Can Germany return to the path of green energy?

Having recently spent a week in Berlin, and being an engineer, I can’t help but admire the Germans. Their trains are cheap, clean and quick; they continue to succeed with a manufacturing based economy; and they have moved stridently away from a carbon based energy system with their Energiewende policy. Germany generates in excess of 20% of its electricity from renewable, building a world class renewables industry on the back of their first mover advantage and heavy investment.

Alas, Germany’s green credentials have taken a bit of a bashing lately with German carbon emissions actually increasing by 1.8% in 2013, while costs have continued to soar.  The reason for this is Fukushima in Japan, the nuclear power plant that was disastrously disabled following the March 2011 Tsunami.

It will be a test for the European Commission to stand up to the power of Germany

As a result of Fukushima, the German government decided that they would close all their nuclear plant by 2022, immediately closing eight power stations, thereby reducing overall German generating capacity by 7%. The shortfall has been made up by greater investment in renewables along with the storage capacity to deal with intermittency. But the result has seen Germany burning more of the dirtiest of all coal – brown coal, a resource that is mined in the country. Surprisingly this is not a short term response, Germany has been building new coal burning power stations enthusiastically and will add nearly 8 GW of capacity to the grid by 2015. Germany has swapped its carbon free nuclear power plants for the most carbon intense coal burning power stations – an odd decision.

The consequences of the closure of the nuclear power stations are having a very immediate and direct impact upon Germany. A reinvigorated Energiewende policy and new coal power stations require investment and rather like the UK the cost is being borne by the consumer. Energy prices have risen 40% in a year and Germany now has the highest prices in the EU. To protect the industrial heart of Germany, industry has received protection from some of these costs but the EU has started an investigation into whether the ‘subsidies’ are anti-competitive, so the exemptions could be short lived.

It will be a test for the European Commission to stand up to the power of Germany. Ultimately it is not in the Eurozone’s interest to see the industrial might of Germany decimated by high energy costs, despite the fact that these costs follow directly from domestic policy decisions. If the subsidies have to be removed it will be interesting to see whether Germany maintains its commitment to Energiewende if industry and jobs start moving abroad.

Nick Cullen is is a partner at Hoare Lea