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Feb 4, 2015 | 18:54 GMT

2 mins read

Germany Feels the Burden of Its Shift to Renewable Energy

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Germany Feels the Burden of the Shift to Renewable Energy

Germany is experiencing deflation for the first time since 2009. Though other factors have certainly contributed to the economic decline, Germany's transition from coal and nuclear energy to renewable energy sources is partially responsible. The transition has been costly, with industries and consumers paying the bulk of the price. However, the financial burden of shifting to renewables will not last forever.

The overall spending underlying this shift has been gargantuan. A tariff program that essentially forsakes market forces and setts an annual tariff to guarantee returns for renewable energy producers has cost more than 348 billion euros ($393 billion) to date, with some estimates predicting that total program costs could reach 680 billion euros by 2022. The way the program is structured puts the burden on the consumers, turning the Renewable Energy Act subsidy into a levy paid by the taxpayer. As production has increased and the subsidy has followed, rising from 8 billion euros in 2010 to 24 billion euros in 2014, the levy has also risen accordingly, tripling from 2.05 eurocents (2 cents) per kilowatt-hour in 2010 to 6.24 eurocents in 2014. 

From a commercial perspective, Germany has protected some of its businesses from the burden of the shift by introducing tax and levy exemptions for power-intensive industries, such as the paper, aluminum, steel and cement sectors, which make up about 40 percent of overall energy consumption. For industries not on this list, however, energy taxes and levies are the highest in Europe, making Germany the country with the third-costliest energy overall in Europe, behind only Denmark and Cyprus. A German government-commissioned study released in 2014 found that a typical medium-sized company in Germany pays 9.14 eurocents per kilowatt-hour while an equivalent in Texas pays just 4.82 eurocents, and during the last few years German companies have moved to the United States in search of more affordable input costs.

A picture emerges of a German energy sector that has undergone a costly transformation, with consumers and businesses bearing the brunt of the impact. Though the political response to this hardship has been muted — largely because the shift to green energy was so popular in the first place — the policy undoubtedly has affected Germany's finances.

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