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Germany’s Renewable Energy Plans Hurt By Bad Policies

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  • Why it matters

    Why it matters

    Short-sighted regulations hurt the ability of energy providers to make profits as they accumulate greater debts in an unstable market.

  • Facts

    Facts

    • About €15 billion ($19.9 billion) is needed annually to pay for Germany’s transition to renewable energy, not including the expansion of the power grid.
    • More gas-fired power plants will be needed in the future to compensate for fluctuations in solar- and wind-generated energy.
    • Converting to renewable energy requires a new and smarter linkage of power production, storage and consumption.
  • Audio

    Audio

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With its sweeping transition to new energy sources, Germany is moving beyond nuclear and coal-burning power plants. In the future, our country’s electricity supply will be more efficient, decentralized and, for the most part, renewable.

But the cost is enormous – €15 billion, or about $19.9 billion, invested annually in renewable energy alone until 2020. Add to that the cost of expanding transmission and distribution grids. In order to cope with all these investments, the energy industry will have to borrow a great deal of outside capital.

Large-scale borrowing is nothing unusual for the energy industry. Comparisons to other industries show the utilities sector has always been relatively high in debt. For many years, it wasn’t a problem. Stable business conditions made it possible to go into debt for long-term investments.

But Germany’s current energy policies don’t make for a stable business climate. In power generation, the disorganized jumble of market economy elements and government subsidies make it ever more difficult to make profits.

The changes also affect many public utilities. In recent years, they invested in highly efficient gas-fired power plants. These plants are expensive and don’t run profitably. But the fact is: Flexible gas-fired power plants will be needed even more in the future to compensate for fluctuations in the production of solar- and wind-generated energy.

There are also problems with inadequate power grids that need to be upgraded. But current regulatory policies actually reward asset erosion along the network that delivers electricity from suppliers to customers. Network operators that take care of their assets find themselves in a worse business position than those that don’t. This applies to public utilities in particular. As guarantors of efficient municipal energy infrastructure, they can’t accept reductions in the quality of power grids.

This will have serious consequences. Because of bad regulatory policies, it is harder for energy providers to make profit and there is the looming problem of greater debts.

This is also alarming in context of the economy overall. Converting to renewable energy demands a new and smarter linkage of decentralized production, storage and consumption. As regional providers, municipal utilities have the right structure, the necessary know-how and support from consumers to carry out this transition at a relatively low cost to the German economy. If public utilities drop out as investors on a permanent basis, these costs could increase.

Germany’s plan to change over to renewable energy systems could be derailed if public utilities are not able to invest in it. The energy policy framework needs further reform so this doesn’t happen. Only then can renewable energies be successfully integrated.

 

Dr. Constantin H. Alsheimer is chairman of the board of Mainova AG in Frankfurt, one of Germany’s largest regional energy suppliers. He can be reached at gastautor@handelsblatt.com

 

 

 

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