May 9, 2023 - 10:00am

Germany is continuing to make senseless energy decisions. Recently the country’s Minister for the Environment and Nuclear Safety, Steffi Lemke, published an op-ed with the prestigious outlet Project Syndicate in which she praised the end of German nuclear power as an “excellent – indeed, visionary – move”. 

She argues that supposed problems with energy supply are exaggerated, and that the renewed push for renewables will quickly lead to clean and cheap electricity for industries and households. We do not know if her fellow Green party member and Minister for the Economy, Robert Habeck, has read Lemke’s article, but he doesn’t seem to share her optimism. According to a recent proposal from his ministry, German industries face an existential threat due to high electricity prices — caused by Russia’s invasion of Ukraine. 

It is also true, however, that Germany lost 25% of its 2011 electricity production due to the shutdown of 17 nuclear reactors, including the Isar-2 plant which was the world’s most productive nuclear power plant until its closure this April. This decline in production was compensated by natural gas from Russia, and it is no secret that Nord Stream 2 was also planned as a means to keep energy flowing once all reactors went offline. Putin’s invasion and the sabotage of Nord Stream should have altered that equation, but thanks to the Green commitment to ending nuclear power in Germany, it has become so ingrained in the party’s identity that a course correction became impossible. 

Alas, German industry cannot run on ideology, and while Habeck is unwilling to admit the causes of the unfolding economic crisis, at least he is no longer denying its existence. His proposal for a solution is a massive subsidies programme in which the Government would guarantee a fixed price per MW/h until 2030. While this proposal alone would cost €25 to 30 billion, it is unclear if it could end in seven years. This assumption is based on the expansion of renewables, particularly wind and solar, but it does not take into account the planned transition to electrified heating and transportation that will continue to push electricity prices up.

There is also the question of transportation: it is unlikely that the German grid in its current condition could simultaneously handle all the pursued plans of electrification. One German real estate company has already been told that they cannot connect the heat pumps in their buildings, because it would overload the grid.

That the German industry is starting to feel the lack of energy can no longer be denied: growth in the fourth quarter of 2022 came in at a negative 0.5% (after several revisions), and it is likely that the current stagnation (0.0% in the first quarter of 2023) will not survive the first round of revisions. Factory orders for March contracted by 10.7% — the expected value was 2.2%, demonstrating that German analysts might be overestimating the resilience of national industry. Industrial production has also plunged by 3.4% month on month — more than twice the expected 1.5%.

One can sympathise with Habeck’s demand for more industry subsidies, but at the moment Chancellor Scholz is having none of it, believing in “electricity prices that industry and consumers can afford without being permanently subsidised […] We now have to discuss exactly how to get there.”

It was only after Russia invaded Ukraine, Nord Stream was sabotaged and the last nuclear power plant turned off that the Chancellor finally decided to have a discussion about electricity prices. In a sane world, this would have happened before pursuing an energy policy depending on unreliable Russian gas or unreliable renewables. Sadly, it is now too little, too late.