Euro Energy Follies Next Level: Rationing is Coming

When 1 plus 1 equals one-half

After all those years, I still remember sitting in the physics lab in school, our teacher instructing us about electricity. After a few funny experiments with static electricity and raised hair, he had some serious advice for us. The electrical grid, he said, isn´t as simple as it seems, but actually quite a difficult system to manage. We all can do our part to make it easier. So go home to your parents and tell them, please don´t operate laundry machines in the morning or in the evening. Those are hours of electricity consumption peaks, and we should avoid additional load. Put laundry into the off-peak hours to smooth stress on the grid.

From November 30 to December 12, the United Nations held their Climate Change Conference in Dubai, COP28 (“28^th Conference of the Parties”). The UN expected 70,000 participants, including heads of countries, NGOs, energy corporations and agroindustry, and countless other organizations. The UN was so overwhelmed by the number of people and complexity of the task it asked consulting firm McKinsey to prepare and run the agenda.

But one important participant went missing: Robert Habeck, Germany´s vice chancellor and minister for the economy and climate protection, and co-head of the Green Party. So why did the key representative of the country which is pushing itself to the forefront of environmentalism in Europe fail to show up?

Heat pumps, the wonder weapon

Germany had been laboring on a complex new law for three years, called the “Gebäudeenergiegesetz” (GEG). Essentially it requires all new buildings to use renewable sources of energy for at least 65% of its total energy consumption.

Germany´s weapon of choice in the conversion to renewable energy is the heat pump. A heat pump is just the reverse of a refrigerator. A fridge compresses gas which then expands inside the fridge, and because of a physical law which says that expanding gases cool down (just ask the universe), the refrigerator, well, cools down.

Similarly, the heat pump compresses a refrigerant which heats up in the process but then passes on the energy in a heat exchange unit. The heat exchange unit uses the energy to warm water for household use or for house heating.

Now someone might wonder: is this really efficient, or at best a zero-sum game, compressing and decompressing air? After all, refrigerators and ACs are known to be the largest household consumers of energy?

Well, rest assured, at least on that front. Because the heat pump refrigerant warms up naturally in the ambient air (or water, or industrial waste heat; that´s the whole point of the apparatus), there is a net-positive transfer of heat energy, even after taking account of energy required to operate the pump. Producers advertise their pumps with an “efficiency ratio” (heat energy generated/ electrical energy required) called “COP” (coefficient of performance). Just for orientation, a typical value for COP is 4, i.e. the pump produces four times more energy than it consumes.

One issue however remains: the warmer it is outside, the better the heat pump works (ah, wait a minute … ). In other words, in cold climates the efficiency drops quickly, and more electrical power is required to produce the same target level of heat. That has a clear impact on the rate of adoption of heat pumps vs. other sources of energy. Countries like the U.S., which span several climate zones, demonstrate that impact nicely. In the U.S., heat pumps have been bought predominantly in the Southeast. Because of the high rate of adoption in warm-climate states such as Georgia, unit sales of heat pumps are now larger than gas furnaces across the U.S.

So having said all that, heat pumps look like a pretty reasonable device, don´t they?

Sure … if you have a reliable electrical grid.

Many countries in Europe are in the middle of a radical redesign of their energy infrastructure. In particular, Germany has been rebuilding its national electricity generation with great enthusiasm to de-carbonize its economy. It mainly reduced power generation from coal, shut down its coal mines, and substituted lost output with an increase in production from natural gas.

Ironically, Germany is also shutting down nuclear power from its remaining three power stations even though nuclear is considered the least carbon-intense source of mass-production energy. The move was driven by fears of nuclear accidents. German chancellor Angela Merkel announced the exit path a few weeks after the Fukushima accident in 2011.

In turn, Germany provided large incentives to build out renewable sources of energy, mainly wind and solar.

(German energy mix change over time)

Needless to say, power generation from wind and solar is a lot more volatile than from gas, oil, or nuclear. As the contribution from volatile sources increased, the vulnerability of the grid increased as well.

• On January 10, 2019, grid frequency suddenly fell from a standard value of 50Hz¹ to 49.8Hz.  Hertz (Hz) is the heart rate of the electrical grid. Like for a human heart, large fluctuations show stress in the system. It doesn´t sound like a big deal, but in a world where frequency is monitored and managed on a millihertz level (mHz, one-thousandth of one hertz), 49.8Hz is the threshold where a system failure, a “blackout” waits.
  It turned out that fluctuations in wind power were enough to almost send down the national grid, with a cascading impact on other countries. On Jan 9, wind had produced 34GW of electrical power, but dropped quickly to 4GW on Jan 10, resulting in a system-critical underproduction of energy. German grid operators prevented an additional decline of frequency only with the help of France, which switched off several industrial users of electricity within minutes and delivered nuclear power to Germany.

