Germany’s green energy drive risks stalling

Germany's much-vaunted energy policy is a mess, with consumer prices rocketing and carbon emissions on the rise. The chancellor Angela Merkel faces a huge task to turn the industrial powerhouse into a bastion of viable renewable energy.

Wind turbines near Grimma in Germany. The country added 10 gigawatts of wind turbines and solar panels last year. Jan Woitas / picture-alliance / dpa / AP Images

The world is watching Germany’s bold energy revolution to see whether a top industrial economy can wean itself off fossil fuels and still remain internationally competitive.

If it succeeds, others major economies will follow suit in a giant leap forward for the planet and green technology. If it fails, the message will be disastrous: the Germans did not manage it, so it is not worth trying.

Europe's largest economy wants renewable energy – largely wind and solar – to account for 80 per cent of its energy mix by 2050, up from just over 20 per cent now. No other developed country is attempting such a radical shift to clean energy.

“A failure would be fatal for various reasons, not just because many countries are watching us and will copy us if it goes well, especially China, but also because it would damage the German economy,” says Claudia Kemfert, an energy policy analyst at the Berlin-based DIW economic think-tank.

“We only have this one chance, there’s no second one.”

But the plan, based on generous subsidies for solar plants and wind farms in the form of fixed prices or “feed-in tariffs” for their output, has spun out of control, distorting the power market and driving up electricity prices for private consumers and industry.

The outdated power grid is not being expanded and modernised fast enough to accommodate the new, ever-fluctuating power output pumped in from wind turbines and rooftop solar panels across the country.

Local “not-in-my-back-yard” protest groups are blocking the construction of unsightly but essential power masts and hydroelectric pumped-storage plants without which the system will not be able to guarantee a constant supply of renewable electricity.

Efficient gas-fired power plants are being shut because they cannot produce power profitably in a market flooded with wind and solar electricity. And utilities are burning more coal – which is currently cheaper on world markets – to make up for shortfalls caused by the hasty closure of Germany’s eight oldest nuclear power stations following Japan’s Fukushima nuclear accident in 2011.

Delays in hooking up offshore wind farms to the grid mean some turbines are having their giant rotors turned by diesel engines to stop them rusting. And because Germany is burning more coal, its carbon dioxide emissions are expected to increase this year for the second year in a row – even though it added 10 gigawatts of wind turbines and solar panels last year alone – the capacity of 10 avearge nuclear plants.

“We must steer the addition of new capacity in such a way that renewables can be integrated into the electricity system sensibly,” says Stephan Kohler, the head of the German Energy Agency, a think-tank 50 per cent-owned by the government.

“I don’t accept that wind and solar parks are built where there are neither networks nor power customers. The growth of renewables must be synchronised with the networks. That means we should only add capacity where electricity networks are in place.”

Electricity in Germany is now 40 per cent more costly for consumers and 20 per cent more expensive for industrial users than the EU average because consumers have to pay for the high feed-in tariffs on renewable power through a surcharge on their electricity bills. It is an automatic system – the more people install solar power panels to secure the attractive tariff, the higher the surcharge becomes for everyone. Controversially, some 1,600 industrial companies that use a lot of electricity, such as steel makers, are exempt from the surcharge to keep them competitive.

In short, the German energy revolution is a mess. It is the chancellor Angela Merkel’s job to fix the problem after four years of gridlock caused by a lack of leadership on her part, disagreements within her government and a hostile upper house of parliament. But the outcome of the September 22 election could help her to make the necessary radical changes to the energy transition.

Voters handed her conservatives an impressive victory but evicted from parliament her junior coalition partner, the pro-business Free Democrats (FDP), who fundamentally oppose market interference through subsidies and have doubts about the merits of the energy transition.

She is likely to form a new government with the centre-right Social Democrats, who agree with her on much of what needs to be done and who could hand her the parliamentary majorities she needs.

“The costs were ignored for a long time, until 2009, then the boom in solar investment started and there wasn’t enough political commitment to stop that development,” says Hubertus Bardt, the head of energy and environmental policy at the Cologne Institute for Economic Research.

“The government was too slow to cut the subsidies and it didn’t confront the powerful vested interests trying to block cuts.”

Everything has been on hold this year pending the election and industry leaders are now crying out for action.

“The months-long wrangling has turned into a decisive brake on investment,” says Hannes Hesse, the director of the VDMA engineering industry association.

The president of the BDI dederation of German industry, Ulrich Grillo, says Mrs Merkel should convene a conference of all groups involved – consumers, industry, government and environmental organizations –to discuss a reform of energy policy.

“The new government must carefully review its project management and fundamentally revise it,” says Mr Grillo. The law on feed-in tariffs, he adds, will require “radical reform”.

The government, which could take months to form, is expected to cut the costs of the energy transition by lowering the feed-in tariffs, shortening the period of the tariff to 10 years from the current 20 years or by linking it more closely to market prices. That could reduce the electricity surcharge which has surged to 5.4 euro cents per kilowatt hour this year, a 47 per cent rise from 2012.

The government may also cut electricity tax and create a new energy ministry to oversee the transition, a move that could fix the poor coordination among ministries that has hampered progress.

Some form of subsidy for gas-fired power may also be needed to ensure the system has enough generating capacity when the wind does not blow and the sun does not shine. Gas power lends itself to offsetting weather-related grid fluctuations because they can be fired up and powered down quickly, and they’re energy efficient.

Mrs Merkel, say commentators, will have to show more leadership in what is likely to be the most important domestic policy of her next four years in office.

She will need to draft policies that promote energy efficiency in new and old buildings, encourage investment in a modern power infrastructure, push ahead with a pan-European smart grid, keep energy affordable and safeguard a stable energy supply, while being bombarded with demands from powerful and vocal lobbies on all sides.

Will she manage it? Her lack of action on energy policy in the past four years and her blatant support for Germany’s automotive industry in environmental disputes with the European Union have damaged her reputation as “climate chancellor”, gained during her first term when she persuaded the US president at the time, George W Bush, to sign up to a common pledge to radically cut carbon emissions.

However, this is likely to be Mrs Merkel’s final term as chancellor.

She may well throw her characteristic caution to the wind and push for real change in order to leave a legacy – a successful energy revolution that serves as a shining example for the world.