Germany’s International Competitiveness Threatened by Rising German Energy Prices and Low-Cost Energy in the United States,

  Germany’s International Competitiveness Threatened by Rising German Energy
  Prices and Low-Cost Energy in the United States, IHS Study Says

Rethinking the Energiewende in light of rising costs, implementation
challenges and global shifts in energy resources

Business Wire

BERLIN -- October 9, 2013

Rising electricity costs pose a growing challenge to Germany’s export-based
economy, says a major new study by global analytics firm IHS (NYSE: IHS). The
country faces important choices about the pace of renewables development—and
how it should be funded—that will have a significant impact on economic growth
and Germany’s ability to remain competitive in the global economy.

The IHS study, called The Challenge to Germany’s Global Competitiveness in a
New Energy World, examines the links among Germany’s energy costs,
competitiveness and economic performance. The study concludes that
transitioning to a lower carbon energy policy can be compatible with
maintaining German global competitiveness, and lays out a competitive energy
scenario that includes a more moderate pace of renewables development and an
increased role for thermal power generation, especially natural gas.

“International competitiveness is particularly important to Germany and its
standard of living, owing to the country’s high dependence on exports,” the
study says. “Exports of goods and services made up 52 percent of German gross
domestic product (GDP) in 2012. Germany’s ability to maintain its
international competitiveness is not just an issue for some companies and some
sectors. It will affect the entire economy, the German populace, and the
fiscal position of the German state.”

Rising electricity prices in Germany and lower energy prices in North America
are making German products less competitive and forcing firms to relocate to
other countries, the study says. This “investment leakage” creates a ripple
effect in Germany’s highly integrated and specialized economy as other
companies in the supply chain follow suit and move out of the country, slowing
overall economic growth and negatively impacting the standard of living of all
households.

“Rising electricity costs present a challenge similar to one Germany faced a
decade ago from a rigid labor market,” says Ralf Wiegert, Director, IHS
Economics. “Solving that problem was key to enabling Germany’s formidable
export performance in the years since. Today, a rigid and inefficiently
organized energy market with rising costs—which have strikingly jumped nearly
10 percent in the past 12 months—puts Germany’s international competitiveness,
and thus its economy, at risk.”

The study examines potential paths forward for the German economy by comparing
economic impacts across two different energy price scenarios.

  *The high-price scenario models the rapid development of renewables and the
    removal of exemptions from the Erneuerbare Energien Gesetz (EEG) — the
    Renewable Energy Act — surcharge and tax discounts that have partially
    shielded energy-intensive German industry from the rising cost of
    renewables support.
  *The competitive energy scenario considers a more moderate pace of
    renewables development and an increased role for thermal power generation,
    especially natural gas. Industrial exemptions are maintained in this
    scenario.

The contrast between these two potential future paths demonstrates that the
high-price scenario leads to considerable economic losses—with increases to
electricity prices for large industrial consumers peaking at an increase of
nearly 70 percent—while the competitive energy scenario generates both
macroeconomic growth and industrial growth for the entire economy.

Significant differences in economic performance between the two scenarios
include:

  *Germany’s 2030 GDP is projected at €211 billion, or 6.2 percent, higher in
    the competitive energy scenario than the high-price scenario.
  *Personal income is projected to be 6.3 percent higher and the average
    resident earns €1,590 more per year in 2030 under the competitive energy
    scenario compared to the high-price scenario.
  *The energy-intensive chemicals sector is projected to see only 0.7 percent
    growth in annual output under the high-price scenario. It grows at more
    than twice the pace – 1.8 percent – under the competitive energy scenario
    from 2015 through 2030 and is projected to contribute 40,000 more jobs in
    2030 than in the high-price scenario.
  *Machinery and motor vehicles industries also benefit from the competitive
    energy scenario, as their supply costs decrease and their suppliers are
    not forced to relocate relative to the high-price scenario. The result is
    a projected additional output in 2030 between the two scenarios of €43
    billion and €65 billion for the machinery and motor vehicle sectors
    respectively — equal to 87,000 and 85,000 more jobs for each industry
    relative to the high-price scenario alternative.

