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Jul 24, 2013 | 10:04 GMT

Germany's Tenuous Transition to Renewable Energy

Wind turbines at Germany's Riffgat offshore wind farm in the North Sea on June 23.
(DAVID HECKER/Getty Images)
Summary

Renewed interest for nuclear power in Europe has reignited a debate in Germany over EU energy policy and its effects on the country. Germany has been a strong advocate for renewable energy, which is a core part of Berlin's plan to transition away from nuclear power and reduce its reliance on hydrocarbons. However, aligning other EU countries with the German national energy strategy appears likely to become increasingly difficult.

Due to such factors as the European economic crisis and the natural gas boom in the United States, European countries are scrambling for cheaper sources of energy in order to regain economic competitiveness. Moreover, despite Germany's relative resilience to the economic crisis, the country's industrial base and consumers are struggling with rising electricity costs, casting doubt on whether Berlin will be able to continue its ambitious but expensive energy transition. In the meantime, Germany's need for cheap energy, and much of its current oil and natural gas reliance on Russia, will remain.

On July 19, German newspaper Sueddeutsche Zeitung reported that EU Competition Commissioner Joaquin Almunia is hoping to make it easier for EU governments to financially support companies that plan to build nuclear power plants. (The European Commission later denied the claim.) According to the report, the German government opposes Almunia's plan, but Berlin can do little to block it, since the EU Commission has authority over matters related to economic competition. Regardless of whether the plan is ever implemented, the issue has highlighted the divergent energy strategies of Germany and other EU countries.

Challenges to Germany's Strategy

In 2010, Berlin outlined an ambitious long-term energy strategy calling for lowered carbon dioxide emissions, increased energy efficiency and a heavier emphasis on renewable energy. By 2050, according to the plan, 80 percent of Germany's electricity consumption is expected to come from renewable sources, especially wind and solar power. Following Japan's nuclear disaster in 2011, the German government also vowed to phase out nuclear energy by 2022.

Germany's transition to renewables is well underway, but it has become controversial because of the substantial increases in electricity costs facing consumers and a growing fear among businesses about losing competitiveness to those in countries where energy is less expensive. While Germany is abandoning nuclear energy, other countries, including the United Kingdom, Finland, the Czech Republic and Poland, plan to build new plants and thus would likely support EU nuclear subsidies.

German industry representatives have warned that the country is losing competitiveness as a manufacturing base due to costs related to expensive energy transition, as well as to lower gas prices in the United States. The wholesale price of electricity has remained stable over the past couple of years. But according to data from the Association of German Chambers of Commerce and Industry, German businesses have seen their electricity costs rise considerably because of rising government fees. Household electricity costs have also risen, in part due to the increase in fees on electricity from renewables. These fees, levied to finance investment in renewables, currently stand at 5.3 euro cents ($.07) per per kilowatt hour, a 47 percent increase compared to last year, and are expected still to rise.

There is a similar debate underway in France, where a sluggish economy and decreased economic competitiveness are challenging French President Francois Hollande's campaign promises to reduce France's reliance on nuclear power and oil consumption in favor of renewables. French industry representatives argue that the proposed changes in Hollande's energy strategy would hurt the country's industrial base.

Berlin has tried to address the concerns of German businesses through several policies. For example, large companies are exempt from certain fees on electricity consumption that are used to finance renewable energy development (household consumers and smaller businesses receive no such break). The German government has also pushed for the entire European Union to focus more on renewable energy, since a broader mandate would leave Germany less vulnerable economically during its own costly transition. 

Since 2010, EU countries have been committed to generating 20 percent of their energy needs from renewable sources by 2020. Given the pressures of Europe's economic crisis and varying energy profiles across the Continent, it is unlikely that all EU countries will meet even this target. Thus, such efforts have been increasingly seen as inadequate by German businesses, and rising domestic opposition and developments abroad seem likely to pressure Berlin to revise its energy strategy in the coming years.

Moreover, large German companies will likely soon face even higher costs. The exemptions on taxes meant to fund renewable energy development are currently under investigation by the EU Commission, and they could be considered subsidies in violation of EU competition law. Even if Brussels rules in Berlin's favor, changes to the exemption policy are likely to follow upcoming elections in September, since opposition is growing among households that do not benefit from the tax breaks. With other countries in Europe, especially the United Kingdom and Poland, focusing on shale gas development, expanding nuclear power plants or continuing to rely on coal, calls for Germany to modify its energy plan will grow louder.

Germany's Options

 

Germany has relatively few domestic energy resources, so meeting its energy needs has been a persistent challenge. The country imports around 90 percent of the natural gas and nearly all of the oil it consumes. Since a shift to renewables is part of Berlin's long-term strategy to limit the country's dependency on energy imports, it cannot be abandoned quickly. Nonetheless, as Germany's energy transition becomes costlier and as economic prospects remain bleak in light of Europe's ongoing crisis, the country's need for cheap energy will remain — as will certain geopolitical implications of German demand.  

Depending on the progress of shale gas development elsewhere in Europe, Germany can be expected to more seriously explore the viability of its own shale gas sector. Currently, Germany receives nearly a third of its oil and 40 percent of its natural gas from Russia, and this energy relationship seems likely to endure in the meantime. Ever since the Nord Stream natural gas pipeline opened in 2011, directly connecting the two countries, Eastern European governments have feared that Berlin would favor ties with Moscow over Continental integration and security concerns. Until Berlin's renewable energy ambitions become reality, this dynamic too seems likely to persist.

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