• In June 2019 grid frequency again dropped to critical levels due to underproduction. Again Germany had to import energy from France (nuclear) to avoid a blackout.

• More incidents followed in 2020, 2021, 2022, and 2023, typically in winter between December and February.

So … production is more volatile. What about consumption?

With its new law on heat generation, Germany will increase stress on the system on a massive scale. The government wants Germans to install 500,000 heat pumps annually from 2024.

This will not only lead to an increase in consumption, but unfortunately also reinforces cyclicality. It´s an intrinsic design feature that heat pumps operate much less efficiently at cold temperatures:

At around the freezing point, pumps are 25% less efficient that at 10°C. At temperatures just above freezing, which is the long-term average in December to February, the COP is around 3. During a cold spell with temperatures below -10°C, efficiency falls by another third. This means that during times when people heat the most, because it is the coldest, heat pumps work least efficient, needing about twice the amount of input energy to deliver target output heat.

Now let´s put ourselves into the shoes of politicians … what would be a reasonable way to reconcile volatile production with strongly cyclical patterns of consumption? What´s the strategy adjustment?

In late November 2023, the German government dropped a new regulation with very profound consequences for German citizens: rationing of energy. Germany may be a country of engineers (and, yes, poets), but the bombshell law is little understood and has received even less media attention. Going forward, the German grid operator (the “Bundesnetzagentur”, another masterpiece of German language agglomeration) can at its discretion put limits on the electricity available for heat pumps and wall-boxes for EVs for an output of just 4.2KW. Let´s just run a few examples to understand the impact here.

A representative family home requires an energy equivalent of 10-12KW for heating (annual heating of about 22,000 KWh). Recall the key physical properties of heat pumps: their efficiency declines rapidly the colder it gets. At the average temperatures in Germany in Winter (0-2°C over the long term), the COP is about 3. This means that operating under a limit of 4.2KW, the pump can at best produce about 12KW – so the heating system will barely break even at average winter temperatures, and it still has not produced a single drop of warm water.

Let a cold spell arrive from northern or northeastern Europe, with temperatures at -10°C or lower for a few days, and COP drops to 2. Heat pumps won´t be able to keep those homes warm any longer. And for course, there´s no warm water for a shower, brushing your teeth, or washing your hands, for several days.

The problem is most acute for older homes (20 years and older), which don´t have effective thermal insulation, but which will have to upgrade heating systems in a normal cycle of renovations.

And don´t forget, you don´t even need a special, unfortunate convergence of negative impacts to arrive at that nightmarish scenario. The colder it gets, the more heating you need. But also with colder temperatures, heat pump efficiency declines, which again raises the demand for input energy. The factors which lead to insufficient heating and power rationings are mutually reinforcing, not independent!

And what about the second priority of the German government, electric vehicles? A mid-size car has a battery capacity of about 75KWh. At a charging limit of 4.2KW it would take 18 hours (and even that only under “sterile conditions”, disregarding any losses in the process) to recharge a car.  Do you have 18 hours to charge your car? Well, maybe, if you decide to stop heating your home and sit freezing around a candle, because rationing applies to heat pumps and EVs.

The new law is as yet the most drastic case of the clash between (laudable?) ambition and reality. The German government with its Green minister for the economy is steadfast in its commitment to push Germany to install 6 million heat pumps and swap 15 million cars into EVs until 2030. All in an electrical grid which already today falters when wind energy declines under daily fluctuations (per most recent data as of Jan 3, 2024, volatile wind energy made up 31% of total energy production).

The national grid operator has become so desperate that it called energy rationing “a success”. Why a success? The government was actually considering a mandate for total energy shutdowns for large consumers like heat pumps and EVs. No kidding – the government was ready to literally let its citizens freeze to death in the name of energy transition.

The transition is becoming a disaster at every step of the process. When the German government passed its 2020 laws for renewable energy (remember, at least 65% renewable), construction companies revolted at the additional cost. The government responded with a schedule of subsidies which made the law not only a linguistic monster, but also a bureaucratic and expensive one. But the German constitutional court threw out the financing plan as an illegal circumvention of debt ceilings, and the government was stranded without a budget for 2024 (more on that topic here). The situation was so dire that the government imposed an immediate emergency spending freeze, no pun intended, and vice chancellor Robert Habeck, the spearhead of German environmentalism, had to cancel his trip to COP28 in Dubai.

Regarding the electrical grid, the authorities concluded that the German grid needed to be “speedily optimized, digitized, and extended”.

Having resolved this fundamental issue, the only remaining question is, what will break down first, the grid, the government, or the country?

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1. Standard in Europe. In the U.S. and Japan, standard electrical frequency is 60Hz.