This is the second in a two-part series. The first part can be found here.
The IHS research quoted on 24/7WallStreet.com reckons that high energy prices will cost the German economy 40,000 jobs in the chemicals sector by 2030 under one pricing scenario, while machinery and motor vehicle manufacturing could lose 85,000 and 87,000 jobs. Not only do solar and wind raise costs, they also reduce stability. The rising and setting of the sun can be predicted to seconds, but the intensity of light and KWhrs of power are less reliable. Wind is even worse, leaving generating capacity idle during peak demand one day but contributing the next. Under such circumstances, most countries ensure a base load of supply by maintaining low-cost always-on power sources such as nuclear or coal.
The drive to renewables in Germany should run counter to maintaining a high dependency on coal, but (and some may say hypocritically) Germany has five new coal-fired power plants with a combined capacity of around 4 GW going through their “first fire” trials this summer. Although generators are at pains to stress how very efficient these new plants are, much of Germany’s coal-fired power production uses lignite, the dirtiest form of coal. Overall, Germany’s coal-fired power plants (including lignite) contributed more than 50% to the nation’s electricity demand in the first half of this year, with more coal-fired capacity likely to be commissioned before the first nuclear plant is taken out of service in 2015, Platts tells us.
But if lowering total emissions is the objective of the government’s potentially ruinous investment in renewables, their decision in May 2011 to immediately shut down eight of the country’s 17 nuclear reactors, with the remainder to close before 2022, is bizarre. The decision was taken, so we are told, in response to the Fukushima tsunami, perhaps on the basis that Germany’s reactors could experience the same catastrophe. Before the shutdown of the eight reactors is taken into account, Germany relies on nuclear power for 23% of its electricity generating capacity and 46% of its base-load electricity production. Coal will partially replace that nuclear base load– but at the cost of CO2 emissions, which can presumably only be countered by further renewable investment. According to another Platts article, power generation from natural gas fired plants actually decreased this year to under 10%.
So what does the future hold for Germany’s industrial model? Just as the US is benefiting from an era of low power costs, a promise that has already encouraged significant investment in the petrochemicals, steel, and fertilizers, Germany will be entering an era of ever higher power costs. Ironically, these are power costs that the largest, most energy-intensive industries may continue to avoid, but other parts of the manufacturing sector, dominated by the German Mittlestand, small and medium businesses, plus retail customers, will bear the brunt. This will simply shift costs down the supply chain and directly impact Germany’s ability to compete in the long term. Yes, it will drive innovation and investment as firms fight to survive, but as that innovation leaks out to competitors, high energy costs will become the albatross around the neck of Germany’s ancient mariner. With such a power policy raising costs and reducing stability of power delivery, the country will face a major challenge in the years to come to maintain its position as number two exporter to the world.