Business

28 January 2014

Germany's Renewables Dilemma  

Economic realities are testing Germany’s commitment to developing renewable sources of energy.

That became clear this month when Sigmar Gabriel, Germany’s economy and energy minister, warned that Europe’s most vigorous industrial nation risks “deindustrialization” if it fails to address the high cost of subsidizing renewable energy sources like wind and solar power.

Germany’s desire to develop more renewables took on new urgency after the nuclear power plant disaster in Fukushima, Japan, in 2011, which prompted a decision to close all of its nuclear power plants by 2022.

However, subsidies for renewables have helped rocket Germany’s energy costs to three times the rate of inflation. Germany’s consumers – and its energy-intensive industrial sector – pay some of the highest electricity rates in Europe. Renewables subsidies are costing Germany’s economy about 24 billion euros a year, Gabriel says.

The efficiency of German production technology is admired the world over, and rising productivity can help manufacturers shoulder some of the extra cost. But there are limits,  especially because North America’s shale gas revolution is lowering energy costs and boosting US competitiveness in big-ticket items like automobiles and heavy machinery.

What’s more, lower nuclear power output has increased Germany’s coal-fired electricity generation, paradoxically increasing the release of greenhouse gases.

The finite nature of hydrocarbon-based fossil fuels is another good reason to invest in renewable energy sources, but Germany is finding these reasons must be balanced against society’s economic needs.