German Energy Brief Shows Merkel Focusing on Economy

(Corrects name of consulting firm in third paragraph of story published Dec. 16.)

Chancellor Angela Merkel’s new cabinet sends a message on her priorities for the biggest shift to clean-energy of any developed country: Nurturing Germany’s economy takes precedence over the drive to renewables.

Merkel’s bloc and the Social Democrats said yesterday they’ll move responsibility for energy policy to the Economy Ministry from the Environment Ministry, put under the control of SPD leader Sigmar Gabriel. He will lead an overhaul of Germany’s EEG clean-energy law to help tame the second-highest electricity prices in the European Union after Denmark’s.

In doing so, “the government is shifting the main focus toward ensuring that the competitiveness of the German economy isn’t compromised by the energy switch,” Famke Krumbmuller, an analyst with Eurasia Group in London, said in an interview. “The fine-tuning of this massive reform is going to happen in one ministry, and the clear focus will be competitiveness and reducing costs.”

The decision sheds light on how Merkel will execute her 550 billion-euro ($756 billion) program to shut down Germany’s nuclear power plants and move Europe’s biggest economy toward renewables. Merkel has said the energy overhaul is the main priority for her third term after rising costs of wind and solar installations helped send consumer power bills soaring.

Power Costs

Germany was until two years ago the world’s biggest market for solar technology, bolstered by above-market rates paid for power from low-carbon sources. Gabriel’s job now is to balance efforts to rein in electricity costs with Merkel’s decision to close nuclear plants operated by utilities EON SE, RWE AG (RWE) and EnBW Energie Baden-Wuerttemberg AG by 2022.

The energy switch is the “biggest challenge since reunification,” Gabriel told public broadcaster ARD in an interview yesterday. “There’s no doubt that we will expand renewables, but we have to do it so that citizens and mainly industry can afford it. We are a strong place for industry, and we must not risk that.”

Merkel had to make deals with the SPD to form a government, including a commitment to use lignite, one of the most polluting energy sources, to bridge the gap in the energy mix. The two sides also agreed to scale back support for sea-based and onshore wind power.

Dirty Coal

The SPD’s focus on coal undermines the energy switch as coal-fired plants, especially those running on lignite, are “inflexible and produce a lot of greenhouse gas emissions,” said Claudia Kemfert, who heads the energy unit at the DIW economic institute, a Berlin-based research group. Germany will not reach its target of reducing air pollution 40 percent by 2020 with the current coalition agreement, she said.

Brigitte Lambertz, a spokeswoman at RWE, declined to comment on the decision to shift responsibility for energy policy to the Economy Ministry. Carsten Thomsen-Bendixen, a spokesman at EON, also declined to comment.

The government aims to draft new energy legislation by the end of April for a parliamentary vote before the summer recess. As many measures as possible are to enter into force in the second half of 2014, Peter Altmaier, the outgoing environment minister who is to become Merkel’s chief of staff, said last month.

Shifting the responsibility for energy to Gabriel’s ministry risks tipping policy too far in favor of economic interests, with “renewables taking a back seat,” Kemfert said.

“The energy switch affects the economy, but also in a positive way by creating jobs and new chances for growth,” she said. “The energy switch has an image problem and at the moment voices that want to slow down renewables or even stop the energy switch are dominating.”

To contact the reporter on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net

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

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