It is ironic that there is so much talk about the Energiewende hurting Germany’s energy-intensive industry, for as Craig Morris points out these firms are the biggest winners in the German energy transition.
With all the talk about deindustrialization, you’d think that energy-intensive industry in neighboring countries would be doing better. In reality, Dutch aluminum firm Aldel declared bankruptcy at the end of 2013 claiming it could not get a direct connection to the German grid fast enough so it could buy much cheaper German electricity.
The conflict is not, however, primarily between foreign firms and German firms. It began as a conflict between large German firms with exemptions to surcharges and SMEs without. While firms that are not exempt are harder hit, it is important to keep in mind that energy does not make up much of their total expenditures. On average, energy only makes up around two percent of total expenses at such companies, according to the German Industry Ministry.
One current proposal is to have energy-intensive firms charged an extra 1.2 cents per kilowatt-hour, which is fair; in 2009, wholesale prices were a full 1.5 cents higher than today. As Bloomberg recently explained, solar and wind have helped bring down wholesale prices for four years in a row. So while we continue to hear complaints about the Energiewende driving away energy-intensive firms, they have actually benefited considerably from lower wholesale prices.
Not surprisingly, energy-intensive firms are not leaving Germany. BASF, the largest chemicals firm in the world, recently invested 10 billion euros at headquarters in Germany, roughly 150 percent more than it is now investing in the US. The company makes all of its electricity from its own natural gas turbine, so it has been completely unaffected by the entire power price discussion. The firm is doing quite well; its EBIT rose by 17 percent to 1.45 billion euros in Q4 alone.
Nonetheless, in an act of preemptive complaining, BASF’s CEO has recently begun criticizing the Energiewende. One figure tossed about is 60 million euros – the amount the firm would allegedly lose annually if it had to pay the full charge for renewable electricity. No one is proposing that BASF pay the full charge, but it’s worth putting that amount into perspective – it’s equivalent to around a half week of corporate profits based on the Q4 figure above.
Fracking lacks support and wouldn’t reduce gas prices in Europe
BASF is not just a buyer of natural gas either. Wintershall, a German gas provider, is a 100 percent subsidiary. The chemicals giant can get its gas from its own subsidiary, so not even gas prices are an issue. When BASF nonetheless calls forshale gas in the name of low prices, it is merely asking to be able to produce gas domestically – a resource that would give the company considerable business for a few decades.
Contrary to claims made by BASF and energy expert Daniel Yergin, shale gas production in Germany would not lower prices. In the US, the lower prices were not spread evenly across the country; rather, they were the result of excessive production in specific areas. But in Europe, gas networks are better developed, and Germany has by far the greatest gas storage capacity of any EU country. German gas firms were even able to sell gas quite profitably to the UK from its reserves in the harsh winter of 2012/13. If Germany (or other Western European countries) started producing shale gas, the result would not be noticeably lower gas prices for consumers, but rather greater profits for gas companies.
In the end, the real conflict is between large firms heavily invested in fossil fuels and communities that do not wish to bear the burden of socialized risks while corporations rake in profits. The energy sector is increasingly turning out to be one in which mom-and-pop shops – homeowners, SMEs, and municipal utilities making their own energy – can handle everything fairly well, thereby marginalizing large energy providers.
The danger is not that industry will not be able to get affordable energy. Increasingly, industry is making its own renewable energy. So are communities and homeowners in Germany. The danger is a smaller market for sellers of conventional energy.
So don’t worry about how the Energiewende will impact the German economy. The Germans are replacing fossil fuel imports with renewables and reducing consumption to improve their economy, not to hurt it. With each year, renewables become more affordable; conventional energy, less so. It will take some time, but within the next 10-20 years – a short timeframe for infrastructure – economies banking on shale gas today will wish they had gone renewable earlier.
Source: Energy Transition. Reproduced with permission.
Update: This story was updated to clarify AcelorMittal’s plans in France.