Unwinding the Energiewende

The Energiewende or “energy transition” in Germany is a cautionary tale in many respects not least the unintended consequences of policy.

The German energy policy has been guided by three European directives. A target for reduction in carbon emissions, an effort to increase energy efficiency and critically a target for renewables in the energy mix. The desire to cut carbon emissions may be laudable if somewhat ineffective if China and India continue to increase their output of CO2, and a push to reduce energy efficiency seems sensible. However it is the third of the EU directives that has possibly led to most harm. A target for renewables in the energy mix has forced EU governments to pick and support the only technologies that are scalable within the present timescale, regardless of cost. So Germany has offered large subsidies for solar and wind which has led to a huge increase in German energy prices but then had to offer subsidies to German heavy industry to shield them from the increasing costs of power. But then these energy subsidies to industry have in turn been challenged by the EU. Furthermore, the German government’s stance on energy includes decommissioning its nuclear power stations. This combined with an increase in renewables which by their nature provide intermittent power and which have priority access to feed the grid has destabilized the energy market. Gas plants previously providing base load power are now only used to balance renewables making them uncompetitive and leading to the bizarre consequence that Germany is now building new lignite coal power stations to provide this back up generation capacity for its large renewable sector.

So the end result is that due to the skewed policy response caused by EU energy policy, Germany is locked into very heavily subsidized solar and wind production causing energy prices to rise whilst at the same time building more coal fired capacity to back up the intermittency of its large renewable sector which negates the central plank of EU policy to reduce carbon emissions. And the increasing price of energy is seeing large German energy users turning to the US to invest in new plant and further carbon leakage to the developing nations

All this is in stark contrast with the US.  Cheap and abundant shale gas has pushed much of the  dirtier coal energy production out of the energy mix, so without heavy market intervention the US has dramatically reduced its CO2 emissions whilst slashing its energy costs. And whilst once the energy debate in the EU was in part characterized by showing the world how policy directives could lead the way in effective CO2 reduction the result seems to prove the exact opposite.