Germany's Rising Cost of Going Green

On 30 May 2011, in the aftermath of Japan's Fukushima nuclear disaster two months earlier, German Chancellor Angela Merkel announced an "energy revolution" and that Germany would close all of its 19 nuclear power plants (NPPs) between 2015 and 2022, which produce about 28 percent of the country's electricity. The shortfall was to be made up with an increased emphasis on renewable energy sources. In the wake of Germany's decision, Switzerland, Belgium, Japan, Italy, and many other nations declared, in one way or another, their intent to pursue a safer alternative.

As of January 2012, besides Germany's 19 NPPs, 138 civilian nuclear power reactors had been shut down in 19 countries, including 28 in the United States, 27 in the United Kingdom, 12 in France, nine in Japan and five in Russia but of these, only 17 have been completely decommissioned so far.

Adding to the complexity of the issue are unprecedented record low temperatures that have swept across Europe since January from the UK to Italy, Bulgaria and Russia.

On 7 February heating oil jumped to a nine-month high as blizzards, high winds and freezing weather in Europe closed airports and schools, disrupted shipping and killed hundreds, and Germany is Europe's largest heating oil market. In Frankfurt temperatures fell to minus 19 degrees Fahrenheit.

The situation was sufficiently dire that the Handelsblatt newspaper mistakenly headlined a story, "Cold snap forces Germany to restart nuclear reactors: report," claiming that five of the country's NPPs were serving as "reserve" generators in case of surging electricity demand could not be met from other sources.

Far from it.

In fact, Germany exported large amounts of electricity to France to assist it in fighting last week's record low temperatures. The cold snap caused power shortages in France, Europe's largest power exporter, which derives 78 percent of its electricity from its 59 nuclear power stations. French electricity prices soared to two-year highs and the power shortfalls prompted the national grid to issue warnings to the public to refrain from using unneeded electrical appliances. France relies heavily on electric heating unlike Germany, which uses a variety of heating equipment, including gas and fuel oil heaters. In France electricity demand rises by 2.3 gigawatts, the equivalent of two nuclear power reactors, for each one degree Celsius drop in temperatures.

Noting Germany's ability to weather the intense cold Dong Energy German power trader Stephan Schnorr said, "The cold snap was a situation most experts feared and we managed without bigger problems."

But the longer-term implications of Berlin weaning itself off nuclear power remain unclear.

On 13 February the respected Der Spiegel newspaper reported that Germany's Energy and Climate Fund, a centerpiece of Prime Minister Angela Merkel's government's much publicized transition towards renewable energy, has been massively under-funded since its establishment in 2011. A German Finance Ministry report noted that the government actually contributed only a quarter of the $396 million designated for the Energy and Climate Fund, which in turn paid out $61 million instead of $396 million.

Accordingly, Green Party parliamentarian Sven-Christian Kindler told reporters that the shortfall shows that the Merkel administration has "failed in the financing and implementation of the energy revolution."

In other bad news for Germany's attempts to green its power sources, the day after the Der Spiegel article appeared German energy giant E.on warned that delays in connecting offshore wind farms to the grid could lead the company to suspend work on two large projects unless the grid operators speed up the construction of power lines. E.on Climate and Renewables division head Mike Winkel told the Berliner Zeitung newspaper that E.on and other power companies will stop investing in offshore power if the grid operators don't speed up their construction of power lines to transport the power generated by the wind farms.

Finally, the increased costs of renewable energy amidst an economic downturn are adding to Berlin's woes. While electricity from conventional coal fired German power plants costs roughly $83 per megawatt-hour, the price increases roughly 50 percent to $124 per megawatt-hour for wind energy, $207 per megawatt-hour for offshore wind power, and $268 per megawatt-hour for solar, the last more than three times the cost of coal-fired electricity. And these increased costs come amidst a stalled economic growth rate, as on 15 February Germany's national statistics office Destatis reported that the German economy, Europe's biggest, contracted 0.2 percent in the fourth quarter of 2011 as exports were hit by the eurozone debt crisis.

While the recent severe weather has proven that Germany can not only meet its current electrical needs without resorting to restarting its NPPs but export electricity as well, several observations emerge from the last seven months. First is that Berlin's funding policies have to be reformed if the renewable energy sector is quickly to advance, and to work around obstacles such has a shortage of national power grid lines.

The second observation is that Germany's transition to a greener energy future is going both to take far longer than originally envisaged and to cost much more. And given the deepening eurozone crisis, the latter consideration could loom ever larger. So in the interim, the only certainty for German consumers is that their electrical bills will rise, with the only questions being how much and how fast.

By. John C.K. Daly of Oilprice.com