Energiewende
The thud of jaws hitting the ground would probably have been audible across the channel when Germany, fresh from their energy giant crippling nuclear moratorium and the cries of despair from RWE and E.ON, Germany has announced that under their policy of ‘Energiewende’ it intends to derive 80% of its electricity from renewable sources by 2050.
That aggressive time scale and scope is unprecedented in its ambition and impact.
It is those impacts though that are already being felt in the boardrooms of RWE and E.ON with decades of investment in non-renewable and nuclear sources rendered effectively valueless over night.
Unsurprisingly the ambitions of the German administration and those of their biggest companies corporate board rooms are far from aligned.
Energiewende began in 2000 under former Chancellor Gerhard Schröder. The concept enshrined the controversial right of any source of clean energy to receive both guaranteed prices and prioritised access to the German energy grid. This price support necessitated an early version of the UK’s Feed In Tariff (FIT), which placed additional costs on consumer bills.
The UK
So much so similar to the UK but the prioritised access to the grid and the waivers provided for Germany’s most energy intensive businesses stand in direct contrast to the benefits (or lack thereof) afforded to their UK counterparts who are worst hit by the full force of energy de-carbonisation costs rendering their global competitiveness far behind their neighbours.
Indeed Energiewende was moving along just fine in Germany with an ordered glide path to the intended closure of all German nuclear power stations by 2022 and a corresponding rise in renewable investment whilst sheltering domestic business titans from the worst cost excesses.
Aftermath
But following the Fukushima nuclear disaster in 2011 and with Angela Merkel facing pressure from a resurgent green movement in Germany, the Chancellor unilaterally shut off eight of the country’s 17 reactors immediately.
Whilst the remaining 9 were granted a stay of execution to 2022 as originally planned, the fuel mix of Germany has taken a massive hit, as high gas prices (in the aftermath of 2011) and abundant supplies of cheap coal (by virtue of the US shale gas revolution) has meant a shift from low carbon energy to dirty coal.
The political expedience of Merkel’s 2011 move has therefore backfired spectacularly.
- Emissions of greenhouse gases in Germany rose last year to their highest level since 2008.
- Electricity prices for household users are now among the highest in Europe.
- In the face of high prices, plans to build a network of electricity pylons to distribute green power around the country have run into fierce opposition.
Fast forward to 2014 and 14 years after the energy nirvana was first announced, the Chancellor has had to retreat.
New laws have now been passed to rein in subsidy levels and limit the number of new renewable plant being developed. In addition the Energiewende will no longer be a renewable energy free for all and will instead focus on solar and onshore windfarms, the most cost effective (and proven) of all the renewable sources.
In addition Germany has announced a renewed focus on energy efficiency to manage demand in an attempt to reduce dependency on coal as new renewable plant takes time to develop and to combat the inherent inefficiency and intermittency of renewable energy.
However not all measures are likely to have a positive benefit early in the piece with Germany intending to mothball some of its rejuvenated coal-fired power stations as a means of reducing greenhouse gas emissions.
Whilst industrial users will still enjoy exemptions from the full cost of subsidies, the utility businesses themselves have to cut capital expenditure dramatically as their earnings have been squeezed by the expansion of clean energy.
In turn these cuts have spread throughout the German economy.
Quite simply the issues facing RWE and E.ON make those facing the UK’s other Big 6 energy suppliers look child’s play.