World Review | Germany's energy policy could lead to fall in living standards

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Germany's energy policy could lead to fall in living standards

Germany's energy policy could lead to fall in living standards
Germany's energy policies could lead to a drop in living standards (photo: dpa)

WARNINGS of a ‘dramatic de-industrialisation’ if Germany’s Energiewende or energy transformation programme is not changed, are coming from government ministers as well as industry.

German industry says rising energy costs are jeopardising global competitiveness and 900,000 jobs in Europe’s biggest economy. Now the new Social Democrat Minister for Energy and Economic Affairs and Germany’s Vice-Chancellor, Sigmar Gabriel, has issued a warning if the Energiewende remains mismanaged.

Germany’s domestic energy prices rose to 48 per cent above the European average at the beginning of 2014. Management consultants McKinsey’s last quarterly-based ‘Energiewende-Index’ for assessing the three major objectives of the energy triad of security of supply, affordability and sustainability, including climate and environmental protection, concluded that prospects of the German Energiewende’s success are even further than when the first index was published in September 2012.

The latest index highlights that only six of the 15 indicators can ‘realistically’ be achieved by 2020. The index value for industry energy prices has worsened ‘drastically’ since 2012.

German industry prices are around 19 per cent higher than the EU average, translating into an increasing competitive disadvantage for German industry.

Another cost factor, and rising political obstacle, has been the past exclusive focus on increasing the production of renewables with no regard to building a connecting grid network. This means the extra electricity generated by renewables is not being transported to consumers because of insufficient connecting grid infrastructure. Building this is years behind schedule.

German taxpayers are paying for heavily subsidised electricity generation which cannot be supplied to or used by consumers.

Wind farms in offshore waters of the Baltic and North Seas, with an originally planned total output of 10,000 MW, are a particular problem. The previous German government unveiled plans to build 1,855 km of high voltage powerlines across the country, but primarily as an energy highway from the north to the highly-industrialised and energy-hungry south of Germany. Most of Germany’s nuclear reactors are based in the south and are being phased out.

Germany’s Supreme Administrative Court’s said in January 2014 that the state of Hesse must pay German electric company RWE damages for the government’s forced closure of the Biblis nuclear power plant as part of its accelerated phase-out of nuclear power.

The utility company says it lost one billion euros (US$1.3 billion) in 2011 alone due the forced plant closure. Other estimates put this at 187 million euros.

Potential payouts to the nuclear operators for lost revenues and redundant investments could cost 15 billion euros.

German energy and economic minister Mr Gabriel has outlined reform plans indicating that the EEG subsidies may be cut by up to a third by 2015. He also sought to balance its strategy by reducing support for subsidies to energy-intensive industry and other reforms.

Mr Gabriel’s proposals ran into protests, the biggest from the conservative Bavarian government, which has threatened to block the new 800 km long north-south powerline super highway. The Bavarian government has been accused of sabotaging the entire Energiewende.

Every member of the EU-28 has the right to decide the composition of its energy mix by selecting individual energy sources and its share within its national energy mix. But these are interlinked and dependent on each other through the common EU energy policy and interlinked energy infrastructures.

EU harmonisation was seen as a threat. Germany instead opted for a unilateral energy strategy at the expense of the common EU energy policy.

Worse, Germany did not consult the European Commission or neighbouring countries about what impact its new energy policy of 2011 would have on its neighbours.

The European Commission started a full investigation into Germany’s feed-in-tariff system and its subsidies in December 2013. It is also looking into whether the exemptions for Germany’s energy-intensive industries constitute state aid and whether these meet EU laws and regulations.

Germany’s problems with its Energiewende are mostly the result of an uncoordinated and mismanaged energy policy and the assumption that Germany’s Energiewende can be implemented without taking European and global energy developments into account.

Another assumption was that fossil fuels would become more expensive and scarce and this justified a rapid expansion of renewables.

The impact of the US shale gas revolution on global and European gas and coal markets, fossil fuel prices and the competitiveness of entire industries has proved those assumptions wrong.

Looking ahead, the most realistic positive scenario would be that Germany somehow achieves its major objectives but the overall costs of the German Energiewende will be extremely high. It will cost economic growth, jobs and result in declining living standards.

Dr Frank Umbach

Dr. Frank Umbach is Research Director of the European Centre for Energy and Resource Security (EUCERS) at King‘s College, London; and Associate Senior Fellow at the Centre for European Secur ...

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