ScottMadden recently joined the Solar Electric Power Association (SEPA) to lead a group of approximately 30 U.S. energy industry executives to the bellwether energy market of Germany to exchange information with electricity and solar market leaders who are adapting to change in this dynamic and controversial environment. This select group of executives met with energy industry peers with the goal of returning with insights and practical knowledge that can be applied to planning and business decisions in the United States. The trip featured face-to-face meetings with thought leaders and decision makers from the electric utility, transmission, and renewable energy industries; government, trade, and industry associations; and market experts. During the Transmission Executive Forum West, Chris Vlahoplus, partner and clean tech & sustainability practice leader at ScottMadden, presented the case study, “How Renewables and Distributed Resource Penetration Impacted Transmission in Germany.” This presentation, based on the recent fact-finding mission trip, focused on Germany and explored how grid operations have changed and how transmission flows and utility revenues have been affected. The report below provides an overview of German energy transformation, highlights the status of renewable generation penetration, and discusses the impact on transmission investment and reliability.

1. Copyright © 2014 ScottMadden, Inc. All rights reserved. Report _2014-02_v1
How Renewables and Distributed Resources
Have Impacted Transmission in Germany
Chris Vlahoplus
Partner and Clean Tech & Sustainability
Practice Lead
September 30, 2014

2. Copyright © 2014 by ScottMadden, Inc. All rights reserved.
Fact-Finding Mission to Germany
￭ SEPA and ScottMadden sponsored the fact-finding mission
￭ Thirty U.S. executives attended, representing IOUs, public power, vertically integrated, PSC, solar industry, EEI, and EPRI
￭ Three days were spent in Dusseldorf meeting with German energy participants, such as policy makers, utilities, and others
￭ Share with you today
• Overall Context
• Issues and Impacts
• Summary Observations
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Germany – What You Need to Know
￭ Liberalization
￭ Shutdown of nuclear
￭ High gas prices
￭ Increase in renewables
￭ Not an island
• EU policies
• Connections with neighboring countries
• Carbon trading
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Context
Several Changes at Once

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The German Energy Transition
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Context
Energiewende Targets until 2050
Climate
Renewable
Energies
Energy
Efficiency
% final energy
consumption
% electricity
consumption
% primary energy
consumption (vs. 2008)
energy productivity
building renovation
% greenhouse gas
reduction (vs. 1990)
12.4%
(2012)
25.4%
-3,3 %
+1.1% p.a.
~1% p.a.
-23.8%
(estimated)
2020 2025 2030 2035 2040 2050
+2.1% p.a.
doubling of renovation rate: 1%  2%
-40
-55
-70
-80 to -95
35 40 to 45
50 65
80
55 to 60
18
30
45
60
-20
-50
Achieved
2013
Source: “Costs and Benefits of the Energy Transition”
Dr. Martin Schöpe, Federal Ministry for Economic Affairs and Energy

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German Electric Market Structure “Liberalization”
￭ Generators
• Utility scale
• Individuals
￭ Retailers
￭ More than 800 Distribution System Operators
• IOUs and municipals
• 20-year franchise
￭ Four Transmission System Operators (TSOs)
• Plan the transmission system
• Manage the supply market
• Energy-only market
4
Context

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Nuclear Shutdowns
￭ All nuclear to be shut down by 2022
￭ Incumbents made the bet on gas—invested heavily
5
Context
Source: “Energiewende and Grid Development in Germany”
Ulrike Hansen, International Affairs Energy, BNetzA

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Renewable Energy Capacity Additions
6
Context
Annual Renewable Energy Capacity Additions in Germany, 1990–2012
Source: Finadvice

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Current Capacity and Generation
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Context
Net Installed Capacity Rating as of July 16, 2014
YTD Electricity Production through July 2014
Source: Fraunhofer Institute for Solar Energy Systems

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Utility-Scale Wind in the North, Distributed Solar in the South
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Context
Source: SEPA Executive Fact-Finding Mission – September 17, 2014 – Netze BW GmbH, Gerhard Walker

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Significant Variation in Load and Supply
￭ Industrial south net user
￭ Utility-scale wind in north with constrained transmission
• Loop flows through Poland
￭ Intermittency means significant reliance on neighbors
￭ Imports of French nuclear and Czech coal
￭ “Dumping” excess output
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Issues and Implications
Source: “Energiewende and Grid Development in Germany”
Ulrike Hansen, International Affairs Energy, BNetzA

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Significant Capital Investment Needed
￭ Long-range plans submitted jointly by the four TSOs
￭ Approval by the federal regulator
￭ Recovery through kWhr charge
￭ Investment through 2030
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Issues and Implications
Source: German Energy Agency (Dena), 2012: Distribution Grid Study

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It’s Working with More Active Management of the Grid
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Issues and Implications
Grid Interventions to Stabilize the Grid
by Grid Operator TennetT 2003–2012

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Significant Destruction of Value for Incumbents
RWE earnings down significantly
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Summary
Source: RWE

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Summary
￭ To understand Germany, must understand more than renewables
￭ Have moved to a model much like ERCOT but with TSO ownership of assets
￭ Reliability has been maintained without significant investment but with active management and reliance on neighboring systems
￭ But, significant investments are on the horizon at both distribution and transmission levels
￭ Short-term results are questionable (increased CO2 and higher rates), but focus is on long game
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