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Germany’s On The Brink Of An Energy Crisis

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Michael Bastasch DCNF Managing Editor
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After years of subsidizing green energy production, Germany may be on the brink of an imminent “energy crisis,” reports German Mittelstand News.

Some 39 power plants across the country “could be decommissioned later this year” which could “jeopardize the security of supply,” precipitating a huge energy crisis in the coming years as more plants are shuttered, according to the German Association of Energy and Water Industries — the country’s main utilities lobby.

“Every second power plant planned in Germany is about to fold,” Mittelstand News reports. “The willingness to invest is decreasing rapidly as even the most efficient gas-fired power plants can no longer be operated profitably.”

Problems will get even worse when Germany’s last nuclear power plant is retired in 2022, reports Mittelstand News. For years, the government has subsidized solar and wind energy through energy taxes that have dramatically jacked up electricity rates.

But at the same time, the flood of solar and wind energy on the grid has caused wholesale electricity prices to collapse — all while retail rates have skyrocketed. But the collapse in wholesale prices are cutting into the profitability of coal and gas plant operators that don’t get the generous subsidies that green energy does.

This problem was highlighted by a 2014 report by the Switzerland-based FAA Financial Advisory AG. The group found Germany’s green energy revolution is having “profound effects on wholesale electricity markets that could ultimately result in a deterioration of the country’s reliability.”

What’s happening is that green energy sources are given priority on the grid when meeting power demand, therefore setting the marginal price of electricity being produced — which is very low because they have no fuel costs. The prioritization of green energy has depressed wholesale prices and means that coal and gas power can’t recover their full costs.

This normally wouldn’t be a problem in a free, competitive market, but subsidies for green energy means more coal and gas plants are needed for back-up. These, plants, however, are having trouble finding investors willing to lose money because they can’t make money selling electricity.

“There are fewer hours in which the conventional power plants earn more than the marginal cost since they run fewer hours than originally planned and, in many cases, provide back-up power only,” FAA Financial noted. “Generators’ financial difficulties have already translated into lower stock prices and credit ratings.”

The problem has gotten so bad that utilities are asking the government to bail them out. Reduced profitability means less investment in the power sector, which the utilities lobby says could create problems down the road if nothing is done to prop up coal and gas plants.

“If politicians carry on as they do now then there will be no new, modern power stations,” utilities lobby chief Hildegard Mueller told Reuters. “There are no incentives whatsoever for investments, despite politicians emphasizing all the time that they aim to change this.”

German utilities already get payments for not producing power when green energy output is peaking — generally in the middle of the day because of solar energy.

Over the last decade, Germany’s embarked on a costly $412 billion crusade to subsidize green energy production and reduce carbon dioxide emissions 80 percent by 2050. In that time green energy production has boomed from  4.3 percent of total energy consumption in 1990 to 23.5 percent in 2012.

But Germany’s green energy revolution is costing German residents dearly. Retail electricity rates have more than doubled in the last decade due to ever-growing taxes to support green energy use. German politicians have been pressured to reform the system, but it’s still expected to cost consumers more and more every year.

Consumer energy bills have gotten to the point where electricity in the country has been called a “luxury good” by major media outlets.

In recent years, Germany has expanded coal power, but has rejected calls to open up the country to hydraulic fracturing, or fracking, to boost natural gas production. Even so, new coal plants in Germany could be closed down if trends continue.

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