Merkel's Nuclear Plan Earns Derision as Clean Power Costs Climb

The solar panels on Tommy Clever’s house in Berlin generate enough electricity on sunny days to run his washing machine, vacuum cleaner and other appliances, with a bit left over to help power the region’s factories and offices.

Clever likes the arrangement. He gets 51 euro cents ($0.68) per kilowatt-hour for any electricity his solar rooftop feeds back into the grid, which is about 10 times the wholesale price paid to coal or nuclear plant owners. The payment rate, mandated by the government, stays in effect for 20 years and gives him an annual return of about 9 percent on his investment in the photovoltaic setup, Bloomberg Markets magazine reports in its February issue.

“It’s been better than putting money in the bank,” the 39-year-old environmental consultant says.

Such subsidies have made Germany a green-power success story. It gets more than 17 percent of its electricity from wind turbines, solar arrays and other renewable resources, up from about 6 percent a decade ago, according to the German Renewable Energy Federation. The country has adopted new clean technologies more quickly than any nation except Denmark, its smaller neighbor to the north; it has more wind turbines installed than any country other than the U.S. and China and the most solar power generation in the world.

What’s more, the renewable-energy industry has been one of the biggest sources of new jobs in Germany in the past decade and has been boosting exports.

Nuclear Extension

Now, Chancellor Angela Merkel is expressing concern that the cost might hurt the competitiveness of German industry. To hold power prices in check, she plans to keep existing nuclear plants in the mix for longer, abandoning a deadline set by the previous government to retire all of the country’s reactors by 2022. Environmentalists, political opponents and even some people within her own party say Merkel is backpedaling from Germany’s green-power goals.

“Her policy is all about delaying an important transition to renewable energy that Germany’s future prosperity will depend on,” says Matthias Adolf, a lecturer on international relations and energy at Berlin’s Free University.

The government enacted the new program for the electricity industry in September. It was the first major energy initiative Merkel had put forward since taking power in 2005 and the first change of course since renewable-power legislation was passed in 2000.

Price Supports

While Merkel preserved the preferential pricing, known as a feed-in tariff, that has encouraged the installation of solar panels such as Clever’s and the construction of wind farms, her critics say she’s setting the incentives too low. Tariffs for new projects can be adjusted by the government as a way of controlling the pace of new facility construction and reacting to changes in the relative costs of renewable energy versus fossil fuels.

The price supports for solar power were cut three times in 2010. The above-market payments to wind and solar generators are passed through to consumers in their electricity bills.

Merkel says her plan strikes a balance, protecting German manufacturers such as Siemens AG and Volkswagen AG from rising electricity costs that might make their exports noncompetitive, while also continuing to add green power.

“I think we can say our energy system will be the most efficient and environmentally friendly in the world,” Merkel said on Sept. 6.

Juergen Trittin, a leader of the Green Party, which was a partner in the government when the push for renewables began in earnest a decade ago, says German job growth depends on the continued expansion of wind and solar.

Green Power Jobs

“We should be getting out of nuclear power faster and relying more on renewable energy, which has led us to an export surplus,” he said in a speech to the country’s parliament in October.

About 340,000 workers in Germany are employed in the making and installation of wind turbines, solar panels and other clean- energy equipment. That workforce has doubled since 2004, according to the environment ministry. The robust domestic market for wind and solar has helped German companies such as Siemens develop clean technologies that sell around the world.

Still, despite the growth in exports, employment in Germany’s clean-energy businesses remains sensitive to changes in government policy, says Claudia Kemfert, head of the energy and environment department at DIW Berlin, an economic research institute.

‘Right Policy’

“Supporting renewables is the right policy from an economic perspective, despite the high initial costs,” Kemfert says. “The renewable industry is the only industry in Germany that reported an increase in revenue over the past three years.”

In addition to the jobs argument, Kemfert and others say Germany will benefit as renewables replace coal, gas and oil that are mostly imported and subject to price swings.

Environment Minister Norbert Roettgen says expansion of wind and solar will provide Germany with cheap power by mid- century, when fossil fuels become scarce and expensive. Roettgen, from Merkel’s Christian Democratic Union, wanted the energy plan to tilt more in favor of renewables. Economy Minister Rainer Bruederle and members of his Free Democratic Party lobbied for a longer life span for the country’s nuclear plants and more-aggressive cuts in the preferential pricing for clean-energy installations.

Merkel’s plan includes a goal of adding as much as 25,000 megawatts of wind turbines in the North Sea and the Baltic. That would be a lot of generation: The 17 nuclear plants in operation in Germany today have a total capacity of about 21,500 megawatts and produce almost a quarter of the country’s power.

Offshore Wind

Adding offshore wind facilities would represent a next step for Germany, which lags behind Denmark and the U.K. in this category. The giant turbines anchored to the seabed require a bigger upfront investment -- and the likely involvement of large power producers such as RWE AG. Critics of Merkel’s plan question whether it provides sufficient support to get these facilities built.

