Published in The Age – Business Day (Melbourne), 26 November 2011
As they say in German, ”Angst ist ein schlechter Ratgeber” – fear is a bad counsellor. Had German politicians kept this proverbial wisdom in mind, their reaction to the Fukushima nuclear disaster would have been different.
Before the decision to switch off their country’s nuclear power stations in a hurry, they should have considered the consequences for energy security, electricity prices and carbon dioxide emissions.
Political processes in Germany are notoriously long and winding. A minuscule increase in welfare entitlements took two years of intense negotiations, the long overdue reform of the armed forces began only two decades after the end of the Cold War, and radical tax changes promised since the early 1980s are all still up in the air.
Yet the hardly less fundamental question of how Germany, the industrial heart of Europe, should be powered was made within less than a week.
While the Japanese were still recovering bodies of the tsunami catastrophe in March this year, the Germans had already drawn their lessons from the disaster.
Chancellor Angela Merkel ordered the closure of seven nuclear power stations and later announced her country would aim to phase out nuclear power altogether within a decade.
As a political U-turn it was mind-boggling. This was the same government that only months earlier had approved an extension of the licences granted to the operators of Germany’s ageing nuclear reactors.
The last German nuclear power station began operations in 1989, the oldest started producing electricity in 1974. The future of these reactors had long been one of the most controversial subjects in German politics.
It was the Fukushima accident that finally turned public opinion against nuclear, never mind that the actual radiation leak was not nearly as dramatic as first feared. But Merkel believed she had little choice but to renounce her old position, promising to move the country to a future built on renewable energies. The speed at which these changes were announced left little time for strategic thinking. This omission is now coming back to haunt German policymakers.
Before Fukushima, nuclear power accounted for 23 per cent of Germany’s electricity production. Coal was the biggest source of electric energy, with a 41 per cent share. Natural gas made up 14 per cent, and renewable energies, mainly wind power, delivered 17 per cent. Just considering these figures should have alerted politicians to the dangers of a quick nuclear phase-out.
After more than a decade of vast direct and implicit subsidies for renewable energies, their total energy share was still six percentage points below nuclear. Further increases in renewable energy capacity are difficult, as the regions with the most wind power potential are already covered with more 26,000 windmills.
Additional installations either have to happen in the south of Germany, where the wind hardly ever blows, or off the northern coast, although offshore wind parks are expensive to build.
To be sure, there is some potential for more renewable energy in Germany. Realistically, though, based on the principle of diminishing returns, it should be expected that the next 17 per cent of renewable energy will be more difficult to achieve than the first 17 per cent.
In the meantime, Germany has to compensate for the immediate switch-off of the first seven of its 17 nuclear reactors. To fill the gap, the country has to import enormous amounts of electricity from its neighbours. In the first half of this year, France delivered 10.4 billion kilowatt-hours (kWh) to Germany – an increase of 50 per cent, compared with the same period last year. Electricity imports from the Czech Republic even went up by 673 per cent.
Ironically, the main energy source in both cases is nuclear power. Both the French and the Czechs are continuing their nuclear usage. Good for the Germans: at peak times, up to four nuclear power stations in France and the Czech Republic are running just to cater for Germany’s demand. In the future there could still be more: The Czech government has plans for new nuclear reactors.
Nuclear imports are not the only bizarre result of Germany’s shift to clean energies. Perhaps even more surprising is the sudden renaissance of fossil fuels, which is driven by the high costs of renewables.
The costs of renewable energies are escalating. Before the announced nuclear phase-out was announced, the respected RWI research institute had forecast that the planned increases in renewable energies would cost energy users about €100 billion ($A137 billion) over the coming decade.
Consumers would have to pay between 20 per cent and 25 per cent more for their electricity to pay out subsidies to wind and solar energy producers, RWI estimated in June last year. After the Fukushima nuclear phase-out, this bill would rise even higher if nuclear was indeed fully replaced by renewables. To avoid the inevitable voter backlash, and also to reduce German dependence on further energy imports from other countries, the German government is now resorting to the one form of energy that environmental activists hate even more than nuclear: coal.
There are now 26 new coal-fired power stations being planned or built all over Germany, with a total installed capacity of almost 25 gigawatts. Some of them could even be put next to the old nuclear plants they will be effectively replacing.
As if that was not ironic enough, the new coal-fired power stations will also receive subsidies from a fund that was originally intended to support energy-saving technologies.
The Federal Economics Ministry recently confirmed that up to €166 million will be made available for coal and gas over the coming five years.
To round off the absurdity, the fund’s capital originates from Europe’s emissions trading scheme, and so the subsidies go full circle: from fossil fuels to fossil fuels in order to replace a non-fossil fuel: nuclear.
But even these subsidies are not enough to compensate Germany’s big utilities for another problem. The government’s sudden change of energy policy has hit their earnings hard. The two biggest companies, E.ON and RWE noted profit decreases of 45 per cent and 25 per cent in the first half of this year. This is not only a problem for the companies involved but also for the government’s renewable energy target.
Germany’s big utilities are expected to switch to renewables and upgrade the grid so that it can cope with more wind and solar power.
This requires enormous investments, but the companies are finding it increasingly hard to mobilise capital. Credit ratings agencies have already downgraded all of Germany’s major energy utilities in the past months.
Last week, Moody’s threatened yet another downgrade, citing ”political risk” as the main reason. The German government’s policies since Fukushima had increased uncertainty in the market, Moody’s said.
Not even a year after Fukushima, Germany is starting to pay the price for its hysteria-driven energy policy. Consumers will be hit hard by rising energy costs.
Energy companies are finding their profitable business models invalidated, national energy security is undermined by reliance on electricity imports, and instead of shifting towards renewable energies Germany’s energy future lies in subsidised coal.
Fear and green populism were bad counsellors indeed when Germany drew the wrong lessons from the Fukushima accident.