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Renewable energy policy in Germany could crush economy, study finds

02.27.2014  | 

Reengineering Germany’s Energiewende would secure a competitive path to a low-carbon future while generating 1 million more jobs, €138 billion (B) in additional GDP, according to a new IHS study.

Keywords: [Fossil fuels] [electricity] [natural gas] [GPD] [shale gas] [coal] [manufacturing] [wind] [solar]

Germany’s present energy policy of rapid renewables deployment under the Energiewende has resulted in higher energy costs that will place Germany in a less competitive position in the world economy, says a new study by IHS, A More Competitive Energiewende: Securing Germany's Global Competitiveness in a New Energy World.

The study examines German competitiveness in a world of changed shale gas development. The study considers alternative paths to transitioning to a lower-carbon energy policy, the role for natural gas in achieve these objectives and quantifies the effects on German global competitiveness. The study concludes that greenhouse gas emissions (GHG) have increased.

The study says that a rebalanced approach could return the Energiewende to its original goal of providing a competitive transition to a low-carbon economy while generating substantial benefits to Germany’s gross domestic product (GDP), jobs, income, trade position and government revenues.

The IHS study compares the effects of remaining on the present course of the Energiewende with an alternative, lower-cost power system focused on mature renewables (such as onshore wind and solar) and a greater role for domestically-produced natural gas.

The economic benefits of a lower-cost power system compared to the Energiewende’s would include:

Gross domestic product: A GDP increase of nearly €28 B, or 0.9%, in 2020, and €85 B, or 2.5%, by 2025. The impact on GDP is even larger in the longer term, reaching €138 B, or 3.4%, by 2040.

Employment: A net total employment increase of 207,000, or 0.5%, in 2020, and 559,000, or 1.3%, by 2025. The economy would support nearly 1 million additional jobs by 2040. The total job creation would more than offset the slower pace of employment growth in the “green” industries.

Disposable income: Average disposable income increases by €123 per person in 2020 and by €847 per person in 2040 as the economic benefits resulting from moving towards a more competitive Energiewende extend to virtually all the citizens of Germany.

Government revenues: Nearly €40 B in additional annual revenues by 2030, rising to €68 B by 2040 resulting from increasing economic activity and royalties from gas production.

Manufacturing exports: Net exports for the manufacturing sector will rise by €36 B in 2030 and €63 B by 2040—a 20% increase — as lower energy prices support German manufacturing’s competitiveness.

“Germany’s current path of increasingly high-cost energy will make the country less competitive in the world economy, penalize Germany in terms of jobs and industrial investment, and impose a significant cost on the overall economy and household income,” said IHS vice chairman and Pulitzer Prize-winning author, Daniel Yergin. “But there is an alternative path that can get the Energiewende back on the course originally intended, which will allow Germany to retain much of the decarbonization benefit created by adding renewables while reducing overall costs.”

The study notes that, while Germany has experienced increasingly high energy costs due to the rapid pace of renewables deployment, its GHG emissions have risen. The higher GHG emissions are the result from a greater reliance on coal-fired power, the phasing out of nuclear power and slow progress on energy efficiency. The power-sector emissions are moving out of line with economy-wide carbon dioxide (CO2) CO2 reduction targets.

At the same time, electricity prices, which were already higher by international standards and have been increasing at a greater rate than in competing markets, are responsible for €52 B in net export losses over the past five years. The higher energy costs will make Germany’s highly integrated industrial sector less competitive, with negative impacts on the wider economy.

“Germany’s supply chains and industry clusters are some of the most sophisticated in the world and connect energy-intensive and non-energy-intensive businesses alike,” said Ralf Wiegert, director, IHS Economics. “To argue that that industrial policy should focus on the ‘greener,’ less energy-intensive industries and accept or even welcome the exit of energy-intensive industries from Germany, misses the point. Policy that places Germany’s energy-intensive industry at a disadvantage to global peers will have broad implications across the entire domestic industrial landscape and Germany’s overall economy.”

The study notes that North America has become a much more competitive location for manufacturing and exporting due to two factors—Germany’s high electricity prices and the US shale gas revolution has reduced natural gas prices to one-third the level of Germany.

A more competitive Energiewende would reduce the cumulative cost of the power system by €125 B from 2014-2040, mostly through a reduction in offshore wind deployment. It would include an increased role for domestic natural gas, which produces half the CO2 emissions of coal, to mitigate increases in GHG emissions. The benefits of reduced capital spending would be partially offset by increased spending on fuel and emissions.

GHG emissions would remain at levels near that of the present policy framework, with a net increase of around 10% from 2014 to 2040. Without an increased role for domestic natural gas, GHG emissions from a lower-cost power system would be nearly 20% higher, the study says.

Development of local gas supply in Germany and elsewhere in the EU would boost energy security and reduce European gas prices by as much as 20%, the study says. Lower priced gas would make lower-carbon, gas-fired power generation more economic than coal.

IHS estimates that more than 20 billion cubic meters (Bcm) per year of shale gas production is possible in Germany by 2030, with production peaking at more than 25 Bcm by mid-decade. Germany’s resources could support domestic natural gas production through the 2030s that would be equivalent to more than 35% of current German gas consumption.

Total shale gas production in the 28 EU countries could exceed 70 Bcm in 2030 and rise to nearly 90 Bcm in 2040, a similar level to Norwegian pipeline exports to the EU and more than two-thirds of Russian exports to the EU last year, the study finds.

Shale gas development would also be a key contributor to the increased economic benefits identified in the study, accounting for about 77% of the increase in GDP in 2020 and nearly 44% of the GDP increase in 2040.

The study also examines the role of rebates from the Erneuerbare Energien Gesetz (EEG) — the Renewable Energy Act — surcharge that have partially shielded energy-intensive German industry from the rising cost of renewables support. The study finds that maintaining the existing EEG rebates for energy-intensive customers is essential to recognizing the economic benefits of a more competitive Energiewende.

The study finds that if the rebates were phased out, the impact would be immediate and significant. Customers that benefit from the maximum EEG rebates could see electricity prices jump by more than 65% in 2014. German GDP would decrease by 5% by 2020, 1.1 million jobs—half of that in industry— would be lost, and real disposable income for residential customers would decrease by more than €500 per year.

Policy

Energiewende is Germany’s politically supervised shift in direction from nuclear and fossil fuels to renewable sources of energy. This idea of a changing power path helps explain the literal translation: "energy turn." This transition is directed at increasing security and ensuring that Germany creates a greater share of its own power in the future.

About The Report

The research was supported by the Verband der Chemischen Industrie (VCI). Additional support came from Bundesverband der Deutschen Industrie (BDI), Wirtschaftsverband Erdöl- und Erdgasgewinnung, BASF, Bayer, BP, Central European Petroleum, Dow, Evonik, ExxonMobil, Linde, Total, Vestolit, and Wacker. IHS is exclusively responsible for all analysis and content.



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