Germany’s Energiewende (energy transformation) is a plan to shift the country from nuclear and fossil fuels to renewables. It was dreamed up in the 1980s, became policy in 2000 and sped up after the Fukushima disaster in March 2011. That led Angela Merkel to scrap her extension of nuclear power (rather than phasing it out by 2022, as previous governments had planned). She ordered the immediate closure of seven reactors. Germany reaffirmed its clean-energy goals—greenhouse-gas emissions are to be cut from 1990 levels by 40% by 2020 and by 80% by 2050—but it must now meet those targets without nuclear power.

The key policy document outlining the Energiewende was published by the German government in September 2010, some six months before the Fukushima nuclear accident. Legislative support was passed in 2011. Important aspects include:

  1. Greenhouse gas reductions: 80–95% reduction by 2050
  2. Renewable energy targets: 60% share by 2050 (renewables broadly defined as hydro, solar and wind power)
  3. Energy efficiency: electricity efficiency up by 50% by 2050
  4. An associated research and development drive

The policy has been embraced by the German federal government and has resulted in a huge expansion of renewables, particularly wind power. Germanys share of renewables has increased from around 5% in 1999 to 22.9% in 2012, reaching close to the OECD average of 18% usage of renewables.

Producers have been guaranteed a fixed feed-in tariff for 20 years, guaranteeing a fixed income. Energy co-operatives have been created, and efforts were made to decentralize control and profits. The large energy companies have a disproportionately small share of the renewables market. Nuclear power plants were closed, and the existing 9 plants will close earlier than planned for, in 2022.

The reduction of reliance on nuclear plants has had the consequence of increased reliance on fossil fuels and on electricity imports from France. One factor that has inhibited efficient employment of new renewable energy has been the lack of an accompanying investment in power infrastructure to bring the power to market. It is believed 8 300 km of power lines must be built or upgraded.

The different German States have varying attitudes to the construction of new power lines. Industry has had their rates frozen and so the increased costs of the Energiewende have been passed on to consumers, who have had rising electricity bills. Germans in 2013 had some of the highest electricity costs in Europe at time when, their neighbour France, has some of the cheapest in the EU.

At what cost?

Energiewende has long been a subject of scorn among conservatives, who have argued that it is a massive ratepayer-subsidized waste of time and money, that it has harmed Germany’s economy and imposed significant regressive costs on poor and working class energy consumers. But the last several months have seen growing skepticism about the Energiewende from the center-left as well. Both Der Spiegel and Slate have published lengthy investigative pieces raising troubling questions about the costs and the environmental benefits of Germany’s headlong pursuit of an all-renewable energy future. Even left-leaning Dissent Magazine recently published a long expose about the failure of the Energiewende to reduce carbon emissions, concluding that Germany’s enormous investments in renewables, together with plans to phase out its nuclear fleet, would cost the nation a generation in the fight against global warming.

Shale casts a shadow East and West

The initial Energiewende plans – like almost all pan European energy policies – failed to consider the dramatic impact Shale Gas would have upon the energy market. From the viewpoint of German manufacturers, there are two ways the US shale gas revolution implies a worrisome competitive challenge. First, cheaper natural gas in the US is lowering electricity and other energy costs for American manufacturers, while Germany’s continue to rise. This is especially of concern to energy-intensive industries, where the EU now has 36 percent of world capacity and the US only 10 percent. Secondly, as the US begins to build facilities for export of liquefied gas (LNG), this capacity could have a significant effect  on the price of electricity and gas in Asia.

Comparison of German and US electricity prices
Comparison of German and US electricity prices
US and German Industrial and Domestic indexed Gas prices
US and German Industrial and Domestic indexed Gas prices

Gas prices there are now about four times those in the US. The region looks to become the main recipient of US LNG, which by lowering energy costs would improve Asian competitiveness versus the EU. Whether or not large quantities are actually exported also to Europe, where prices are about three times higher than the US, the consequences of all this for German manufacturers will be significant – and complex. For example, less Asian demand for Qatar’s and other middle eastern LNG may benefit Germany and Europe, thereby mitigating EU-Asian and EU-US differentials.

In October 2013, the International Energy Agency (IEA) released its biannual World Energy Outlook and stated:

 Lower gas and electricity prices in 2012 in the United States relative to Europe equated to estimated savings of close to $130 billion for the entire US manufacturing industry. The US, together with key emerging economies, increases its export market share for energy-intensive goods, while the EU and Japan see a sharp decline [amounting tp] 10 percent of the global energy-intensive export market

Keine positive?

Against this backdrop, it might be tempting to say that the progamme is one of abject and impending failure.

Critics would argue that it is hard to think of a messier and more wasteful way of shifting from fossil and nuclear fuel to renewable energy than the one Germany has entered into.  The price will be high, the risks are large and some effects will be the opposite of what was intended. Greenhouse-gas emissions are likely to be higher than they would have been for quite a while to come. But that does not mean the entire enterprise will fail. Politicians cannot reinvent the Energiewende on the run, but they can stay a step ahead of the risks and push back against the costs—and they are beginning to do so.

This blog is broadly supportive of the German efforts and the last decades of commitment to renewable energy and energy efficiency improvements has created a huge competitive advantage for German companies in these fields. Most of the big wind turbine manufacturers are German and there is a host of mid-sized companies which are exporting their expertise in these areas to international markets.

The Energiewende has created over 500,000 new jobs and secured many more. At the same time the feed-in tariff model has been “exported” to over 60 countries worldwide including the UK and is driving the renewable energy revolution in overseas markets. One thing is for certain and that is that in the end, Germany itself is likely to be transformed.

References

  1. http://www.naturalgaseurope.com/energiewende-shale-gas
  2. http://theenergycollective.com/maxluke/274041/trash-trees-and-taxes
  3. http://www.economist.com/node/21559667
  4. http://www.bbc.co.uk/news/science-environment-23127175

 

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