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Dec 7, 2012 | 11:02 GMT

Germany's Energy Challenge

Natural gas and renewable energy in Germany

Meeting its energy needs is one of Germany's biggest challenges. The country is dependent on imported oil and natural gas and has set ambitious goals for switching to renewable energy and phasing out nuclear power. A recently announced undersea cable to Norway will help Germany diversify its sources of electrical power, but a move to renewables will not end Germany's dependence on energy imports.

Germany is Europe's largest economy, and the country imports around 90 percent of the natural gas — and nearly 100 percent of the oil — it consumes. In 2011, the German economy accounted for around 124 billion euros ($160.7 billion) of primary energy consumption, more than twice as much as it did a decade earlier. The higher costs mostly have resulted from rising energy consumption in emerging markets like China. Europe's faltering reserves of oil and natural gas will make it even harder for Germany to secure its energy supplies.

These developments mean Berlin probably will have to expand its relationships with non-European exporters of petroleum, putting Germany in competition with other European countries whose domestic energy sources are dwindling. Germany's energy-focused relationship with Russia will have to be maintained for the sake of energy security. Around 40 percent of German natural gas and 32 percent of the oil Germany consumes come from Russia. Supplies of shale gas in neighboring Poland could replace dwindling natural gas reserves in the North Sea. So far, however, none of the test wells drilled in Poland have shown promising results. Even if they had, Poland would put the majority of any new natural gas production to domestic use as a replacement for its coal consumption.

Europe's faltering reserves of oil and natural gas will make it even harder for Germany to secure its energy supplies.

On Dec. 4, the Norwegian and Dutch power grid operators, Statnett and TenneT, along with the German development bank, KfW, announced plans to build a high-voltage electricity connection between Norway and Germany that would run along the seabed. The governments of Germany and Norway, which would have equal stakes in the project, agreed in June to proceed with the plan, but the final decision on whether the 1,400 MW connection actually will be built is expected in 2014. The first electricity would flow by 2018. Germany already has similar connections to Sweden and to Denmark with a total capacity of nearly 3,000 MW. This project aimed at the electricity market is part of the ongoing trend of European energy infrastructure integration.

A New Energy Strategy

In 2010, Berlin outlined Germany's energy strategy through 2050. The strategy's main goals are lower emissions of carbon dioxide, higher efficiency and a shift to renewables. After the 2011 Fukushima reactor disaster gave impetus to the anti-nuclear movement, Berlin further decided in 2011 to phase out nuclear energy by 2022.

In 2011, 18 percent of the 612 TWh of electricity produced in Germany came from nuclear power plants and 20 percent from renewables. Various forms of coal accounted for 44 percent of the total, while 14 percent came from natural gas and 5 percent from oil and other sources. Within 10 years, by which time all nuclear power plants are to be taken offline, renewables are supposed to account for 35 percent of German electricity production. By 2050, Germany wants renewables to account for the 80 percent share of electricity production — a figure that would represent 60 percent of primary energy consumption — currently provided by fossil fuels and nuclear energy.

Conservation, in theory, would ease this task: Germany aims to lower its electricity consumption by 10 percent compared to 2008 by 2020 and 25 percent by 2050. Even so, Berlin's new strategy clearly will entail fundamental changes in Germany's electricity production and consumption. Several challenges must be overcome to make the plan a reality, but the most significant obstacles pertain to the transportation of power and the volatility of renewables.


Renewable electricity generation is determined by geography and natural processes. This poses major problems for a country the size of Germany, where industrial centers are widely dispersed. The two southern German states, Baden Wuerttemberg and Bavaria, have six of the country's nine remaining operational nuclear reactors. Once these are shut down by 2022, more electricity will have to be transported south from North Sea wind farms. The government estimates that 4,500 additional kilometers (approximately 2,800 miles) will have to be added to the country's high voltage grid by 2020 to transport the electricity generated by renewables across the country.

One way to overcome such obstacles is to trade electricity generated from renewables across borders instead of sending it across the entire country along the lines of the planned German-Norwegian connection. An integrated European electricity market would allow Germany to export renewable energy at times of overcapacity and import when domestic production is low, balancing overall electricity supply and prices. In 2011, Germany only imported around 50 TWh and exported 56. Germany's status as a net exporter will likely change as the nuclear power plants go offline. This will be especially true in southern Germany, where expanded gas power plants and electricity imports will join increased solar power production. Even so, German government estimates suggest natural gas and coal power plants with a total additional capacity of 17 GW will have to be built before 2022 to compensate for the nuclear power going offline and to balance the volatile production from renewables.

Switching to renewables does not solve Germany's energy import-dependency problem.

Another problem is high prices for electricity. Electrical power costs for German industry and households are already above the EU average, largely because of higher taxes. The cost of electricity will likely rise further in the coming years as nuclear plants are eliminated, the costs of subsidizing programs that promote production of electricity from renewables rise and major upgrades of energy infrastructure are financed. In general, German industry representatives fear that they lose competitiveness because of rising energy costs. The government will undertake more central planning and financial help for large infrastructure projects in the coming years to address the price issue. In another complaint from business, energy companies maintain that investment decisions are being delayed because the legal framework behind Berlin's plans is still being revised.

In the coming weeks, Berlin will analyze where it stands with its energy transition. Revisions will quite likely occur in the coming months and the topic will be important ahead of the parliamentary elections scheduled for late 2013.  

Overall, switching to renewables does not solve Germany's energy import-dependency problem. Germany will still rely on other countries to support European energy-market integration efforts, and natural gas imports in particular will play a vital role in balancing the volatile electricity production from renewables. Shifts in Germany's current long-term energy strategy cannot be ruled out. Should Germany's energy security be threatened because cross-border collaboration and the relationship with strategic energy partners such as Russia worsens or the switch to renewables proves to be too costly, Germany could return to relying more heavily on its domestic coal reserves, reconsider nuclear power plants and possibly start shale-gas exploration on its own territory.

Germany's Energy Challenge
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