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Two Energy Revolutions Vie Across the Atlantic

Geoffrey Styles's picture
GSW Strategy Group, LLC

Geoffrey Styles is Managing Director of GSW Strategy Group, LLC, an energy and environmental strategy consulting firm. Since 2002 he has served as a consultant and advisor, helping organizations...

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  • Apr 5, 2013

german energy policyA front-page article in the Washington Post reported on the trend of energy-related investments in the US by European companies.  This is another aspect of the competing energy revolutions I mentioned a few weeks ago, in my comments on President Obama’s State of the Union speech.  Germany’s 2000 Renewable Energy Law introduced feed-in tariffs for wind and solar power that have made that country a global leader in green energy implementation, yet it has also become increasingly apparent that this carefully planned transformation paid insufficient attention to the cost of the new energy sources it was embedding at the heart of the German economy.  The Post describes how leading German firms are looking across the Atlantic to invest where energy is cheaper, thanks to the unplanned, largely unanticipated extraction of hydrocarbons from shale. 

The Ludwigshafen, Germany dateline of the article caught my eye immediately.  Having just returned from a family trip to California with a packet of letters I wrote to my parents during a temporary work assignment in Germany in the early 1980s, I had only yesterday re-read the account of my visit to BASF’s sprawling petrochemicals complex there.  I recall being greatly impressed by the site, which dwarfed the Los Angeles refinery at which I worked at the time. The BASF facility was part of the post-war boom–the Wirtschaftswunder–that made Germany the economic and industrial center of Europe, where it remains today two decades after reunification and a decade after relinquishing its cherished Deutchmark for the Euro.  Now the company apparently wonders whether Ludwigshafen can remain competitive in a global market dominated by US shale gas.

The divergence of energy prices that worries German industrialists is the result of conscious choices made by that country’s government and a set of developments that occurred here largely out of sight of the US government, while its attention was focused elsewhere. In the same decade in which production from shale gas deposits in Arkansas, Louisiana, Oklahoma, Pennsylvania and Texas–output that now sets the price of both gas and electricity in much of the US–was gathering momentum, the German government was negotiating for more imported natural gas from Russia, via a pipeline built by a company led by a former German Chancellor.  It also set up a mechanism for consumers of electricity to fund the payment of up to $0.70 per kilowatt-hour that was necessary to support the initial solar power installations in one of the world’s least sunny countries.

German solar tariffs have declined significantly since then, thanks in part to ruinous competition with China-based solar manufacturers.  However, in the aftermath of the nuclear accident at Fukushima, the German government agreed to retire the country’s nuclear power plants, which supplied 22% of its electricity in  2010.  New solar might soon be cheaper than new nuclear capacity, but there aren’t many energy sources cheaper than an existing, fully-depreciated nuclear reactor, even after allowing for waste disposal and site cleanup.  As a consequence of these policies, German managers such as those at BASF face natural gas prices that are a multiple of those here, along with the prospect of steadily rising electricity rates.  The option to offshore production must seem as obvious for them as it did for US companies in 2005, when US natural gas prices reached $10 per million BTUs.

Of course this comparison is just a snapshot in time; the competition between these two energy revolutions will likely ebb and flow for years.  However, the current energy divergence between Germany and the US should remind us that the cost of energy remains a very important economic parameter, even in highly developed countries.  Measures that inevitably raise it are very likely to bring adverse consequences, no matter how well-intended or carefully justified they might seem.  That’s worth considering here, as well, when Congress debates new energy taxes and the administration proposes new rules that could raise energy costs or constrain output. 

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I K's picture
I K on Apr 5, 2013

Germanys big mistake was to embrace solar over wind and nuclear. She has installed in excess of 30GW of solar now, at a cost in the region of 100B euros but all those panels wont even produce 30TWh annually.

The nukes they are going to close were producing 150TWh annually not long ago.  Even wind would have been a lot better than solar in Germany. The same sum of investment in wind would have produced ~3x as much energy. Although for Germany itself its probably been a bad deal for the rest of the world, in time, it may mean a new energy source cheaper than coal assuming they can one day get the price below $1/watt fully installed (Ideally below $0.5/watt installed)

Geoffrey Styles's picture
Geoffrey Styles on Apr 5, 2013

I K,

Your comment illustrates what can happen when policy makers use the wrong metrics, either for activity or outcomes.  Relying on capacity data made sense when the generating technologies being compared all had utilization rates in the 70-90% range, but it turns out to be an extremely poor gauge of the contribution of renewable energy installations that range from 10-40% utilization.  The result is not just over-investment in low-output installations, but destabilizing volatility in aggregate output. 

I concur that the rest of us will benefit from Germany’s choice, however it turns out for them. 

Roger Faulkner's picture
Roger Faulkner on Apr 5, 2013

I believe solar won out over wind in Germany because if a desire for a diffuse energy system. I met with Hermann Koch of Siemens in 2011, and even though his research focus is BIG ELECTRICITY, he was one of the first investors in solar. I hope that Germany helped the world by “priming the pump” on solar.

Rick Engebretson's picture
Rick Engebretson on Apr 5, 2013

A lot has happened since the fall of the Berlin Wall, Geoff.

Germany has become a technology superstar. Russia, now a member of the WTO, can ship fuels to Germany more easily than Canada can ship tar to south Texas.

