Power politics in Germany - China Dialogue
Energy

Power politics in Germany

Angela Merkel’s decision to abandon nuclear has been hailed as revolutionary by some – and dismissed as a political stunt by others. Here, Jürgen Maier gives an insider’s view.

The Fukushima nuclear meltdown had its greatest political impact not so much in Japan itself but in faraway Germany, where it has prompted a policy u-turn from Angela Merkel’s ruling conservative coalition. Just a few months before the disaster, Merkel had pushed through parliament a highly controversial law extending the lifetime of the country’s nuclear reactors. In the days and weeks following it, her government made a complete reversal: seven ageing reactors were shut down instantly. Now the plan is to revert to 2022 as the final year that nuclear power is generated in Germany.

Back in 2001, the then-ruling Social DemocraticGreen coalition had already agreed a law limiting the use of nuclear power until 2022, combined with ambitious and highly successful renewable-energy laws – a move at that time opposed by Merkel’s conservative Christian Democrats. Merkel’s “nuclear extension law” last year prompted bruising political battles in the country, caused massive anti-nuclear demonstrations and proved highly controversial even within her own party. There are still legal proceedings pending in the Supreme Court over whether the law was passed unconstitutionally because it was not submitted to the parliament’s opposition-controlled Upper House.

Merkel’s pro-nuclear policies were obviously not the only reason for the massive erosion of popular support for her government. But with her coalition trailing the opposition by almost 20% in the polls and losing regional election after regional election, something had to be done. So far, the new “energy package”, now to be passed through parliament at breakneck speed, is more a package to salvage her plummeting popularity than a well-planned blueprint for a post-nuclear, climate-friendly energy future. The primary aim is to offer the main anti-nuclear opposition parties a “national energy consensus”, with the obvious side-effect that the energy issue is no longer useful as a campaigning battleground for the next federal election, due in 2013.

In substance, the energy package is actually no improvement on the situation a year ago, when Merkel prepared to scrap the 2001 nuclear phase-out law. What many media now portray as a “historic decision” – phasing out nuclear power in 2022 – was the law for almost 10 years, from 2001 to 2010. The political difference is, of course, that in 2001 the Christian Democrats voted against the law. This time around, there is nobody in parliament who wants nuclear power beyond 2022.

Regarding the other components of the energy package, there is not much that deserves the label “historic”. The feed-in conditions for renewables have in part worsened – a hangover from the old plan to extend nuclear and slow down the development of renewables – while the target of sourcing 35% of electricity from renewable sources by 2020 (up from 17% now) has not improved. (In fact, it is lower than the 38.6% originally set out in the German Renewable Energy Action Plan, submitted to the European Union in August 2010 – the figure was cut as part of Merkel’s nuclear-extension plan last year).

And so, if you compare the law in August 2010 to what looks likely to be the law in August 2011, you have 2020 targets with less renewable energy and about the same amount of nuclear – in short, no improvement.

Unlike last summer, there is now a lot of talk about a “coal revival”, with people arguing that climate targets might be the real victims of the so-called “rapid nuclear phase-out”, as fossil fuels are used to fill the generation gap. Politicians in the ruling coalition as well as in the traditionally pro-coal opposition Social Democrats are talking about building new coal-fired power stations, as well as new natural gas-fired plants.

The counter arguments are strong. Coal is a highly expensive investment which depends on high electricity sales for decades to come. In liberalised electricity markets, this is already too high an obstacle for most investors. In a market like Germany, with a distinctive growth of intermittent renewables such as wind and solar that have priority access to the grid, even if coal plants can be operated flexibly enough to fill the gaps left by wind and solar, this would mean fewer and fewer operating hours – and, therefore, lower profits.

The picture is a bit brighter for natural gas, with its low investment costs (but high operating costs). Flexible natural-gas plants can be the ideal backup for wind and solar, both technically as well as economically. But the dependence on Russian natural gas causes political reservations. The only way out of that problem is a significant improvement in the building sector, where better insulation can set free enormous amounts of gas that are now used inefficiently for heating. After years of vacillation in government support for better insulation, this at least looks set to be a steadier component of the government’s energy policy.

But even for natural gas, returns for new investors in the market are not very high – competing against old plants with no capital costs at all in a liberalised market is a tough job, too tough for most investors looking for high returns. So the bet is on what the government will do in coming years to stimulate investment in the fossil-fuel sector – subsidies are by European Union law limited to a maximum of 15% of the investment cost of a power plant, and that is clearly insufficient to make reluctant investors change their minds.

However, experience shows that even the highly regulated energy sector is rather difficult to plan. Germany, and Europe more widely, have consistently met renewable-energy targets years ahead of schedule. If the government manages to avoid messing up the investment dynamic in the renewables sector, the reluctant “energy revolutionaries” in the government may well be proved wrong once again: a higher market share for renewables may already be a reality before the government has worked out the details of subsidy plans for new coal plants with the EU Commission.

This is far from certain, however, and challenges remain. The ruling coalition has tried time and again to limit the expansion of onshore wind power, where the big power companies play no role, and shift investment into the far more expensive offshore sector, where costs are too high for small and medium size investors. New transmission lines must be built to transform a grid built for a small number of big power plants into a new grid for many decentralised power producers. The devil is in the detail, and massive damage can be done to the “energy revolution” by wrong decisions, often too technical to be understood by the public or most members of parliament.

At the same time, even if the current government has done much less than its predecessors for Germany’s energy revolution, it has reluctantly made one thing crystal-clear: there is no way back if you want to stay politically relevant. Nobody is experiencing that hard fact more painfully than the country’s four dominant power companies. Their stock value has crashed 16% to 19% since Fukushima, and more than 50% since 2008. They are now suing the government for abandoning September’s nuclear-extension law. Even the mainstream business papers now gleefully portray their chief executives as “dinosaurs” who will perish if they do not quickly reinvent themselves.

Unlike almost all other countries in the European Union, Germany still has a strong industrial manufacturing base. If Germany manages the way to a post-fossil fuel, post-nuclear future, it should be easy for most other countries to do likewise.

The advantage that Germany already enjoys along this path, however, is enormous: countries like France, with no conclusive energy policy for the future, will feel the heat when in 2022 they have to begin their own nuclear phase-out. By then, more and more of the country’s ageing reactors will have to close and replacing them will be prohibitively expensive. German – and Chinese – manufacturers of wind plants, solar panels, grid technology and other technologies of the energy markets of the twenty-first century are only beginning to see their best days.

Jürgen Maier is director of the NGO Forum on Environment & Development in Germany.

Homepage image by Chris Grodotzki shows an anti-nuclear demonstration in May, at which German NGO Campact released 10,000 balloons.