The German government is committed to phasing out nuclear and fossil-fuel energy, and no one is currently feeling the fallout of its plans more than builders of power plants.
In the latest worrying development for the sector, Environment Minister Barbara Hendricks, a member of the center-left Social Democratic Party (SPD), has announced that the government will no longer approve state-bank funding for coal-fired power plants, or export credit guarantees for sales overseas.
“In our view, Ms. Hendricks is jeopardizing Germany’s position as a manufacturer of power plants, especially in the fossil fuel sector, with its 36,000 employees, without any benefit for the environment,” Gerd Krieger of the German Engineering Association (VDMA) told Handelsblatt. The industry is now doing its best to avert a worst-case scenario.
“In our view, Ms. Hendricks is jeopardizing Germany's position as a manufacturer of power plants.”
Ms. Hendricks announced the ban on funding from the KfW state bank at the United Nations Climate Summit in New York last month. She said it was part of Germany’s effort to cooperate with other countries in areas of climate and development policy, and that financing for the modernization of existing coal-fired power plant would be “limited” in future. A similar approach is being applied to its export credit guarantees, known as Hermes cover.
The announcement reflects Ms. Hendricks’ intention to contribute to global climate protection efforts. Officials at the German Environment Ministry note that the changes are in keeping with agreements among the member states of the Organization for Economic Cooperation and Development (OECD).
But the moves will have serious repercussions for the industry. “KfW financing and Hermes cover are critical to our overseas business. Our customers depend on us to provide these financing tools, and they represent important factors in their decision-making process,” said Matthias Jochem, of Duisburg-based Mitsubishi Hitachi Power Systems. Alongside Siemens, ABB and Alstom, the company is one of the major providers of power plant technology in Germany.
The announcement reflects Ms. Hendricks' intention to contribute to global climate protection efforts.
Mr. Jochem finds the Environment Ministry’s claim that it is merely implementing OECD criteria unconvincing. “A few of our toughest competitors aren’t constrained by these criteria, because they are not from OECD countries. For instance, when we do business in Eastern Europe today, we are usually contending with two or three competitors from China, who can offer favorable financing packages,” he said.
According to industry insiders, South Korean companies also offer highly attractive financing arrangements that can be used in politically strategic ways.
German companies are highly dependent on their foreign business, because the domestic business has all but collapsed as a result of Germany’s shift toward green energy, known as the Energiewende.
As renewable energy sources force fossil-fuel plants out of the market, many natural gas and coal-fired power plants are now underused. In fact, several dozen power plants are already slated for shutdown. No one in Germany is considering new investment in conventional power plants at this time.
German power plant manufacturers are among the world’s technology leaders. The companies argue that they can make an important contribution to protecting the climate by building more efficient plants in developing countries and emerging economies. They point out that it doesn’t help anyone if contracts are awarded to providers with less sophisticated technology, merely because they can offer more attractive financing models.
The industry is now pinning its hopes on the German Economics Ministry. According to correspondence between industry representatives and experts with the ministry, to which Handelsblatt has gained access, the ministry, headed by Environment Minister Sigmar Gabriel (SPD), is seeking to work out a compromise.
Economics Ministry officials note that they "disagree with the content" of the proposal by the Environment Ministry.
In the correspondence, Economics Ministry officials note that they “disagree with the content” of the proposal by the Environment Ministry. The industry representatives propose a solution in which the KfW would at least fund those projects with which certain efficiency levels are achieved.
The economic wing of the ruling center-right Christian Democratic Union (CDU) has also expressed its concerns. “It is completely clear that many more coal-fired power plants will be built worldwide,” said Michael Fuchs, the deputy CDU parliamentary leader.
“These power plants are coming – no matter what the German Environment Minister does to stand in their way. The only question is whether we build the power plants with innovative German technology, which protects the climate as much as possible, or whether others build them with inferior technology,” he told Handelsblatt.
The author reports on the energy industry from Handelsblatt’s Berlin office. To contact the author: Stratmann@handelsblatt.com