German Energy Push Runs Into Problems

Source: By MELISSA EDDYMARCH, New York Times • Posted: Thursday, March 20, 2014

BERLIN — It is Germany’s national goal: to have the bulk of its energy supplied by renewable power sources by 2050, without endangering the country’s powerful industrial sector or an export-based economy that is the envy of other Europeans.

This energy push, known as the Energiewende, or energy transformation, took on new urgency with the decision to speed up the phasing out of nuclear power after the 2011 Fukushima disaster.

But the question of whether Germany can meet its 2050 goal has been hotly debated. And the issue has taken on added importance with the Russia-Ukraine crisis threatening Germany’s largest single source of natural gas.

Chancellor Angela Merkel’s government plans to revamp the energy law to focus on wind turbine parks and solar energy as the most cost-effective renewable sources, in the hope of reining in runaway electricity prices.

But international energy experts, who recently completed a study of the German energy sector, say the country cannot meet its future needs solely through renewable sources. They say the plan must also include a climate-friendly — even if not renewable — option, like domestic natural gas.

Energy will be on the agenda when European Union leaders convene in Brussels on Thursday, with member countries’ heavy dependence on Russian gas almost certain to galvanize the discussion.

Leaders are also to discuss recent changes to the bloc’s climate agenda. Germany hopes that a deal can be reached to end a dispute with the union over Berlin’s exemption of some energy-intensive industries from the country’s environmental surcharges.

The German daily Frankfurter Allgemeine Zeitung reported this week that a proposal had been floated that would allow Berlin to grant surcharge reductions for companies in approximately 65 sectors.

During a visit to Berlin last month, Joaquín Almunia, the European Union’s competition commissioner, said that aluminum and steel industries would be among those exempted. Experts say they expect the industrial gas, cement and electronic components sectors also to be included.

About 11 percent of Germany’s energy is provided by natural gas, of which 35 percent comes from Russia. Despite the German government’s assurances that reserves of natural gas held in storage tanks are sufficient to ensure continued supply, there are fears of shortages should Moscow decide to retaliate to Western sanctions by reducing the flow of natural gas to the West.

Germany has almost no natural gas of its own — at least not gas that can be extracted through conventional drilling techniques.

It does have potentially promising reserves of gas in shale rock. But extraction of that shale gas through the technique known as hydraulic fracturing, or fracking, does not feature in Germany’s current plans.

Germany, by 2030, would be able to produce the equivalent of 25 percent of the natural gas that it currently consumes, if it were to tap shale resources within the country, according to the international study conducted by IHS Energy, a research and consulting firm. That could rise to 35 percent, equivalent to what Germany currently imports from Russia, in subsequent years, IHS predicted.

But Berlin’s firm belief remains that only by uncoupling from a dependence on gas and other fossil fuels through the expansion of power generated by renewable sources can Germany secure its energy future.

“The energy transformation in Germany will be carried out by two main sources — those are wind and solar,” Rainer Baake, a deputy energy minister, said this week.

The unexpected drop in global energy prices through the emergence of abundant, low-cost natural gas in the United States has posed a threat to the energy transformation, according to a study by the IHS research group presented in Berlin this week.

“There has been a kind of waking up to the fact that the premises of the Energiewende, however well-intentioned they are, no longer hold because the world has changed,” said Daniel Yergin, an energy industry analyst and historian who helped carry out the study.

The Renewable Energy Act in Germany has been amended several times over the last 13 years. The latest changes are to be voted on by Parliament before its summer recess, and crucial points have already been approved by Ms. Merkel’s government. Revisions to the law concentrate on managing the expansion of renewable sources by focusing on technologies that have proved to be the most cost-effective over the last decade.

These changes reflect lessons learned since Germany first decided to phase out its nuclear reactors in favor of energy generated by renewable resources, which until now have all been promoted equally through government subsidies.

Berlin’s nearer-term goals have not changed, aiming for 40 to 45 percent of all energy to come from renewable sources by 2025, rising to 55 to 60 percent by 2035. But the mix of technologies has been revised, with the focus now on large onshore wind parks and solar energy farms.

“With the Renewable Energies Act that we created in 2000, we financed a learning curve that was expensive,” said Mr. Baake, the deputy energy minister, who is considered by some to be the grandfather of Germany’s energy transition. “But the good news is that we have learned in only 13 years to produce electricity with wind power and large solar facilities at the same price as if we were to build new coal or gas power stations,” he added.

In Britain, the government is also responding to complaints from its businesses and consumers about the cost of green taxes and other environmental measures. In a parliamentary speech on Wednesday outlining his budget for 2014 to 2015, the chancellor of the Exchequer, George Osborne, noted that industrial energy prices in the United States were half those of Britain. “We need to cut our energy costs,” he said.

Mr. Osborne said he would take measures to reduce energy bills, which would include capping Britain’s tax on carbon dioxide at 18 pounds, or about $30, a ton — although not until after next year’s national elections. The tax, which is now about £5 a ton, would otherwise have increased to about £36 a ton by the end of the decade, analysts say. The freeze would cut a midsize manufacturer’s electric bill by £50,000 a year and a household’s by £15 annually, Mr. Osborne said.

Electricity prices in Germany are already among the highest in the world. The price of industrial electricity has risen about 37 percent since 2005, according to the Federation of German Industries. The price in the United States has fallen by 4 percent over about the same time.

The rise in energy prices has already cost Germany $52 billion in net exports and could prove even more damaging if steps are not taken to keep prices in check, according to the IHS study. IHS asserts that adding domestic shale gas into the mix would keep prices down.

A decision by the European Commission this year made it possible for member countries like Britain and Poland which are interested in pursuing their shale gas reserves to do so.

The Federal Environmental Agency in Germany is conducting its own study into the impact that tapping those gas reserves through fracking would have on the environment. The study is to be completed in May. But political support for the practice all but died last June, when the chancellor’s center-right government withdrew a bill that would have furthered progress on the use of fracking. Thus far, there has been no talk in Berlin of seeking to revive that proposal.