Germany’s Powerhouse Feels Pinch of Shift to Renewables

Solar Panels sit in Freiburg
More than 40 percent of Germany's solar power capacity is installed in the southern states of Bavaria and Baden-Wuerttemberg. Photographer: Krisztian Bocsi/Bloomberg

North Rhine-Westphalia, the German state that’s home to utilities RWE AG and EON SE, is losing its standing as the country’s powerhouse as wind and solar energy begin to displace conventional sources.

Electricity consumers in the western state, which has one-third of Germany’s installed conventional power capacity, last year paid 3.1 billion euros ($3.5 billion) more to subsidize clean energy generation than producers there were awarded, the BDEW utility lobby said in a report Tuesday. The biggest recipient was Brandenburg in the east with a positive balance of 838 million euros.

Its energy-intensive industrial heartland and legacy in nuclear and coal mean North Rhine-Westphalia is pumping more into the development of wind and solar power in Germany than any other state. As the country speeds ahead with a goal to derive as much as 45 percent of its electricity from renewables by 2025, its biggest energy producer is struggling to keep pace with the changes, said Claudia Kemfert, who heads the energy unit at Berlin-based economic research institute DIW.

North Rhine-Westphalia’s reputation as the “brakeman” in Germany’s changing power mix has resulted in other states taking the lead in renewables, said Kemfert. North Rhine-Westphalia “has fought against the energy shift far too long.”

In one of the most ambitious political undertakings of a modern industrial economy, Germany is shutting down all its nuclear power plants by 2022. The country has already managed to increase its share of renewable power for electricity to about 28 percent, more than any source including lignite, a soft type of coal.

Renewable Subsidy

Electricity consumers in Germany pay a charge, known as the EEG subsidy, through their power bills of 6.17 euro cents a kilowatt-hour to fund the expansion of wind, solar and biomass.

This year, contributions are expected to reach 21.8 billion euros, according to the four transmission grid operators. The levy is then redistributed to renewable energy producers countrywide.

With 17.6 million people, more than its Netherlands neighbor, North Rhine-Westphalia is Germany’s most populous state. It’s bigger than Belgium, which it borders to the south, and the U.S. state of Maryland. Gross domestic product of about 600 billion euros, 22 percent of Germany’s total, gives it an economy comparable in size to Switzerland’s.

“Electricity consumers in North Rhine-Westphalia are helping to finance the expensive expansion of wind and solar energy in other states,” said Michael Vassiliadis, head of the IG BCE workers union. “There’s a huge outflow.”

Inclement Weather

The weather doesn’t help. North Rhine-Westphalia has less wind than coastal regions and less sun than states in the south.

More than 35 percent of Germany’s wind power capacity is currently installed in the northern states of Lower Saxony and Brandenburg, while more than 40 percent of solar power capacity is installed in the southern states of Bavaria and Baden-Wuerttemberg.

Jobs in North Rhine-Westphalia have begun to suffer.

RWE, Germany’s largest power generator, reduced the number of employees by 11,000 in the four years through 2014, in part through asset sales. The company entered the renewables market “possibly too late,” Chief Executive Officer Peter Terium said last year.

For 2013, RWE reported its first loss since the Federal Republic was founded 66 years ago. The company currently generates almost 40 percent of its power from lignite, about 23 percent from hard coal, 18 percent from gas, and 15 percent from nuclear. Just 4.8 percent came from renewables in 2014.

Split Up

EON, Germany’s biggest utility, has taken even more radical steps with a decision in November to split itself in two and spin off fossil-fuel power plants to focus on renewables, as it tries to regain ground lost to green-energy competitors.

EON, which reported a record annual loss on March 11, cut 26,000 jobs in the four years through 2014 as it sold assets for more than 20 billion euros.

The city of Essen, where RWE, smaller competitor Steag GmbH and steelmaker ThyssenKrupp AG are based, is feeling the heat the hardest. With a population of about 577,000, Essen is one of more than a dozen cities that make up a metropolitan region spanning the Ruhr, Rhine and Lippe rivers that is Germany’s largest urban area, according to Eurostat.

Annual Losses

A 680 million-euro writedown on the RWE shares Essen holds is weighing on the city’s balance sheet as it contends with shrinking corporate tax income from its biggest contributors.

ThyssenKrupp is emerging from three consecutive annual losses from 2011 to 2013 as its energy-intensive steel unit battles with shrinking demand.

The city’s corporate tax revenue fell more than 30 percent in 2013 compared with levels in 2010, the year before Chancellor Angela Merkel’s government decided to phase out nuclear power and increase reliance on renewables.

The main reason for the decline “are the impacts of the energy shift which have particularly affected Germany’s energy capital,” Essen Treasurer Lars Martin Klieve said in a phone interview.

EON employs more than 2,000 in the city where it will be based after the breakup of the company, more than in Dusseldorf where it currently has its headquarters.

“North Rhine-Westphalia is not just the backbone of German industry, it’s also Europe’s number one energy region,” said Klaus Engel, the chief executive officer of chemicals company Evonik Industries AG.

Carbon Permits

“More than 80,000 jobs in the Ruhr region alone depend on the energy industry,” said Engel, who also heads the Initiativkreis Ruhr lobby group representing 64 companies in the region with combined annual sales of 630 billion euros. “The energy shift is suffering from the unfair distribution of the burden of the EEG law.”

The negative trend for North Rhine-Westphalia may increase on a plan of German Economy Minister Sigmar Gabriel to force older coal-fed plants to buy additional carbon permits. If it comes to pass, 7,000 RWE staff in the Rhenish lignite-mining area will be cut, Dieter Faust, who heads the German generation unit’s general works council, told reporters on April 24. Directly or indirectly, as much as 40,000 jobs in North Rhine-Westphalia are in danger, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE