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Breaking News from Germany: the Status of the Germany Energy Transition

Dr. Werner Schnappauf, Senior Advisor, Bank of America Merrill Lynch, and Chair, Initiative on Energy Law and Policy at the Bucerius Law School, spoke on Breaking News from Germany: the Status of the Germany Energy Transition, at a breakfast organized by American Friends of Bucerius and American Council on Germany. This event was hosted by the German Consulate General at the German House on July 14th, 2015. Relying on his extensive experience in the fields of energy and sustainability, Dr. Schnappauf provided the audience with the most current German views on die Energiewende.

Dr. Schnappauf opened his remarks by noting that nuclear energy made up 25% of power production in Germany only ten years ago. This will be reduced to zero by 2022 when all the nuclear plants have been closed. In the past, power supply was dominated by the big four providers: RWE, E.ON, Vattenfall, and EnBW. Today, there are literally millions of power producers, as Germans have put solar panels on the roofs of their homes. The result is that power production, once centralized, is now decentralized. The big four are struggling. Indeed, Germans joke that E.ON, is really “E.OFF.” It is indicative of the critical situation of the big utilities that E.ON will split into two sections in 2016.

Energy issues in Germany have an important political dimension. Chancellor Merkel and Vice Chancellor Sigmar Gabriel have committed to a 40% reduction in carbon emission by 2020. The Chancellor used the G-7 Summit in Bavaria to promote de-carbonization of the world economy. Minister Gabriel’s recommendation that the carbon levy be raised for coal fired power plants, has led to contentious discussions in Germany. The Federation of German Industries (BDI), is completely opposed to the carbon tax. There is concern that it will be applied to the auto industry. Germany has set a target for 1 million electric cars by 2020, but opinions vary as to whether this can be reached. The unions are also opposed to the carbon tax, in particular the coal miners. Labor leaders have argued that measures other than carbon reduction can be used to meet Germany’s energy goals. In Germany, companies receive subsidies for lignite reduction. In the end, the consumer pays for this.

Dr. Schnappauf said that he is often questioned in the U.S. as to whether Germany is really serious about its nuclear phase-out. He explained that this has full popular support across the political spectrum. The nuclear operators will bear the costs of decommissioning the power plants. The biggest problem is the disposal of nuclear waste. Sites for this purpose are being sought in Germany. This will be an extremely costly process. There is some discussion now of creating a nuclear foundation similar to the very successful foundation created to deal with coal.

The future of energy in Germany is based on wind and coal, rather than bio-mass or waste. There are serious challenges in de-centralized energy generation. At present, the biggest problem is the high level of volatility. Coal is still necessary as a back-up. The other issue is regional integration to provide reliability. To reach the targets that have been set, it will be necessary to deal with these grid transportation and storage issues. Germany is a world leader in clean technology. In order to deal with the complexity of a de-centralized system that includes millions of producers, it is necessary to utilize digital technology as well. For this, Germany is turning towards the U.S. The two major sources of clean energy are solar and wind. The digital knowledge in the U.S. can be of help in maximizing the benefits of these resources.

Germany is thinking about clean energy beyond its own borders. The Penta Forum (Pentalateral Energy Forum), consisting of Germany’s five neighbors, is already exploring possibilities for energy transport and conservation throughout the region. Of course, there are other complications. Poland, for example, is dependent on its coal industry. Polish miners, like German miners, will object to a reduction in the use of coal.

There is also a security aspect to the whole debate about energy in Europe. After the events in Crimea and the Ukraine, Poland and the Baltic states in particular are fearful of Russian objectives. Putin has even questioned the legality of Baltic independence. In the United Kingdom, and perhaps even more so in the U.S., this may seem a distant threat. For countries like Poland and Germany, Putin’s intentions are a matter of grave concern. Germany‘s pursuit of clean energy is in response to climate change, but it is also a political imperative.