Economic Meltdown

The bill for German Chancellor Angela Merkel’s coalition government’s knee-jerk decision to close all 17 of its nuclear plants by 2022 is coming due. Merkel’s energy plan is to radically expand the use of renewable energy to 35% of total power consumption by 2020 and to 80% by 2050. Currently, renewables represent 20% of the country’s energy mix.

You may recall my editorial (“Irrational Exuberance,” December 2011) in which I estimated the cost of replacing Germany’s lost nuclear capacity with wind and solar. My back-of-the-envelope numbers suggested that the added costs to German electric rates for renewables would rise to 7 cents/kWh by 2020 and that the plan will cause household electric rates to rise “about 6% per year for the next nine years.” I was wrong. My long-term rate of increase estimate took place in the first year and is not sustainable.

Steep Residential Rates

The German Economy Ministry has stated that the renewable energy subsidy portion of the Renewable Energy Act (EEG) of the residential electricity bill will rise to between 5.9 and 6.6 cents/kWh this year (not including the 19% value added tax, VAT) to help pay for Merkel’s renewable energy policies, an increase of 30% to 50% over last year. Some in the government have suggested the EEG may soon rise to 7.5 cents/kWh, a 70% increase in one year.

Berlin Technical University Professor Georg Erdmann’s calculations show the EEG portion of the consumer’s electricity bill will jump to over 10 cents/kWh, or nearly three times what Merkel pledged to consumers when revealing her energy plan less than a year ago. Remember, this is only the additional cost to the monthly bill to pay for the extremely lucrative 20-year feed-in tariff contracts for renewable electricity. For 2011, the average household electricity price was 31.6 cents/kWh, according to Eurostat, not including the VAT, three and one half times more than the average household pays in the U.S.

German government data suggests that consumers will pay out $125 billion over the next 20 years to subsidize renewables installed before the end of 2011; the number rises to $250 billion if future hookups are included. Erdmann predicts the real number is well over $375 billion because the rate of photovoltaic (PV) installations is much higher than government predictions. In 2011 alone, 7.5 GW of solar were installed—double government estimates.

Public interest groups condemn these rapidly accelerating electricity prices as unfairly impacting those on fixed incomes. “Private households are expected to pay for an energy transition for which no clear plan exists,” says Holger Krawinkel of the Federation of German Consumer Organizations. The group says that one-seventh of Germany’s households now live in “energy poverty.” Government data shows that more than 600,000 households had their electricity turned off for non-payment in 2011. It’s no wonder that many public advocacy groups are protesting the rapidly rising rates in the name of social justice.

Industrial Advantage

Germany’s largest industrial power consumers have always enjoyed generous electricity rate subsidies. Eurostat data shows that the price of electricity for the largest industrial users is one-half of that for consumers. In fact, industrial users are required to pay only 0.3% of the cost of the EEG mandated renewable feed-in tariffs!

Even so, the large industrial rates are the highest in the European Union and are expected to rise 20% by 2020. According to the Association of German Chambers of Industry and Commerce (DIHK), high electricity rates are a principal cause of the acceleration of Germany’s de-industrialization. DIHK reports that almost one in five industrial companies plans to increase capacities abroad, if it hasn’t done so already.

Projects Behind Schedule

PV projects are moving quickly, but offshore wind projects are becalmed. Moving expensive yet abundant offshore wind energy to Germany’s industrial south requires thousands of kilometers of new transmission lines. It’s not surprising that many local jurisdictions don’t want these new transmission towers in their districts or are demanding expensive undergrounding of the wires. Siting of these new lines is at a virtual standstill across Germany.

In May, the operators of Germany’s four power grids presented their estimates of the costs to comply with the German government’s national expansion of the grid: $25 billion over the next 10 years. TenneT, the Netherland’s state-owned grid operator (which also supplies about a third of Germany), says it will cost an additional $15 billion in grid improvements to connect just the first wave of offshore wind turbines to the grid by 2020, and the economics don’t justify the investment. In addition, another 4,000 kilometers (km) of existing lines must be modernized, although that cost wasn’t noted.

Many offshore wind parks are now under construction, some up to 200 km out in the Baltic Sea and the North Sea, but none has been finished. Without transmission lines, many projects are at a standstill; at least one project is three years behind schedule. Also, technical problems are confounding developers relying on unproven HVDC systems connected to very long undersea cables. In the meantime, the government is again looking to the consumer to pay for these project delays.

The Green Party has taken the position that it is necessary to make financial sacrifices for the sake of the “environmental transformation of society.” Germany’s “transformation” has barely begun, but it seems to me that the consumers have already been sacrificed.

Dr. Robert Peltier, PE is POWER’s editor-in-chief.