Under the competitive energy scenario, total power costs are lowered as the
generation mix focuses primarily on mature renewable and thermal generation
technologies. Offshore wind, the primary future policy cost driver, would see
more moderate installation rates. Between 2012 and 2030, this would enable
reduced overall system costs of almost €85 billion (in real 2013 euros). A mix
of mature renewables such as onshore wind and solar would be accompanied by a
cost effective mix and utilization of thermal generation from existing coal
and gas capacity as well as new natural gas facilities.

In the competitive energy scenario, Germany still meets its 2020 target of 35
percent share for renewables and the share of renewables would grow to nearly
40 percent by 2030 (as opposed to the current target of 50 percent). Carbon
dioxide (CO[2]) [ ]emissions in the energy sector would continue to decrease,
albeit at a slower rate compared to the high-price scenario and not meet the
targets.

Household energy prices are lower under both scenarios relative to today’s
levels. Through 2022, electricity bills are on average 1 percent higher under
the competitive energy scenario compared to the high-price scenario. However,
under the competitive energy scenario all consumers benefit from progressively
higher disposable income (reaching approximately €1385 by 2022) due to
improved German competitiveness.

The study concludes that transitioning to a lower carbon energy policy can be
compatible with maintaining German competitiveness. Key elements of such a
transition include:

  *Maintaining the current EEG exemptions to avoid additional costs for
    energy-intensive industries: this has positive macroeconomic effects not
    just for these exempt consumers, but for the entire economy, as measured
    by additions to GDP, employment, personal income and government revenues.
  *Balancing overall system costs and CO[2] emissions when deciding on a
    suitable mix of power generation: lower system costs come at the expense
    of higher CO[2] emissions, but investing in gas-fired power generation can
    minimize this trade-off.
  *Expanding gas-fired power capacity as a bridging technology to Germany’s
    low-carbon future. As renewable technologies mature, gas would move into a
    back-up role, ensuring the security of Germany’s power supply.

About The Report

The Challenge to Germany’s Global Competitiveness in a New Energy World is a
two-volume series examining German competitiveness. In volume 1, IHS examines
the links among Germany’s energy costs, competitiveness and economic
performance. The study considers alternative paths to transitioning to a lower
carbon energy policy and quantifies the effects on German global
competitiveness. This research was supported by the Verband der Chemischen
Industrie (VCI). Additional sponsors were Bundesverband der Deutschen
Industrie (BDI), Wirtschaftsverband Erdöl- und Erdgasgewinnung, BASF, Bayer,
BP, Central European Petroleum, Dow, Evonik, ExxonMobil, Linde, Total,
Vestolit, and Wacker. IHS is exclusively responsible for all analysis and
content.

A forthcoming second phase of this study will provide further detail about
Germany’s energy mix and its role in economic growth, specifically the role
that increased European gas production could play in moving Germany toward a
low-cost, low-carbon, economically competitive future.

Download The Challenge to Germany’s Global Competitiveness in a New Energy
World at:  www.ihs.com/GCS

About IHS (www.ihs.com)

IHS Inc. (NYSE: IHS) is the leading source of information, insight and
analytics in critical areas that shape today’s global economic and business
landscape. Businesses and governments in more than 165 countries around the
globe rely on the comprehensive content, expert independent analysis and
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has been in business since 1959 and is committed to sustainable, profitable
growth. With global headquarters in Denver, Colorado, USA and German offices
in Frankfurt, Dusseldorf, and Munich, IHS currently employs approximately
8,000 people in 31 countries around the world. IHS has acquired more than 60
companies in the last decade including companies with world-leading expertise
in macroeconomics and energy.

IHS is a registered trademark of IHS Inc. All other company and product names
may be trademarks of their respective owners. Copyright © 2013 IHS Inc. All
rights reserved.

Contact:

IHS
Jeff Marn, +1-202-463-8213
Jeff.marn@ihs.com
or
IHS Press Desk
+1-303-305-8021
press@ihs.com
 
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