Power Play

Germany's Energy-Sapping Obsession

Oil field FOR DISTORT dpa_effect
Oil's future has become even more unpredictable.
  • Why it matters

    Why it matters

    The plummeting cost of oil can undermine the savings from Germany’s switch to renewable energy.

  • Facts

    Facts

    • Germany is heavily subsidizing the construction of solar and wind energy plants.
    • The price of crude oil has fallen by more than half over the last six months.
    • The price drop is undermining the profitability of alternative energy investments.
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  • Audio

    Audio

  • Pdf

Across Europe and in all advanced industrial countries – even in China – people are working on the reduction of carbon dioxide emissions. That is obviously a good thing. But nowhere in the world is this goal being pursued as rigorously as in Germany.

What happens when you leave the herd and head off in the wrong direction, is something that we will only begin to understand in the coming months and years.

When it comes to low energy prices, Americans are leading the race, and the gap between the prices in the United States and in Germany will become even greater.

In Germany, the price of electricity will remain comparatively high in the long-term. It is a good argument for energy intensive sectors to invest on the other side of the Atlantic and not in Europe, at least not in Germany.

In the past few months, economic representatives have been constantly referring to the fact that sectors with high energy usage in Germany have been investing less than they write off for some years now. In other words, they have used up their capital. This development will now be accelerated. 

With the fast growing share of renewable energies, the costs of running the system in Germany will rise on the whole in the next years. This price rise was not curbed by the reform of the Renewable Energy Act (EEG) last year. Renewable energies expansion is not racing ahead so quickly anymore.

If the OPEC countries decide to keep their supply quotas high and prices low, drilling for oil with costly production methods will no longer be worth it anymore in the United States.

So, whoever declares the reduction of CO2 emissions to be the unilaterally determined goal of its energy policies should put the brakes on the expansion of the renewable energies and instead, intervene in a different political area. Because replacing coal power stations through the expansion of solar power to avoid CO2 emissions, for example, is astronomically expensive.

In contrast, cutting CO2 emissions by increasing energy efficiency creates savings at a fraction of the cost.

Grotesquely, the drop in oil prices now means that a rise in energy efficiency as a cost-effective variant of CO2-reduction is losing political meaning. Already, horsepower-hungry Americans are rushing for dumb, inefficient monster-cars bursting with power – who wants to keep saving, if oil is streaming out of full pipes?

The Germans could also get the notion of easing up on increasing their energy efficiency. Such shortsightedness would surely come back to bite them in the next oil price boom.

If the OPEC countries decide to keep their supply quotas high and prices low, drilling for oil with costly production methods will no longer be worth it anymore in the United States. The U.S. oil boom will come to an abrupt end. Then OPEC will have shaken off its new, annoying competitor and will be free to drive the prices up again.

 

German Energy shift-01 (3)

 

On the other hand, it seems reasonable to force efforts to increase energy efficiency. The German government has not been particularly ambitious on this front so far. There has been a plan from the economics ministry and a plan by the environment ministry. Past experience shows these papers quickly end up forgotten.

That is a tragedy, because the federal government has been lagging behind reaching the efficiency goal for years anyway, and now it is criminally neglecting the economically more cost-effective variant of CO2 reduction.

On the other hand, the expansion of renewable energies proceeds against all economic good sense, in spite of the fact that electricity from renewable sources can no longer be integrated into the grid.

The drop in oil prices simply exposes the weaknesses of the energy transition policies.

 

 To contact the author: stratmann@handelsblatt.com.

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