Nuclear power is unpopular in Germany, even as neighboring France relies on reactors for three-quarters of its electricity and is building more. The 1986 explosion and fire at the Chernobyl plant in Ukraine, which sent up a plume of radiation that reached much of Europe, turned public opinion against the technology.

Only about a third of Germans believe that delaying the retirement of nuclear units is necessary to help with the transition to renewables, according to a survey commissioned by environmental group Greenpeace and conducted by TNS Emnid.

Nuclear, No Thanks

“We don’t need a nuclear extension,” says Olaf Hohmeyer, a professor of energy economics at the University of Flensburg. “It’s merely a license to print money.”

Hohmeyer says Germany could generate all of its power using renewables by 2050. As long as nuclear plants are providing cheaper power to the grid, the incentive to build the offshore wind-power projects, in particular, will be inadequate, he says.

The country’s largest utilities, E.ON AG and RWE, along with Karlsruhe-based Energie Baden-Wuerttemberg AG and a unit of Sweden’s Vattenfall AB, operate the country’s nuclear plants. They will earn about 6 billion euros ($8 billion) in extra profit for every year’s delay in the retirement of their reactors, according to estimates from the environment and resources department of the RWI economic institute in Essen. About half of that money will go to the government to support new power generation.

Chancellor Merkel’s energy policy is being written by Juergen Grossmann, not by the cabinet,” the Green Party’s Trittin told the Parliament, referring to the chief executive officer of RWE.

Special Tariffs

The Greens and the Social Democratic Party created the system of special tariffs to support wind and solar a decade ago, when they were together in a coalition government. They also enacted the deadline to phase out nuclear power and plan to sue to keep Merkel from delaying the plant retirements.

Most reactor waste is still stored in temporary casks near each nuclear plant, which adds to the concerns that Germans have about the technology. Any permanent disposal for highly radioactive waste is at least two decades away, as the country struggles to choose and prepare an appropriate site, says Wolfram Koenig, president of the German nuclear safety regulator.

One advantage of nuclear power is that it emits almost no greenhouse gases. Germany is subject to the carbon dioxide emission reductions that the European Union promised under the Kyoto Protocol climate treaty. Keeping the country’s reactors online longer means that growth in renewable generation can be used to retire coal plants. Power demand grows by almost 1 percent each year, even though the German population is shrinking.

‘Shape the Transition’

“Continued use of nuclear energy will help us to shape the transition to the renewable age in an ecologically and economically sensible fashion,” Economy Minister Bruederle says.

Electricity costs are already steep in Germany. Residential consumers in 2009 paid the second-highest average rate among the 27 members of the EU: 22.9 euro cents per kilowatt-hour, less than the 25.5 cents paid in Denmark but 39 percent more than the EU average of 16.5 cents.

While the tab for subsidizing renewable power is still a small part of a typical monthly electric bill -- less than the price of a Starbucks cappuccino -- that slice is growing. A surge in solar-cell installations in 2010 means that the total cost of the feed-in tariffs will jump 72 percent in 2011, according to calculations by the owners of Germany’s high- voltage transmission system.

46 Billion Euros

Support for solar power alone may cost 46 billion euros from 2000 to 2030, according to a study by the Wuppertal Institute for Climate, Environment and Energy.

While these costs are high, they aren’t yet crippling, and Merkel aims to keep it that way. Spain’s support for solar power, by contrast, has become a nightmare for the government.

Spain, which was trying to mimic Germany’s approach, set the tariffs too high, and too much new generation got built. The country is now reneging, cutting feed-in tariffs that investors were promised.

In addition to the concern that the price supports won’t be set high enough to get new clean-power facilities built, some energy experts and environmentalists complain that Merkel is doing little to integrate renewable-energy facilities into the electricity grid.

‘Huge Transition’

“There is no plan for this huge transition,” says Sven Teske, a Greenpeace researcher.

While Clever benefits from the ability to sell excess power to electricity distributors, Germany’s promotion of renewable energy may erode profits at E.ON, RWE and other large power producers. Their nuclear units, designed to operate at full output around the clock, are a poor complement to wind and solar, which are intermittent and depend on daylight and favorable weather.

Sometimes when breezes blow strongly and wind turbines generate ample power, reactor owners have to pay distributors to take their electricity, University of Flensburg’s Hohmeyer says. With permission to keep reactors online for longer, big electricity producers have every incentive to slow the investment in renewables such as offshore wind, he says.

Germany’s chances of continuing to lead the world in renewable energy may depend on whether Merkel really has struck the proper balance.

To contact the reporter responsible for this story: Jeremy van Loon in Berlin at jvanloon@bloomberg.net

To contact the editor responsible for this story: Reed Landberg in London at landberg@bloomberg.net

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