With many regions skewed toward greater political uncertainty, sources of constancy and dependability are valued commodities…
Once the “sick man” of Europe, Germany has emerged over the past decade as an economic powerhouse and bulwark of stability, buttressing Europe politically and economically. However, with the uncertainty wrought by federal elections in late 2017, the country remains in the longest period without a government in the post-war period.
Germans value stability and are losing patience as Chancellor Angela Merkel and her Christian Democratic Union (CDU), along with their allies the Christian Social Union (CSU), attempt to settle the current political stalemate. There has been a recent breakthrough in negotiations between the CDU and the Social Democratic Party (SPD), but even if this process is resolved soon, it points to long-term concerns that may result in assorted coalition arrangements in the future. What are the consequences of various political outcomes on the renewables sector in Germany, thought of by many as a potential model for other countries?
The outcome of this political quandary will have multiple repercussions throughout Germany, the European Union, and globally. The recent federal elections have buffeted the established polity in Germany, and bolstered previously marginalized parties, most notably the Alternative für Deutschland (Alternative for Germany, AfD), which is now the third-largest party in the country. But, since the German coalition style of governance means parties must work together, what does this mean for the energy sector?
Germany’s Energiewende, or “energy transition,” has made great strides over the past decade, focusing on nuclear and coal phase-outs coupled with public investment, especially subsidies for renewables growth economy-wide. This program has, for instance, boosted renewables generation to one-third of Germany’s energy mix (with coal remaining at 43 percent), and lower than average energy intensity. This has been punctuated with occasional spikes higher as with one particularly windy and sunny day on May 8, 2016, when an astounding 87 percent Germany’s energy generation was met with renewable sources, creating a situation where industrial consumers were actually paid money in order to consume electricity. Related: Asian Oil Buyers Could Benefit From Fresh Sanctions On Iran
At its core, the German energy transition is deeply rooted in an aversion to nuclear power. The movement gained strength after the disaster at Chernobyl in 1986 and again with the Fukushima Daiichi accident in 2011. However, over the past couple decades, the sense of purpose behind a transition was broadened through environmentalism, de-carbonization, and export opportunities in the cutting edge alternative energy sector. In a sense, this transition has been occurring for quite some time, reasserted from time to time through legislation, gaining additional traction in 2010 with the Renewables Energy Act (EEG), and the broad-based Energiekonzept — with the goal of having a fully renewables-based economy by 2050, which includes the shuttering of all nuclear power plants by 2022.
For the most part, these goals have broad support throughout Germany society. For instance, in a recent report from IASS Potsdam, German society largely supports this transition, and view it as a worthy, beneficial, long-term goal for the country, the burden of which, should be shared jointly.
The extensive support throughout the country has caused some level of inoculation to the sector from destructive political headwinds. One spillover effect of this multi-decade ambition, importantly, has been to cause the renewables industry to go from niche groups to entrenched, key players with influence in policymaking. Furthermore, the industry has grown not only its political power, but also its role as exporter and employer. The sector accounted for 347,000 jobs, and is the sixth-largest renewables employer in the world.
So where do the parties and their potential constellations stand when it comes to the future of renewable energy in Germany? Most of parties have quite similar views on renewables. But given the promising coalition talks late last week, another grand coalition between Merkel’s CDU and Schulz’s SPD is looking increasingly likely. At a joint conference, both stressed social cohesion and stability and seem to have compromised on the difficult issue of immigration. However, this is far from over. And even if the coalition talks go through, this will most likely be Angela Merkel’s last term as Chancellor.
Despite the weakened political power of the CDU and SPD, there will be no serious impediments to renewable growth, subsidies, or the broader Energiewende. These new talks have also eliminated the 40 percent reduction in greenhouse gases by 2020, realizing they would be unable to make this target without a drop in economic activity.
Despite some weakening on the climate stance in favor of business, none of these outcomes represent a serious departure from the status quo. The grand coalition, for instance, was already moving to phase out some of the more burdensome aspects of the transition by removing or reducing feed-in tariffs after bouts of occasional overcapacity in the electricity grid and rising costs. The shift to an auction-based system for solar and wind has already commenced and the CDU and SPD have addressed some of the main concerns of the transition over the past year and continue to do so during their recent negotiations.
Two other parties, Die Linke (The Left) and Die Grünen (The Greens), are generally supportive of de-carbonization of the economy, and a shift to renewables. The Greens do support an accelerated timetable and the immediate closing of the worst polluting coal power plants, while The Left has similar goals but on a slower, socially acceptable timetable. This leaves the two other parties, AfD and Freie Demokraten (Free Democratic Party, FDP), as potential spoilers for renewables in the future, but even here, their impact is doubtful given the strong support of the German public for renewables and lack of political capacity.
Fiercely anti-immigrant, the AfD returned to the Bundestag in 2017 for the first time since the end of the Second World War. The key energy issue for the AfD is coal, mainly due to job losses among constituent groups, and a preference to operate updated coal power plants. Additionally, they are against any rises in electricity costs to consumers throughout the country — Germans do pay higher than the EU average, and do not want constituents to incur any costs for a transition away from fossil fuels.
Remember, however, that the AfD rode into power primarily as a backlash against immigration and the surge in asylum seekers in 2015. The energy concerns are window dressing. Their voters’ main concern rests with immigration, not the energy policy of the party, meaning it has reduced priority. And, the entirety of parliament continues to marginalize the AfD so they won’t have any partners with whom to pursue their agenda. However, as the third largest political party in German politics, they should not be discounted as a gauge of popular discontent. Related: Has Oil Become Overbought?
The FDP is primarily a pro-free market, anti-regulatory group that is not necessarily opposed to Energiewende, but will be opposed to any subsidy schemes. The FDP is still relatively weak, garnering 11 percent of the vote, and the German public has grown agitated with their walkout from coalition talks after the election. The party could pose a threat to the sector if they had enough power or were able to come out of the opposition and form a coalition government with the CDU, but this is no longer possible. The impact here is trivial since the FDP doesn’t even outright reject renewables. This, coupled with the drastic reduction in the cost of alternative energy projects, means there aren’t many reasons for the FDP to reject the transition.
The FDP supports renewables — they just prefer the key players to be competitive and efficient, without the expense of increased electricity taxes on consumers. The FDP also recognizes the need the mitigate CO2 emissions. Their primary focus is simply on increased efficiency through more market-based mechanisms, and don’t even advocate for abolishing the EEG feed-in-tariffs entirely since it’s guaranteed to purchasers over a 20-year period, instead encouraging a reduction in electricity taxes.
The FDP also prefers to allow the markets to decide what to do with fossil fuels deemed essential by the party, including coal. However, given the strong political interests in German politics for the coal industry and the drop-off in nuclear power in four years, this segment for power generation looks relatively stable, and has been relatively safe even under the grand coalition over the past eight years.
Even with policy reversals and political tumult, the renewables sector has grown to such an ingrained and large part of German industry and society that any serious assault on the sector would result in job loss, weakening competitiveness, and strong backlash from the public. Emerging compromises between CDU and SPD extending the target date for CO2 emissions won’t change this fundamental fact, and they still agree on raising the share of renewables to two-thirds by 2030 and tax cuts on electricity. The FDP focuses on a reduction in market interventions — a process already underway — and the AfD merely focuses on coal preservation.
Even where these various parties disagree, it’s not nearly enough to derail the inertia of this multi-decade transition. Energiewende and the growth of German renewables won’t be seriously impeded.
By Ryan Opsal for Oilprice.com
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