated demand.
Even so, success is far from guaranteed.
Siemens employees Limin Fu (above) and Maximilian Bergemann work among electrolyzers for hydrogen production on the factory floor. The fuel these units create is what Germany is counting on to power its transition off fossil fuels in heavy manufacturing, commercial transportation and its electricity grid.CHRISTOF STACHE/The Globe and Mail
The biggest concern raised by Ms. Sury and others at the centre of the effort is around policy at the European Union level. While the EU government is looking at its own hydrogen financing mechanisms as part of an ambitious continental clean-energy push, it’s also mired in a debate about how precisely to define green hydrogen. That regulatory uncertainty affects subsidies at the national and continental levels, and is slowing investment decisions.
And no matter how much government support there is, it’s hard to know which companies making big promises can actually deliver in a new market involving technology that skeptics still doubt can be deployed efficiently on as large a scale as envisioned.
At the Siemens factory in Bavaria, director of operations Kai Shulz suggests his company is still being slightly conservative about taking orders, because proving reliability is paramount at this stage.
“That’s the most important thing – to create trust and credibility,” he says. “If some of our players promise to produce gigawatts of electrolyzers and at the end of the day they fail, that could jeopardize the whole business.”
Getting the balance right, between urgency and dependability, is all but a matter of life and death for sectors that might no longer be viable if they continue to rely on fossil fuels.
Asked about signposts for hydrogen’s trajectory, Ms. Sury mentions markers such as how many gigawatts have materialized by mid-decade. But she also offers a starker one.
It will be an indication of confidence in hydrogen, she says, “if you have not yet seen German industry move out of Germany.” The corollary is left unsaid.
For all the current fragility, business is booming in at least one industry.
Energy-efficiency technology has become a red-hot market here, as residents grasp at ways to lower heating bills.
That demand, combined with industrial capacity and entrepreneurship, offers another glimpse of how Germany could accelerate a transition elsewhere.
Partly, that’s by boosting solutions that directly shift consumers off fossil fuels, as the German government now targets 500,000 annual installations of heat pumps – which efficiently use electricity to heat and cool homes – starting in 2024.
That would be up from about 150,000 last year, and it means German manufacturers such as Bosch and Viessmann Group face overseas competition (such as Japan’s Daikin Industries Ltd.) flocking to Europe.
Engineer Johannes Mueller works on a Bosch Compress 5800 heat pump in a cold chamber at the Bosch Thermotechnik development center in Wernau, Germany, on Nov. 28.THOMAS KIENZLE/The Globe and Mail
In the midst of what he calls a “neck-and-neck race,” Thomas Finke – Bosch’s vice-president responsible for its heat-pump group – describes a scale-up process that sounds stressful.
Expanding manufacturing capacity is relatively easy for multinationals such as his that have long made other heating and cooling products. “We’re used to large-scale production beyond one million gas boilers,” Mr. Finke says. “Therefore we are more than confident that we can rapidly scale our production also in heat pumps.”
A bigger problem, he says, is sourcing key components such as semiconductors and compressors currently in short supply worldwide.
So, too, is complying with new EU regulations prohibiting fluorinated gases, the polluting refrigerants used in many current heat pumps.
There are also labour challenges, from headhunting for product developers to training installers.
But money is now flowing toward overcoming these obstacles. Bosch recently pledged an additional €300-million toward its heat-pump business by 2025, atop €400-million it’s committed so far.
Heat pump sales in Germany
In thousands, 2015-2021
175
150
125
100
75
50
25
0
2015
2016
2017
2018
2019
2020
2021
the globe and mail, Source: hpt magazine; statista
Heat pump sales in Germany
In thousands, 2015-2021
175
150
125
100
75
50
25
0
2015
2016
2017
2018
2019
2020
2021
the globe and mail, Source: hpt magazine; statista
Heat pump sales in Germany
In thousands, 2015-2021
175
150
125
100
75
50
25
0
2015
2016
2017
2018
2019
2020
2021
the globe and mail, Source: hpt magazine; statista
Along the way, the products may become more efficient and affordable here – and in other markets where demand isn’t yet as high.
For now, German consumers still face long heat-pump wait lists
But that may have a silver lining of helping companies that offer cheaper technologies for managing energy use.
At the Munich offices of tech company Tado GmbH, for instance, CEO Toon Bouten shows off its signature product: a “smart thermostat,” small and sleek, like an Apple product, which he says reduces energy bills for heating and cooling by about 22 per cent. It modifies how systems are cranked up, through factors such as when residents are home and which rooms they’re using.
These sorts of devices are emerging worldwide – including in North America, where companies offer ones better suited to local technology – but rarely so quickly as here. Tado’s sales have roughly doubled this year (it currently serves about 500,000 European homes), and Mr. Bouten predicts similar growth in the next couple of years.
He’s confident that demand will rise even after more consumers switch from gas boilers to heat pumps, because the thermostats will offer savings on electricity bills. And Tado has introduced a new load-shifting product this year, correlated to time-of-use electricity prices, that moves heating and cooling to off-peak times.
An installation in the showroom of Bosch Thermotechnik demonstrates the integration of an EV charging station, photovoltaic (solar) panels, a heat pump and other electric units for an 'electric and intelligent' home.THOMAS KIENZLE/The Globe and Mail
Mr. Bouten nevertheless laments that the adoption of such technologies has been slowed by governments failing until recently to prioritize energy-efficiency policy. Installation of smart meters, which allow consumers to track usage and costs in real time, has been so slow that Germany relaunched its strategy in October.
Christian Noll, who heads a group called DENEFF that represents about 200 companies in the energy-efficiency industry, says Germany’s government is only now getting serious about modernizing buildings, such as through building-code updates and better discussions of labour needs.
