Frau Merkel won big in Germany’s federal elections on Sunday, but not big enough; and that has negative implications for German energy policy.
Merkel’s third time around as German Chancellor will require a grand coalition that produces the typical lowest common denominator style decision-making that such coalitions bring. That doesn’t bode well for the decisive action required to address Germany’s outstanding energy issues, namely, runaway electricity costs and the future of shale gas development.
Merkel personally won commandingly, of course, with her Christian Democrat conservatives increasing their share of the vote by eight percentage points to around 42 percent, as Der Spiegel reported, but not enough for an absolute majority.
Further, her pro-business, junior coalition partner, the Free Democrats, failed to garner the necessary 5% share of the vote threshold needed to stay in parliament. Absent an absolute majority, that leaves Merkel dependent once again facing the need to join forces with the Left: the Social Democrats, whom she depended for her coalition in her first chancellorship in 2005, or(however remote the chances) the Green Party.
The SPD and its Green Party partners have a majority in the Bundesrat, the second house of parliament where the 16 federal states are represented, as the Financial Times reported Monday, meaning, all major legislative items will have be taken on the basis of compromise.
So how might decision making-by-grand-committee translate for German energy policy? Expect big changes to correct the country’s unwieldy renewable energy policy? Expect shale gas exploration to be given a clean go ahead (without a raft of new regulatory requirements)? I wouldn’t bet on either.
RISING POWER COSTS AND SHALE
Beset with some of Europe’s highest power costs, Germany’s ambitions for a quick and big shift to wind and solar power has become economically unsustainable, as we’ve heard in spades in recent months. High energy prices are not, intrinsically, a bad thing altogether if they occur over time. They help reduce wasteful consumption, which is good both for ultimately keeping a lid on prices and for environmental stewardship, and incentivize investment.
But because of overly generous subsidies to wind and solar generators, German residential power prices have spiked some 70% since 1998, making them among the highest in Europe, behind only Cyprus and Denmark, according to EU data Bloomberg cited in a story last week; in 2014 alone, the renewable surcharge that will be added to consumer power bills is projected to rise 20%.
Last week, Germany’s BDI, which represents the country’s biggest companies who are worried about Germany’s competitive position in Europe and against the U.S. because of high energy costs, called on Merkel to eliminate the costly feed-in tariff subsidy that guarantees wind and solar generators above-market payments for 20 years under Germany’s renewable law.
Thus, what Germans are becoming loathe to realize is that the process of switching off all of the country’s nuclear reactors by 2022 and leaning heavily on wind and solar power to plug the gap is not actually a short term, low-cost endeavor. Ripping up energy infrastructure that took decades to put into place actually requires decades to replace in order to make the switching and transition costs palatable and acceptable across society.
It will also take decades and many multiple billions of euros to build all the needed transmission infrastructure to wheel power from Germany’s north, where all the country’s wind and solar generators have been built, to Germany’s industrial south where the demand is. Ambition requires real-world pragmatism.
Killing the feed-in tariff seems unlikely for various political and economic reasons. For starters, the SDP loves it and so do the Greens, even if they acknowledge costs need to be contained somehow. The Christian Democrats and Social Democrats agree that Germany’s feed-in tariff law needs to be reformed, but they differ sizably on how to do it, as online German solar portal, SolarServer, recently observed.
With the election behind her, Merkel will come off the fence on shale gas, an issue she’s generally been silent on. But even if her pragmatic ways lead to a thumbs up for shale gas, her coalition partners and the German people are bound to have other thoughts. An absolute majority for Merkel and the Christian Democrats would have presented her with a mandate to make the case for shale gas to the German public, without having to placate Leftist coalition partners.
Hydraulic fracturing, the method employed to extract shale gas, has been used in Germany to initiate extraction of conventional but very tough to tap oil deposits since the 1960s – without incident. Yet, despite shale gas risks being obviously manageable based on the industry’s long track record, German public and political opinion on the Left (and even for some on the Right)has been staunchly opposed to shale gas development because of environmental concerns. And the post German election period is unlikely to change that sentiment, at least in the short term.
Squaring those energy issues through the inherent consenusal nature of the grand coalition that emerges in Germany, whatever its composition, will be a very tall task. Lowest common denominator decision-making poses a natural barrier against the type of decisive political actions required to meaningfully iron out Germany’s renewable energy fiasco and to open up a new avenue for energy supply security in shale gas.
Thus, the fortunes of the dirtiest of all fuel sources, coal, will continue to flourish in Germany. Coal remains abundant and cheap — especially as weak wholesale power prices, triggered by subsidized renewables, push more and more pricier gas-fired power generation out of operation. That is why coal’s share in the German power mix is expected to stay above 50%, more than any other source, in the forseeable future, according to industry analysts.
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November 4, 2022