Angela Merkel has a reputation for being a tough leader. This comes in handy when she needs to make decisions, such as the approval for ECB bonds, which will hardly add points to her popularity index. But the Chancellor is not known for bowing to public pressure: with only a year to go until the general elections, she is not afraid of raising taxes if the cause so requires. The cause, this time, is meeting energy efficiency targets and also Germany’s move to renewables. A year ago, after the disaster at the Fukushima power plant in Japan, Merkel announced a complete nuclear phase-out by 2020, and German opponents of nuclear power applauded. But this initial enthusiasm has since faded considerably as people see their utility bills growing.

In order to finance renewable energy and grid expansion, a so-called eco-tax has been added to energy bills. This component has been included in the cost of electricity for households for more than a decade, but the demise of nuclear energy since last year has much increased its rate. From 2010 to 2011, the eco-tax rose from approximately two to three eurocents, in contrast to a tenfold rise between 2000 and 2009. According to the calculations of the federal economy ministry and other agencies, this fall the renewable energy law (or EEG) will further hike prices by two to three cents, to above five eurocents. Germans are not happy: they do not understand why it is them who have to bear the costs of, say, over subsidized photovoltaic investments, or experience power cuts resulting from unpaid bills. Utility companies are also unhappy: those that had assets in nuclear power plants have suffered losses too.

Does new always cost more?

The replacement of nuclear by renewable energy is a costly business for many reasons. The installation of a new (smart) grid system and the integration of new technologies, including associated infrastructure, into existing ones accounts for the bulk of the hike. Germany’s 2012 grid development plan calls for approximately 3,800 km of new high-voltage lines and the retrofitting of 4,400 km of existing power transport lines, at an overall cost of about €20 billion according to a study by the Wuppertal Institute, a scientific think tank. However, the establishment of new lines is well behind schedule: from 2005 to 2010, grid extension did not exceed 20 km per year. Connecting offshore wind parks would result in similar cost. “Four hundred and forty km in ten years in not possible, we have to look for alternatives,” explained Manfred Fischedick, vice president of the institute.

Renewables not only swipe money from people’s accounts, but can also add some to them. Employment in Germany’s renewable energy sources sector has seen a 138% growth in the past seven years, and this tendency is bound to continue if Germany keeps on its current path.

Germans lead the way

Only one year after the decision, the full impact of the German phase-out is not yet visible, says Maria Da Graça Carvalho, Portuguese MEP of the Group of the European People’s Party, and a member of the Committee on Industry, Research and Energy. She expects that the move will lower the price of renewables. “We have to make an effort to lower the prices, we cannot continue to have people bear additional burdens.” Portugal also has an eco-tax in effect; the Iberian country tops the league in green energy generation, with 32% of its electricity consumption covered by renewables (in comparison, Germany’s share was 20.3% in 2011), but the eco-tax has become an issue as the economy has deteriorated.

The “Energiewende” (energy transition) is also likely to give a boost to technological development, Carvalho claims, pulling researchers together to work out solutions to make initial investments and production cost-efficient.

European experts do need to figure something out as competition in RE technology from outside Europe is gaining strength. Last year, Saudi Arabia invested around €105 billion in photovoltaics, while China is flooding the European market with cheap solar panels (heavily subsidized by its government). Japan, the United States, the Gulf countries and India are among the biggest rivals. A lot of knowledge that is generated in Europe is commercialized and produced in Asia only to be exported back to Europe. To maintain Germany’s 25% market share by 2025, Fischedick proposes producing higher quality. “We need to have better quality, specific components not for the mass market, but for a highly innovative field. Like systems engineering that is not available in China but only in Germany.”

Developing new technology is less of a problem for Germany. However, promoting energy efficiency has more obstacles as the reluctance of investors to channel money into projects with up to a seven-year ROI or the lobby of energy utilities with assets in nuclear plants slows the process down.  

“Energy efficiency is not a field where results can be shown, where one can say ‘I achieved this in four years’, so there is less push for politicians,” said Carvalho.  

But Merkel probably plans long-term.

KIEMELÉSEK:

Last year, investments in construction of renewable energy installations in Germany totaled around €22.9 billion, of which photovoltaics accounted for €15 billion.

Unlike Japan, which has only just started to work on its energy strategy, Germany has been considering the implications of the Energiewende for 30 years.

“If there is a country able to replace nukes with renewables, Germany is definitely one.”