But its efforts are starting to produce some fairly innovative policies other countries might want to study. Many building owners, for example, lack the incentive to make efficiency upgrades if their tenants pay the energy bills. A possible solution, which Germany is trying: requiring landlords to pay a portion of the domestic carbon price – a higher share if their buildings are inefficient, lower if they’ve been modernized.
Such policies reflect a shift in thinking, Mr. Bouten says, from emissions-reducing technologies being a “nice to have” to a “need to have.”
He’s referring to the government’s perspective. But it may also apply to some of the private-sector companies around which Germany’s economy revolves.
A high-voltage battery for an electrically-powered BMW is presented at a "Green Day" event, hosted by BMW at their plant in Leipzig, Germany, in October. Eight new production lines for these e-components will be built by 2024.RONNY HARTMANN/AFP/Getty Images
The German auto industry could have been at the forefront of a shift to EVs that is accelerating during the energy crisis, including through an EU policy that will ban sales of internal combustion engines by 2035.
But German automakers were previously reluctant to mess with highly profitable luxury ICE models. And after treating electrification as peripheral, they fell behind foreign competition, especially Tesla Inc. and Chinese companies such as BYD Auto Co. Ltd.
Over the past three years or so, as Tesla opened a large factory near Berlin, reality has set in that this transition is an existential imperative.
Now, the largest German automaker, the Volkswagen Group (which has extra incentive to prove its environmental bona fides after the 2015 scandal around its cheating on emissions tests caused lingering reputational damage) is testing how hard and how quickly it can pivot.
BMW and Mercedes-Benz are also shifting to EVs, but Volkswagen is taking a bigger leap than its German (and North American) rivals by launching its own battery division, rather than partnering with Asian battery makers.
It’s currently constructing its first battery-cell factory in the city of Salzgitter, which is scheduled to open in 2025 and make enough batteries each year to power 500,000 EVs. That plant will serve as the template for several other factories in Europe.
Ralf Pfitzner, Volkswagen’s global head of sustainability, frames it as a matter of leveraging German expertise to build more self-reliance in a rapidly evolving global market. “We don’t want to be completely dependent on Korean or Chinese suppliers,” he says. “Know-how, local footprint and owning the value chain are the key drivers.”
A Volkswagen model ID. 4 EV moves through the production line, in Zwickau, Germany, in Sept. 2020. Volkswagen is taking a bigger leap than its German (and North American) rivals by launching its own battery division, rather than partnering with Asian battery makers.Matthias Rietschel/Reuters
If the gambit succeeds, it will also spawn new operations overseas. That’s of particular interest to Canada, where Volkswagen is exploring possible sites for its first North American battery factory.
In total, Volkswagen plans to spend more than €20-billion on battery manufacturing. The technology it will produce in Salzgitter, which it calls prismatic unified cell batteries, is billed as relatively cheap to manufacture and adaptable to a wide range of vehicle models. In the longer run, Volkswagen has joined the industry’s pursuit of solid-state batteries, a next-generation technology with much greater range and durability.
In addition to battery development, the German automakers’ plans will increase the variety of EV models available globally, which could help shift consumers away from ICE vehicles.
In the short term, however, there are bumps along the road.
Some are unique to the auto sector, such as moving “fast enough towards digitalization and the software side of cars,” as Mr. Pfitzner puts it. That’s an apparent allusion to keeping up with Tesla’s high-tech user experience, an uphill battle for Volkswagen that reports have suggested is behind delays to its rollout of some new models.
Others are more universal, and more familiar after some time spent here.
Andreas Rade, a managing director of the German automakers’ industry association, echoes the worry from virtually every transitioning German sector about a lack of skilled workers, which the government is now trying to tackle largely through immigration reforms aimed at attracting more economic migrants.
And for there to be a bright future for battery production, Mr. Rade says, there needs to be an available supply of affordable energy – which is where conversations in Germany inevitably often wind up.
A lot of things have to go right – with build-outs of renewables and hydrogen at the top of the list – to allow some German industries to prosper and others just to survive.
Even then, it’s unlikely that every pillar of Germany’s precrisis economy will remain.
Experts and officials sometimes darkly hint at whether Germany will need to let go of some sectors (or major pieces of them) that simply can’t be made efficient enough to survive without cheap gas unless they’re subsidized in perpetuity. It’s a sensitive topic, and few yet drill down into what those sectors could be, but some forms of chemical production come up as an example.
Many are also reluctant to speak too enthusiastically about opportunities that arise from energy upheaval, particularly German politicians wary of seeming tone-deaf during an anxious time. But sometimes the optimism slips through anyway.
“You have project ideas that didn’t have a good business case, because fossil energy was too cheap and didn’t include its ecological and geopolitical costs,” says Franziska Brantner, a Green Party member and a secretary of state in Germany’s powerful Ministry of Economic Affairs and Climate Change. “So in that sense, I think it is promoting innovation. And if we do it right, at the end we will be more resilient and more wealthy with renewables and green hydrogen.”
Ms. Brantner mentions a small example from her region, where increased demand for solar, combined with concerns about overreliance on China for the silver used in solar panels, is leading to advances in using cheaper domestically sourced copper instead.
That sort of thing is not going to make the upheaval unthreatening for everyone in Germany.
Not even the bigger signs of entering a brave new electrified and energy-efficient world can do that. And nobody can be certain the winners will ultimately outnumber the losers.
But the causes for fear and for excitement live alongside each other, by nature, in an industrial revolution – especially for those at the forefront, who might make it a bit less daunting for the rest of us.
Adam Radwanski