Friday, February 14, 2014

The Economic or Competitive Advantages of the Energiewende for Germany

The energy transition in Germany is "pragmatic", moderately paced, and produces benefits that far outweigh the costs:
  • This new industry worth 40 billion Euro per year employs about 400,000 people, which drives up tax revenue and stabilises the social security systems.  The lesson that well-designed policies for energy transformation can help governments with high deficits and debts is sadly often lost in the debate about public finance in the Euro-zone.
  • The employment is across skill levels -- from highly specialised technicians to farm hands -- and geographically spread, particularly useful to stop the economic decline of rural areas and the migration to towns and cities. 
  • Import substitution reduces the cost of imported fuels and strengthens the balance of trade and payment.  This is not just a short-term fix but implies the development of a broad and deep value chain on renewable energies, smart grids and storage within Germany. 
  • Security of supply and grid stability improved due to fuel mix diversification, but Germany still largely depends on foreign imports of fossil fuels.
  • Wholesale electricity prices, the prices paid by large industrial power users and utilities that buy electricity to distribute it to their customers, are very low in Germany -- at around 4 Euro cents per kWh -- and projected to remain there for the next few years.  This is attracting inward investment, or the expansion of some electricity-intensive industries, such as aluminium recycling.
  • The renewable industry is driving innovation and acts as an automatic stabiliser, as seen in 2008-2009 when the wind industry, for instance, took off on the back of lower steel prices. 
  • Once the last nuclear power plant has gone cold at the end of 2022, Germany will no longer be adding to the already high (and largely unfunded) legacy costs of nuclear power, and can address the issue of long-term nuclear waste storage.
  • At that point, Germany will also no longer risks the devastation of a nuclear catastrophe, at least from nuclear power plants on its own territory; the consequences of such accidents have the potential to bankrupt a country.
  • Germany will still be exposed to the risks emanating from plants in other countries.  (I am advising the German government to explore ways to leave the international agreements that would currently stop Germans that suffer damages from nuclear accidents from suing nuclear plants operators in other countries.  These agreements are in violation of the polluter-pays-principle, and Germany's adherence loses its rationale once it no longer operates any such plants.)
The overall, macro-economic assessment shows that the total cost of electricity supply to end users in Germany, expressed as a percentage of the Gross Domestic Product (GDP), representing the size of the German economy, has not changed much as a consequence of the Energiewende.  In essence, the benefits listed above are being obtained at low net cost to the German economy, and domestic controversies are the result of and about distributive and social consequences of the Energiewende.


  1. You post a lot of positive points here, but I am wondering if there maybe regional negatives within Germany. For instance, does the Ruhrgebiet need to transform itself in order to be a winner of the Energiewende? Or does the existing infrastructure here already help? What about other areas? Will industry start to spread out geographically, or will there continue to be industrial hubs within Germany?

  2. Dear Amanda,
    In response to your question, I posted another blog on the Distributive and Social Consequences of the Energiewende:
    It leaves out the specific concern you have for the Ruhrgebiet, which is rather special. The "coal identity" is still strong in the region, even through mining has moved out North and West. But there are many retired members of the SPD (and labor union members) for whom mining and heavy industry is not a memory of a past lost, but a currently desired identity. The mindset makes then good targets for anti-Energiewende propaganda. The Ruhrgebiet is also home to RWE and E.on, which have their headquarters in Essen and Düsseldorf. Both are moribund, as they cannot hope to compete in the new energy market against nimble new entrants with the largely unfunded nuclear legacy cost around their neck. Their capital value has dropped, and in my view will drop further. There are number of municipalities in the Ruhrgebiet and elsewhere in Germany that were induced to sell their physical power distribution assets in return for shares in those big utilities, with the promise of high and dependable dividend pay-outs. That dream is over, and a number of local and regional politicians mostly from the SPD and the CDU, keep their fingers crossed that the utilities won't unravel completely "on their watch". They will do almost anything to prolong the (miserable) life of RWE, E.on et alii, without regards to the overall picture. That is the negative side. On the positive, the Ruhrgebiet has been in constant change over the past 250 years, it has the highest density of people and industry, of problems and ability to solve them. There is a sense of belonging and cohesion that you find also in other mining areas, and a recognition that it is up to the region itself to find a way out of present predicaments.
    That is my personal take as a native of the region. Andreas

  3. There is a large debate in France around the German energiwende. If many are very favorable around the greens of a same evolution in France, we face a strong opposition of most of the energy establishment which has been able to convince many politics to keep a strong position on a nuclear future. The french energy elite is eventually diffusing some kind of a very unpleasant "german bashing". In order to contradict this dangerous evolution we would need an economic evaluation for the 30 years to come especially on the jobs ctreations side of the Energiewende. Can you recommend some good documents on the subject?
    Pierre Matarasso