Perhaps they see their economic strength producing and exporting high value added products, much like Japan, South Korea, and Taiwan did before China developed so aggressively.

The US oil industry has reason to crow about their extraction developments. But I think we have let slip away far too much technology industry to an unstable world to be too comfortable.

Geoffrey Styles's picture
Geoffrey Styles on Apr 5, 2013


This post may have referenced a 1980s visit to Germany, but my perspective is hardly stuck there. One gauge of the effectiveness of Germany’s solar plans–motivated as much by industrial policy as environmental concerns–is the long tally of failed German solar firms.  Last month’s announced solar exit by Bosch, one of Germany’s technology superstars, is hard to parse as an endorsement of the EEG’s outcome to date.

Rick Engebretson's picture
Rick Engebretson on Apr 5, 2013

Your perspective is valuable to all on TEC, Geoff. Pardon any offense.

Lately I’ve been using the latest openSuse Linux to adapt a windowing toolkit, XForms, from C to Freepascal for automation. All are European developments derived from US innovation. Linux from Unix, XForms from MIT and DEC. FreePascal now compiles on CPU systems from supercomputers to iPhones. It is all German and/or Dutch. The simple WindowManager I use is from a Russian because the standard WM (KDE from Norway) is overwhelming. I sincerely wish I could find some Americans to share a dialog with. I can do lists and data, too.

As a Biophysicist who first pushed nano stuff, then the internet, then Ag. biofuel, then recycling plastic for manure methane (all before 1987), I gave up when I got grief for trying to recycle plastic to contain manure.

These days, it simply isn’t going to work just being the best diggers in the world. But it does help.

Bill Woods's picture
Bill Woods on Apr 5, 2013

“… all those panels wont even produce 30TWh annually.”

Well, they’ll probably reach that level. In 2012, they produced 27.9 TW-h; over the course of the year capacity grew from 24 to 32 GW.

I K's picture
I K on Apr 5, 2013

What is your point?

Come 2022 she will probably be producing in the region of 150TWh from wind + solar if she is lucky, while at the same time producing 150TWh less from nuclear. The result will be that she will be just as reliant on fossil fuels in 2022 as she was in 2000. And at a cost of ~500B euros..for just 25% of eletricity

Nathan Wilson's picture
Nathan Wilson on Apr 6, 2013

Don’t forget that for solar to replace coal, the cost of 15 hours of energy storage would also have to fall to something like $1/Watt (now it is about $3/W using lead-acid batteries, somewhat less and very site-dependent with pumped-hydro).  Even so, solar would only be competative near a desert.

I K's picture
I K on Apr 6, 2013

You don’t need storage until at least 10-30% of your electricity is from solar (assuming no wind or nuclear in the grid) and varies by location of PV panels and demand profile of grid.

If solar gets cheap enough you can just reject some of the power when you have too rather than try to store it. Or use it for low value things like heating electric storage water tanks.

The good thing about solar is, if it gets cheap enough, you can build a global super grid with solar output at a very stable constant.  For arguments sake imagine a 1GWp farm every 6 seconds of time zone. So you would have 14,400 x 1GW solar PV farms all connected to a big DC grid. Would produce nearly 2.9TW of “base load” constant electricity. That would provide more than all the worlds current electricity in a very useable way. Perhaps its doable if solar falls below $0.5/Wp in sunny areas and almost certain to provide huge huge quantities of power at prices below $0.3/Wp even in low sunshine areas.

Bill Woods's picture
Bill Woods on Apr 6, 2013

Just that ’30 TW-h’ underrates the potential for German solar power. I expect it will reach that level this year. And I wouldn’t be surprised if by 2022 it reached 50 TW-h per year. Of course, a large fraction of that would have to be stored, exported, … or simply discarded.

I K's picture
I K on Apr 6, 2013

50TWh from solar is possible maybe even 60TWh but that is still less than 10% of electricity demand and electricity is only about 30-40% of a nations total energy demands.

10% of 30-40% is only 3-4%. I doubt anyone who hopes of a green “energy revolution” was thinking only 3-4% from solar.

It has been long clear that variable uncontrollable energy sources cant make up a large portion of supply. This is starting to dawn on the Germans.

So what next (after about 2020-2030)? Either she joins up to a global super grid or she abandons the green revolution and either accepts fossil fuels or goes nuclear. IMO all 3 are possible

David Lewis's picture
David Lewis on Apr 8, 2013

Household electricity, US cents/kwhr

  • US average   0.1147
  • France         0.1855
  • Germany   0.3378 

Industrial electricity, US cents/kWhr

  • US average   0.0645
  • France  0.1010
  • Germany  0.1484

US data source: U.S. Energy Information Administration.   EU data: Europe’s Energy Portal  (Euro conversion factor to USD = 1.3)

It shows what you can do if you adopt no national climate policy. Americans are supposed to be proud of this?

Geoffrey Styles's picture
Geoffrey Styles on Apr 8, 2013


The comparisons are accurate, but attributing the differences to weak US climate policy isn’t.  Even at $50/ton of CO2–far higher than the peak level of the European emissions trading mechanism–carbon allowances would only account for $0.05/kWh on a 100% coal-fired mix. The implied cost per ton of German solar as carbon abatement is higher than that, due to their high FIT levels and very low average insolation.  So it’s not even good climate policy, let alone good industrial policy.

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